GAR Live Lookback: Abu Dhabi - the rise of the offshore option in the Middle East: Is the approach working out?

09 April 2018

Sarah Steven

GAR Live Lookback: Abu Dhabi - the rise of the offshore option in the Middle East: Is the approach working out?

At GAR Live Abu Dhabi in 2017 the chief executives from the DIFC Courts and the ADGM Courts debated with international arbitration specialists, which is now the superior option – court or arbitration? - in the region, in a lively roundtable session.

The Middle East has been at the forefront of creating ‘offshore’ jurisdictions. Dubai’s rulers decided to turn the region into a ‘hub’ – moving people, things and money between east and west – and this involved creating a safe harbour for the financial element. They called it the DIFC. The concept has since spread, with many other offshore jurisdictions being created worldwide. The closest of which is the ADGM in Abu Dhabi.

At GAR Live Abu Dhabi, Mark Beer and Linda Fitz-Alan, registrar and chief executive of the DIFC Courts and the ADGM Courts respectively, went head to head with Sami Tannous, of Freshfields Bruckhaus Deringer, and Raza Mithani, of Berwin Leighton Paisner, on how well the product the courts is offering is shaping up. In the ADGM’s case, it is early days - the court only being established in 2013.

Graham Graham Lovett, of Gibson, Dunn & Crutcher, posed the questions and umpired the discussion.

The questions he posed include:

  • Are the offshore courts in Abu Dhabi and Dubai in competition?
  • What’s gone wrong with a similar project in Doha?
  • Has the DIFC pushed boundaries too far by suggesting it can convert court judgments into arbitration awards?
  • Which is faster, an offshore court or arbitration?
  • Is the decree to allocate jurisdiction between offshore and onshore courts in Dubai working? Will Abu Dhabi need something similar?
  • What do clients really want, when it comes to speed and accuracy in dispute resolution?

The conference took place at the Abu Dhabi Global Market Building, on 22nd February 2017.

The following is an edited transcript of the discussion.

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Graham Lovett: This session is about the development of courts in the region and it makes sense at an arbitration conference to talk about courts. It’s an interesting topic because when we’re advising clients, we always talk about the advantages and disadvantages of courts versus arbitration. Historically, we only had the local courts as an alternative to arbitration in the region. Now, for the last 10 years we’ve had the DIFC Courts in Dubai and, more recently, the ADGM Court in Abu Dhabi. We also have a Commercial Court in Qatar.

Graham Lovett introduced the speakers.

It makes sense in terms of the chronology if I throw the first question to you, Mark, to give the audience the background to the establishment of the DIFC Courts. Can you explain briefly the thinking behind their creation?

Mark Beer: To talk about the courts is to talk about the financial centre. Why create a common law, English-language financial centre in the Middle East? You need to go back to 1985, a very important year for Dubai. For the first time in its history, GDP from oil fell to less than 50%, and it was falling very, very fast. It’s now 2%-3% of GDP. They realised they had to diversify. They saw the rise in trade from the east and west, and Dubai, Abu Dhabi and the UAE are beautifully placed between the two. So, they decided to become a hub. Becoming a hub is, in theory, quite straightforward. You need to move things between east and west and west and east. You need to move people and you need to move money to pay for the people and things.

When did Jebel Ali Free Zone Authority, now the third busiest container port outside China, open? 1985 – the movement of things. When was Emirates Airlines set up? 1985 – the movement of people. The movement of money was a bit trickier. When the government went to institutions around the world and said: “You’re managing US$3.2 trillion of Middle Eastern money from outside the region. We’re going to be a hub. Why don’t you come to Dubai?” They said: “No, we’re not coming because we’re very comfortable in New York, London, Hong Kong, Singapore and Sydney.” And the government said: “What do we need to do to get you?” And they said: “New York is English language and common law. London is English language, common law. Singapore is English language, common law.” You get the drift. So, they said: “If we build a financial centre that’s English language and common law, will you come?” The answer was: “Yes.”

