Judgment: DIFC CA-007-2022
Jonathan BrooksSenior Counsel, Dispute Resolution
Asymmetric jurisdiction (or unilateral jurisdiction) clauses are commonly used in financial contracts where a creditor wants the flexibility of suing the debtor in any jurisdiction where the debtor has assets.
Al Tamimi & Company has recently acted for the bank in the DIFC Court of Appeal case of Lara Khoury v Mashreq Bank PSC [2022] in which the Court was asked to decide, for the very first time, on the construction of just such a clause. In Khoury the parties had entered into an Investment Agreement in 2015, pursuant to which the Bank agreed to provide execution only services to its customer.
The customer had originally sued the Bank in the Dubai Courts in a claim brought in August 2019. She had alleged that the Bank had given negligent advice and claimed damages of just under USD6million. The Bank’s position was that the account was execution only and that the customer had selected the loss-making investments. Her DIFC claim was commenced in April 2021 on the same day her original claim was dismissed by the Dubai Court (which found that the account was indeed execution only).
The DIFC Court of First Instance set aside service of the claim form because the Bank had not been served in time and also dismissed the claim following an application brought under Part 12 of the Rules of the DIFC Courts (“the Rules”) on the basis that the DIFC Court did not have jurisdiction under the Investment Agreement. The Court concluded that the jurisdiction clause contained in the Investment Agreement was an asymmetric clause and the Court did not have jurisdiction in respect of a case brought by the debtor against the Bank. The customer appealed on both the service and jurisdiction grounds.
The Court of Appeal upheld the First Instance decision of Justice Lord Angus Glennie. The appeal was dismissed.
The customer had waited until 2 days before the expiry of the claim form to hand it to a courier (on a Thursday) for delivery to the Bank in Dubai (outside the DIFC).
The Rules provide that a claim form must be served on the defendant by the claimant “within 4 months after the date of issue where the claim form is to be served within the DIFC or Dubai” and “within 6 months after the date of issue where the claim form is to be served out of the DIFC or Dubai.”
The Bank’s position was that the 4-month rule applied on the basis that the claim form had to be served in Dubai. Ms Khoury argued that she had 6 months, since the claim form was to be served out of the DIFC, albeit within Dubai.
The Court of Appeal has confirmed that the “or” in the second limb is to be read conjunctively in order to make the rule intelligible. The Rules do provide a binary regime, so a claimant has four months to serve a claim form in the DIFC or onshore Dubai and six months if service is effected anywhere outside the Emirate.
DIFC service rules provide a binary regime.
The Court of Appeal went on to confirm that the Rules contain a deemed service regime. A claim form sent by courier (as in this case) was deemed served the second business day after it was sent, which in this case was too late. A claimant was not permitted to adduce evidence of the date of actual service to displace the deemed date of service. The Court of Appeal relied on English authorities to the same effect about the equivalent rules in England. In any event, the Court of Appeal held that even if she could adduce evidence to challenge the deemed date of service, that evidence did not show the claim form had been served in time. Furthermore, no application for a retrospective extension of time had ever been made. The claim therefore failed because the claim form had been served late.
The Court agreed that the Bank wanted certainty when it came to the relevant jurisdiction for any dispute with its customer; and so under the asymmetric clause it could sue Ms Khoury in whichever court would take jurisdiction but would always be able to sue her in the DIFC if it so chose (and Ms Khoury could not object to being sued in the DIFC Court). There was no reciprocal agreement that claims by Ms Khoury against the Bank could be brought in the DIFC Courts. Ms Khoury was not submitting to being sued in any court anywhere; her submission related only to the DIFC Court. Nor was Ms Khoury left without a jurisdiction in which to sue the Bank – she could sue the Bank in its home court of onshore Dubai, which she had done. The jurisdiction clause was therefore by its very nature, asymmetric.
DIFC Court of Appeal upholds asymmetric jurisdiction clause.
As we expected from an important commercial court, the DIFC Court of Appeal has shown by its decision to uphold asymmetric jurisdiction clauses that it will not defeat the well-established expectations of the international banking market.
The Court agreed that such clauses are familiar as a matter of international banking practice and, in part at least, serve a legitimate commercial purpose. The Court went on to find that there is no reason not to uphold a clause of this nature in accordance with its true construction. Significant weight ought to be given to a contractual bargain made by parties and asymmetric jurisdiction clauses will continue to feature in finance documents.
For further information,please contact Jonathan Brooks.
Published in February 2023