Exclusive Jurisdiction Clauses: To What Extent Are They Applicable Under UAE Law?
Dispute Resolution / UAE
Adnan Al ErqsousiSenior Associate,Dispute Resolution
In our Law Update edition of January 2024, we published an article titled “The Liberty of Shareholders to Agree on an Exclusive Jurisdiction to Consider Their Disputes,” where we showcased the ruling of the RAK Court of Cassation (the “RAK CoC”) in Appeal No. 16 of 2023 (Commercial), where the RAK CoC confirmed the liberty given to the shareholders of a company to agree on an exclusive court jurisdiction to consider any disputes arising between them, in accordance with Article 33(5) of UAE’s Civil Procedure Law Federal Law of 2022 (the “CPL”), and dismissed the claim for not being filed before the court of exclusive jurisdiction, being the DIFC Courts in this case.
However, the RAK CoC’s position was declined according to a landmark decision issued on 21 December 2021 by the Federal and Local Judicial Principles Unification Authority (the “PUA”) on the validity of exclusive jurisdiction clauses in civil and commercial matters involving different jurisdictions within the UAE.
The PUA is a body established by UAE Federal Law No. 10 of 2019 to resolve conflicts among the federal and local judiciaries and to unify judicial principles on the same point. The PUA consists of the Chief Justice of the Federal Supreme Court, the Chief Justices of the local Courts of Cassation, and the Federal Public Prosecutor (the “FPP”).
At the outset, for the purpose of a better understanding of this article, the CPL introduced key changes and amendments to the repealed Federal Civil Procedures Law No. 11 of 1992 (the “Repealed CPL”). One of these key changes is the addition of provisions on exclusive court jurisdiction, as per Article 33(5) of the CPL. This allows the parties to a contract or a company (i.e., the shareholders) the liberty to pre-agree on the jurisdiction of a specific court to consider any disputes that may arise between them.
This differs from the repealed CPL, which granted jurisdiction to the court where the company’s headquarters were located, the court where any of the defendants were domiciled, or the court where the contract was performed or executed, in addition to the agreed court of jurisdiction.
The PUA's decision was based on Application No. 2 of 2023 filed by the FPP to consider two conflicting judicial principles on the issue of whether parties can agree to give exclusive jurisdiction to a particular court, even if another court, belonging to a different judicial system, has jurisdiction under the general rules of inherent jurisdiction. It is important to highlight that, in accordance with the UAE’s Constitution, each Emirate in the UAE has express autonomy with respect to court matters to handle disputes local to that Emirate.
As such Sharjah, Ajman, Fujairah and Umm Al Quwain have elected to adhere to the UAE Federal Judicial System which are , while Abu Dhabi, Dubai, and RAK have opted for their own distinct and separate local judicial systems. It should be noted that Sharjah has recently established an independent judiciary system according the Emiri Decree No 70 of 2024 issued by the Ruler of Sharjah, and should replace the federal judiciary system soon.
The FPP referred to two cases from the Federal Supreme Court (the “FSC”) and RAK CoC (mentioned above) on the one hand, and one case from Dubai Court of Cassation (the “Dubai CoC”) on the other hand, that illustrated the conflict.
With respect to the first principle, the Dubai Court of Cassation held in Appeal No. 213 of 2017 (Commercial) that the Dubai Courts had jurisdiction over a dispute arising from a contract that contained an arbitration clause and a clause giving jurisdiction to the Abu Dhabi Courts. The Dubai Court of Cassation reasoned that, according to Article 104 of the Constitution, each Emirate has an independent judiciary from the other Emirates, except for matters assigned to the federal courts.
Therefore, the Dubai Courts represent a judicial system that is independent from the federal judicial system and are bound by the limits of their inherent jurisdiction according to the UAE Constitution, which is a matter of public policy. The Dubai Court of Cassation concluded that parties cannot agree to derogate from the rules of inherent jurisdiction that apply to courts that are subject to an independent judicial authority.
For the other principle, the FSC held in Appeal No. 760 of Judicial Year 27 that the Al Ain Courts lacked jurisdiction over a dispute arising from a partnership agreement that contained a clause giving jurisdiction to the Dubai Courts. The FSC reasoned that, according to Article 33(5) of the CPL, parties can agree beforehand to give jurisdiction to a particular court in cases other than real estate actions, possessory actions, inheritance cases, incidental claims, and accessory or ancillary claims. Similarly, the RAK CoC held in Appeal No. 16 of 2023 that under Article 35 of the CPL, any cases involving companies should be brought before the court of the district where the company’s head office is located. But as an exception and facilitation for the parties in bringing proceedings, Article 33(5) of the CPL gave the shareholders the liberty to choose the exclusive court jurisdiction to consider their disputes arising from their relation in the respective company. Since the shareholders of the Company agreed under the Shareholders Agreement that the DIFC Courts shall have jurisdiction to consider any disputes arising out of its performance, it follows that the RAK Courts do not have jurisdiction to consider the action.
The contracting parties (or shareholders to a company) may agree to an additional court jurisdiction but may not make it exclusive to one court if other courts will have the jurisdiction to consider the matter according to the CPL.
The PUA, after examining the two conflicting principles, decided to revoke the principle adopted by the FSC and the RAK CoC, and to uphold the principle adopted by the Dubai Court of Cassation. The PUA affirmed that, in civil and commercial matters, no derogation is possible from the inherent jurisdiction of courts that are subject to an independent judicial authority, since jurisdiction here is a function of public policy according to Article 104 of the UAE Constitution, which provides that each Emirate has an independent judiciary from the other Emirates, save for judicial matters which have been assigned to the federal courts in accordance with the Constitution.
Therefore, individuals may not agree to derogate from the rules of such jurisdiction, which relate to public policy. The PUA stated that Article 33(5) of the CPL does not apply in an absolute sense, but in a restrictive sense that accounts for inherent jurisdiction as a matter of public policy. The PUA added that to say otherwise would be to violate the constitutional provision on the distribution of judicial power among the various Emirates.
The PUA's decision reflects respect for the constitutional autonomy and independence of local judicial authorities and the federal judicial authority, as well as the balance between federal and local interests in the judicial sphere. Consequently, it confirms the limitation of jurisdiction clauses in contracts involving parties from different Emirates or judicial systems. This means that parties may not derogate from the application of the rules of inherent jurisdiction, and other courts, as the case may be, will retain their inherent jurisdiction to consider the matter despite the agreement on exclusive court jurisdiction. In sum, the contracting parties (or shareholders to a company) may agree to an additional court jurisdiction but may not make it exclusive to one court if other courts will have the jurisdiction to consider the matter according to the CPL.
For further information,please contact Adnan Al Erqsousi.
Published in February 2025