The DIFC was created to provide a safe harbour for the financial element of this three-pronged strategy. The courts were first set up to interpret English-language law and protect businesses in the centre. So, our role as a court was initially limited to protect the business in the centre, which was part of a broader investment-based decision to move the vast amounts of money being managed outside of the region back to be handled in Dubai.

Graham Lovett: And the expansion of the DIFC jurisdiction was welcomed by some practitioners. In the early days, there were what we used to call “coffee shop contracts”. So that to get the jurisdiction of the DIFC Courts, the thinking was that if you didn’t otherwise have a connection with the DIFC, if you entered into a contract within the confines of the DIFC, then that was sufficient to get you jurisdiction. Happily, we don’t have coffee shop contracts anymore because there’s an opt-in jurisdiction. But the expansion of the jurisdiction remains controversial in some quarters. You mentioned that the DIFC was intended as a court for the financial centre. Do you think that in expanding the jurisdiction, things have gone too far?

Mark Beer: Not at all. In fact, it didn’t come from us. If you were a business in Emirates Towers doing a transaction with a company in Jebel Ali Free Zone, you could choose any court in the world, any arbitration centre, to resolve your dispute – bar one. The only court in the world you were not permitted to choose, as you looked down from Emirates Towers, was the DIFC Courts.

The business community said: “How can it be that we’ve got this wonderful court on our doorstep, it’s got a good track record and is doing a good job, but it’s the only court in the world we can’t use. It makes absolutely no sense!” So, there was a realisation that if people wanted to use our court – no one would be forced to use it – it should be allowed. That came about during the IBA Conference in Dubai in 2011 when the jurisdiction was opened up. Now anybody in the world can choose the DIFC Courts.

It had a dramatic impact on what we do. In almost all our disputes, one party is from outside of the UAE. Last year we handled US$5.85 billion of claims filed. The average claim is over US$25 million, but we’re resolving 83% of them. I think the courts have been embraced by the community, particularly the international one, plus we’re also extremely pro-arbitration. DIFC arbitration law is well drafted and the courts have proven to be supportive of arbitration; perhaps some might say to supportive.

Graham Lovett: One food for thought is that there are recent cases where the DIFC Court has been asked to recognise foreign court judgments and has been used as a conduit for the enforcement of judgments outside the DIFC. Arguably that’s a step too far. The UAE has treaty obligations for the reciprocal enforcement and recognition of judgment with, to my knowledge, only two in existence: one with France and one with India. There’s recently been a suggestion that the Indian treaty hasn’t been finally ratified on the India side. To my mind, issues of recognition of judgment should be for the federation and the state, and not the DIFC Courts. That’s a controversial topic to which we will return when we hear from the other panellists.

Mark Beer: Only if you make it controversial, but I suppose we’re creating controversy.

Graham Lovett: Linda, I assume the thinking behind the creation of the court was along the lines of the thinking behind the DIFC. It’s a court that serves the ADGM and the ADGM community. As someone relatively new to the region, how do you find this concept of a kind of free zone court and what sort of challenges has it presented?

Linda Fitz-Alan: ADGM’s platform is the direct application of English common law and that has been well embraced because it is like walking into London, Singapore, Hong Kong and Sydney: familiar, reliable, certain, precedents. Everyone felt comfortable. When I walked in, the only question was: how is that going to play out in the newest international financial centre? It was easy because common law already had a place in the country. The whole idea behind ADGM and ADGM Courts is to meld or to permeate, if you like, common law amongst the civil law system so that there is a complementary system. That they work well, that they don’t butt up against each other, that there’s no jarring. I think it’s worked well all over. So, that was almost the easiest part because its personality, its DNA, as common law, was truly well accepted.

The biggest challenge is meeting expectations. As I hit the pavement and talked to lawyers and the arbitration community about what they wanted, there was an extraordinary array. Are you going to do this? What’s happening in enforcement? What about the rules? So, it’s sifting through that, working out what resonates, what can work in the short term and getting it going. That’s the biggest challenge. In some respects, it’s an extraordinarily healthy challenge because it is pulling in ideas, feedback, cherry picking from common law jurisdictions around the world, and tailoring it to make it work.

Of course, the mantra in both financial centres is that it’s to be supportive of the business and investment community, locally and globally. That’s exactly what the ADGM Courts is about: it’s the third pillar in an international financial centre. It’s there to support registration, the regulator and to do it quickly, efficiently and in a commercial way. It’s turning on its head the traditional way of doing things and trying to position itself in the international financial centre as something that works well.

Graham Lovett: The question on everybody’s lips is about the presence of two common law courts, offshore courts, in the same country. One understands that they serve their local communities, i.e. the DIFC community and the ADGM community. But the focus of the courts is much more global to the extent that a lot of people think they are competition. What’s your take on that? Is there competition between the two courts?

Linda Fitz-Alan: There’s no competition. There are differences between them, as there are differences in courts around the world, but nobody is matching them off, or shouldn’t be. No, I think it’s great for the country, it’s great for the region and I think it’s choice. The two courts work well together, and I don’t see any competition whatsoever.

Mark Beer: I look at it from a different point of view. When we opened our jurisdiction in 2011, it was about giving choice to people about how they invest in the Emirate of Dubai. That was their announcement, and when you quantify the value of a commercial court to a jurisdiction, research shows that it adds about 0.5% of GDP a year. The Dubai economy is about US$85 billion of GDP, which means effective commercial courts add US$425 million a year to the economy. So, if you take it as just a rational commercial decision, implementation of choice in giving a commercial court that promotes investment adds to the economic benefit of one Emirate. Now if other countries choose to use our facilities in Abu Dhabi and Dubai all the better, but that won’t change the economic value of having our courts.

The other figure – which you’ll be interested in because it will apply just as well to effective arbitration centres – is where institutions feel they can recover their facilities quickly. That is, where banks can enforce their loans they will lend on average at 200 basis points less than in markets where they’re nervous about recovery. It doesn’t sound like a lot but, on a $1 billion loan, 2% a year is a huge amount of money. So, the provision by one economy, two economies or by the country of an effective commercial court regime, an effective arbitral regime, drives economic development well beyond what you might call a reputational or international dimension. Bear in mind that since we started, we’ve seen them in Qatar, we’ve seen Singapore adopt a similar model. The Chief Justice came to Dubai and said: “Thank you, we’ve adopted a similar model with the Singapore International Commercial Court.” Kazakhstan is building an AIFC Court modeled on the DIFC Courts. Casablanca is toying with the idea of looking at a more efficient way of resolving commercial disputes. Michael is working with them to build an efficient arbitration centre. So, the world’s courts and arbitration centres are looking at the UAE model and replicating it. I can only think that’s a good thing.

Graham Lovett: We’ve heard from Mark and Linda about the thinking behind the courts and the clients that they service. From a client’s perspective, is it accretive in your experience? Is it a good thing to have in the region? And do clients understand the court processes? Are they happy with regional courts?

Raza Mithani: I would say that clients are happy, particularly with the DIFC Courts. The ADGM Courts, of course they’re not tested yet, but there are a lot of high expectations. I’ve been litigating in the DIFC Courts for eight years and the response of clients to the procedures, the judges and the results obtained has been overwhelmingly positive because, especially the international clients, they understand the procedure and the process because they’re similar to what they’re used to in their home jurisdictions. The fact that judges in the DIFC Courts are of an international calibre adds to the attraction of those courts. That’s why a number of our clients have opted to incorporate DIFC Court jurisdiction clauses in their contracts.

Graham Lovett: And, Sami is that your experience as well?

Sami Tannous: Yes and no. I agree that once they experience it and see what it offers, they like what they see. My experience has been more mixed in terms of persuading clients to use the regional courts. It goes back to a perception regarding the region, its courts and a lack of familiarity with the civil law system. For many US and British clients, that’s something that they don’t fully understand. There’s obviously a language issue in the onshore court, just as there is in China or Greece. And a misapprehension about the Middle East. I’ve had some frankly unbelievable conversations with US clients where I’ve had to explain that I don’t dodge mines on the way to the office. I drive to the office in a 4x4 and go the mall just like them.

That perception has fed into some reluctance when you present the DIFC Courts and the ADGM Courts. A perception that they assimilate with some of the concerns they have with using, if you like, native court systems. I do think that’s changing. I’ve seen a lot of financing documents where one often sees an arbitration option and a sole court option. Typically, lenders want to choose English Courts. It makes a lot more sense when a borrower in the region chooses, for example, the DIFC Courts or the ADGM Court because enforcing an English judgment here is incredibly difficult. Persuading them to make the swap has been a little difficult, but it’s changing.

Graham Lovett: Did either of you ever use the QFC Court in Doha?

Raza Mithani: No, I don’t think very many people have.

Graham Lovett: Which brings me to my next point. What happened in Doha? It doesn’t have as much press as the DIFC Courts. If you look on the website, there’s one insolvency case which has spawned several other applications and claims. Other than that, the number of cases that have gone through the Commercial Court in Doha is few. Is there a reason behind that?

Sami Tannous: It’s partly a reflection of that financial centre. The DIFC, as a financial centre, has been much more successful. As a result, the DIFC Courts got that initial impetus, whereas that didn’t really happen in Doha.

Raza Mithani: I think it’s a combination of things. It’s become fashionable to have your arbitration centre and your court, but there isn’t room for that many frankly. It comes back to the hub point Mark was making. The UAE established itself as a hub for the entire region. People want to resolve their disputes where they’ll find good lawyers, where the facilities are there, in a place where they just prefer to be and – I know this sounds silly – where the restaurants are good. It’s often said that arbitrators prefer to hold hearings where they find the best restaurants!

Law firms are pulling out of Qatar because they realise they can service most of the region from the UAE, and that has had a knock-on effect on the court. There’s also another aspect: a perception, rightly or wrongly, that there isn’t the political will in Qatar to support the development of a dispute resolution centre.

Mark Beer: I think the DIFC’s success was Dubai’s success because we already had a nexus of brilliant law firms. Dubai had for many years an environment in which law firms could operate independently within the Emirate. Even before the DIFC was opened, all the major law firms were in Dubai and a dispute resolution centre can only survive if it’s got quality lawyers around it who can advise clients on the terms and then manage the case. We were blessed by Dubai’s success in attracting good advisers, lawyers, accountants and actuaries already. That meant that when the centre opened we already had a broad range of legal talent across every parameter in multiple languages able to support its development. It’s very difficult to open a dispute centre if it doesn’t have quality law firms in it to start with.

Graham Lovett: When attending an arbitration conference, the elephant in the room for all regional courts is enforcement. Do you want to say a little bit about that? Most people are aware that the DIFC has entered into MOUs with numerous jurisdictions and agreements that facilitate the enforcement of judgments in other jurisdictions. That’s starting to bear fruit. There’s been a DIFC Court judgment enforced in New South Wales and a couple of regional bilateral enforcements as well, which is a positive sign. But the difficulty in enforcing the judgments of your respective court is a real hurdle to overcome, isn’t it?

Mark Beer: Enforcement is key. We did a survey in the DIFC Academy of Law of what drives people towards a dispute centre. It went to lawyers around the world. They didn’t say location was important. They didn’t say that they were looking for arbitration versus litigation. What they came back with was: “We’re looking for a centre that can offer us fairness, speed and enforcement.” All of us have studied the book of contract starting with offer and acceptance – it’s wrong. The book of contract should start: “Chapter One: Enforcement.” A contract is worthless unless it can be enforced. We started in 2008 connecting with jurisdictions around the world to identify ways in which our judgments could be enforced there. We already benefit from the Constitutional Courts of the UAE, therefore from treaties allowing enforcement across the Arab world, China, Kazakhstan, France and elsewhere.

Beyond that, we benefit from comity. So, our judgements carry into the United States. The Southern District of New York has signed a document explaining how that works. Our documents carry into the EU, East Africa, Singapore, South Korea, Australia, the list goes on. In fact, there are only three countries in the world that don’t have a mechanism to enforce the DIFC Court judgments.

Enforcement is absolutely the key to the success of a disputes centre. If all a disputes centre can do is give you a paper with a pretty seal on it, it won’t help. That’s even more important for arbitration. An arbitration centre needs to have a supportive court that understands the requirements of the panel and the needs for parties to have access to justice on a swift basis. And, vitally, understands the need to convert an award into cash as quickly as possible. We deliver on that promise and that’s part of the success we’re now seeing with the DIFC LCIA arbitration centre.

Graham Lovett: But they’re not. The judgments the DIFC Court produces are not directly enforceable outside of the UAE or Dubai. For example, if you wanted to enforce a judgment in the UK, there’s a requirement to go to the English Court and get summary judgment on the back of a DIFC Court judgment. It’s not directly enforceable as if it were a bilateral treaty. Doesn’t that put the court at a major disadvantage to arbitral institutions where you get an award and can directly enforce it in however many countries have signed up to the New York Convention.

Mark Beer: This is the frustration, isn’t it? These pronouncements fool clients into believing that 150-odd countries are going to turn that award into cash. It’s simply not true. There are jurisdictions in which enforcement under the New York Convention is smooth and fast. DIFC Courts is one, London another. But you don’t have to look too far to find jurisdictions that are New York Convention signatories where it doesn’t convert to cash easily. You don’t have to look too far to find jurisdictions that aren’t New York Convention signatories. But those countries may well have treaties with UAE. I think the choice of how am I going to turn any decision I get into cash is going to determine whether you choose arbitration or litigation. We’ve pioneered this novel idea where you can convert a court judgment into an arbitral award in the same way you can convert an arbitral award into a court judgment. Now it hasn’t been tested yet, but the concept behind it was.

Graham Lovett: I would say that’s because it doesn’t work.

Mark Beer: We’ll have to find out. The concept is: if you can take an arbitral award and make it a court judgment, why can’t you take a court judgment and make it an arbitral award, provided it is in the contract. That was the idea behind it. If you don’t push the boundaries, you don’t move forward. It’s like cycling on a hill: if you stop cycling you go backwards; you’ve got to keep moving forward. It’s a nice model, but the importance behind it is this: we want people who get a decision out of Dubai, whether it’s an arbitral award or a court decision, we want them to feel that it can be converted to cash as quickly and efficiently as possible. Whether they choose the courts or arbitration, they should know that the system will protect them and make sure that their promises are made good. That’s the idea.

Graham Lovett: Regarding your analogy of riding a bike uphill. When I was a newly qualified lawyer, I did a case in the London High Court and I was against the litigant in person. His opening line to the judge was: “Oh I feel like Sysiphus toiling in the bowels of the earth and pushing this rock up a hill.” And the judge looked over his specs and said: “Yes, do you know what happened to Sysiphus?” He said: “No sir”, and he said: “The rock rolled back and crushed him.”

Linda, enforcement of court judgements. It really does put the courts in a weaker position than, for example, arbitrating, doesn’t it? Why risk the non-enforcement of a court judgment when we could easily arbitrate a dispute?

Linda Fitz-Alan: I don’t accept that there’s as big a risk as you think. OK, I haven’t had a court judgment yet that people have taken and enforced, which would suggest perhaps I’m just the eternal optimist.

Graham Lovett: I wouldn’t suggest such a thing.

Linda Fitz-Alan: Thank you. But I don’t think it’s an obstacle that can’t be overcome. Why I don’t think that is because of the number of MOUs that DIFC Courts have put in place. We’ve done a few, with many more to come. From the day I arrived and started talking to people, it became obvious that I could have the smartest bench, the best rules, the most fabulous regulations. But this was irrelevant without an enforcement regime.

Enforcement in jurisdictions across the world now has enormous traction. It’s a reciprocal thing and I think there’s much more cooperation now with global investment, global business and with assets sitting everywhere. It’s in all courts’ interest, all jurisdictions’ interests for that to work well. I see in discussions with other jurisdictions an enormous uptake in making that solid and workable across the world. Times have changed. Assets everywhere; all sorts of creative ideas as to secreting things. It just hasn’t worked for jurisdictions. It erodes confidence, not just in offshore international financial centres, but across the world. So, I see a different conversation now and an enormous verve. Perhaps I am the eternal optimist, but the discussions I have, the way it’s been working, for example, the DIFC Courts have had one enforced in the New South Wales Supreme Court. There are jurisdictions that have cooperated, common law jurisdictions in particular. I don’t see it as an obstacle anymore. I see it as the inevitable workings of cooperative global jurisdictions. The world has become a global village, frankly. There’s way more collaboration now than there ever was.

Mark Beer: You paint it as if it’s either/or and it’s not. Why shouldn’t a client have the right to choose an arbitration when they’ve got the New York Convention and the curial courts who ratify the award and it becomes a court award? I think that the concept of giving people a choice is what underpins it. When I was a commercial lawyer, anything past force majeure was someone else’s problem, and that included the law and jurisdiction clause.

For many years at Mastercard we would lend money to institutions in this part of the world off the back of a contract that said it was governed by the Southern District of New York. Of course, entirely unenforceable if we needed the money back. Not one law firm advised us that we ought to look at that clause. There’s still a lot of misunderstanding out there. What’s key is that the lawyers drafting the contracts, when they talk to the client at that stage, say: “Are you likely to be suing on this and what do you want? If it’s likely that you need money, then we need to put a mechanism in here which is most likely to get you the money if you sue, because that will allow the discussion around the dispute to lead to settlement much faster.”

Is that happening? Are commercial lawyers now interested in anything below force majeure? I gave a presentation to a major American law firm recently and asked around the room, jokingly: “In my day we didn’t pay any attention to law and jurisdiction clauses. It must have changed now?” Not at all! While we’ve still got that situation, the client isn’t being best served because, as you know as disputes lawyers, the worst thing is when you get this curve ball from the commercial team saying: “One of the contracts has gone bad; please sort it out.” You realise as soon as you see it that they’ve drafted a clause which is entirely unenforceable, and you’re left to explain that to the client. That’s hard.

There’s a law firm in London – I won’t give any names – which advised a bank to put in an arbitration clause for dispute over a facility being lent into a country in this region. The facility was extended and then not repaid. The financial institution then went to the law firm and said: “Could you arrange for us to get our money back?” The poor disputes department then got the facility document and realised that it was impossible to get that arbitral award enforced over assets in the country in this region. They had to explain to the client that they had an awful position: they couldn’t go to court because there was an arbitration clause; they had to exercise the arbitration clause, but the award would ultimately be unenforceable. The financial institution then went through their files and found a letter from a partner in the law firm, recommending this arbitration centre. A letter before action was sent and the law firm’s insurers paid out on the money that the bank had extended to the country because of poor advice over choice of forum. That, I hope, is a wake-up call to law firms on the commercial side to draft those clauses more carefully.

Graham Lovett: It’s an interesting tale. One of the key questions one asks clients when advising on jurisdiction clauses are: where are the assets? Where are you likely to want to enforce this contract if you have to enforce it, or sue for damages? When we hear that the winds are changing, there’s a lot more reciprocity in the air, there are MOUs, and so on. At the coalface, are you as confident as that when you advise clients? Shall we go to the courts or do we opt for arbitration?

Raza Mithani: We have to accept one point at the outset: there isn’t a one-size-fits-all. Every contract is different, every client. But if we’re talking broad generalisations, it’s incorrect to say that a court judgment is as enforceable as an arbitration award: it simply isn’t. There are many countries in the world where, although they were signatories to the New York Convention, their domestic courts are not terribly arbitration-friendly. The fact is that, with an arbitration award, you do maximise your prospects of getting something at the end of the day which is enforceable. It is telling, perhaps, that when the DIFC Courts looked at the question of enforcement, they started getting MOUs with other courts, so there is this understanding regarding reciprocal enforcement.

Ultimately they came up with a solution, a great solution, which is very creative. The solution they came up with was to incorporate arbitration into this process. Because if we don’t do that, we’re simply not going to have the benefit of the New York Convention. Until such a point when there is a willingness amongst countries to enter into another convention along the lines of the New York Convention, but relating to court judgments, we’re not going to be in a position where a court judgment is as enforceable globally as an arbitration award. That’s the basics.

Graham Lovett: But there is a distinction between situations where you’ll want to enforce a judgment within Dubai or Abu Dhabi with the ADGM and the DIFC – you could say that’s a no brainer because those judgments are enforceable in Abu Dhabi and Dubai respectively – but when you look around the region and rely on regional treaties, the Riyadh Convention or GCC Convention, things are less certain. When you advise clients, is there some uncertainty in the minds of practitioners as to how this is going to play out?

Sami Tannous: Yes, I can’t deny it. If I were to tell a client that you couldn’t enforce a DIFC Court judgment anywhere else in the world, but if you assimilate the enforcement mechanisms to arbitration awards under the New York Convention, I fear I would be getting one of those letters before action as well. The New York Convention is a treaty. Yes, there are countries which do not respect their treaty obligations – and I commend Mark for everything he has done to establish relationships and MOUs – but it’s very different if you’re in breach of a treaty or in breach of an MOU. You can’t really be in breach of an MOU.

That is why enforcement is the number one reason why arbitration remains the preferred means of dispute resolution. This is an area where courts struggle around the world and it’s where regional courts like the DIFC Courts and the ADGM Court will struggle. As Raza says, until there is an equivalent to the New York Convention – of course, there is the Hague Convention, but that is still in its infancy – until that has got some traction, I’m not going to be out of a job any time soon.

Graham Lovett: Standing the courts up against arbitration, and let’s stay in the region so that we don’t have this enforcement elephant to talk about. Arbitration is quick, it’s efficient, it’s confidential and it’s a lot cheaper than the courts. Discuss.

Mark Beer: I think you know the answer. It was once. In these types of directions it’s almost become a hostility between one and the other. It isn’t. There are often two organisations which need a question answered. This is all we’re talking about.

Graham Lovett: Let’s talk about speed and cost then.

Mark Beer: Unfortunately, arbitration at the moment – particularly in this region where there are firms who pride themselves on their ability to slow it down – is much slower and more expensive than the Commercial Court process. I don’t think it comes down to that, because law firms are advising their clients at the beginning. They’re saying, on the one hand it might take us more time, but on the other hand we could win a New York Convention award and take it around the world. Clients are going into it cold, but at its core we’re talking about two clients who can’t agree on the answer to a question and they want somebody to give them the answer. Is it an arbitral panel or a court? That’s what we’re talking about.

There’s no hostility between the two and, absolutely, if the client says I want the arbitration process because I believe it will give me the better process, it’s not our job, as a court, to say that we’re better than the arbitration process. We never do. Our job is to say: “How can we help you as a panel solve this problem better? What do you need from us? What speed do you need from us? How can we help you execute? How can we help you take your award and convert it into cash?” That’s our job. So, I don’t like this courts versus arbitration caricature: it’s what’s best for the client. The client signs up to it and, in the same way we support an arbitral process, you expect the arbitral process to support the judicial process to get to the right answer. That to my mind is a straightforward way of thinking about the debate between courts and arbitration centres. It really should not be a conflict. It should be what can we do together to help individuals get the answer they seek.

Graham Lovett: All things being equal and leaving aside confidentiality, because you know that’s important to a lot of clients of the arbitral process. Clients want a resolution and if someone offers them speed and cost efficiency, they’re going to opt for that every time.

Mark Beer: No, that’s not right. On our General Counsel forum, the majority prefer litigation – perhaps that’s why they’re on our General Counsel Forum! Defence contractors do not want to be in a public court, they don’t want to be talking about death per dollar.

Graham Lovett: I agree there are a number of clients who don’t want to wash their dirty laundry but leaving that issue aside, I would say that clients just want something that’s quick and efficient, leaving the enforcement issue aside.

Mark Beer: You can’t leave the enforcement issue aside! You start there.

Graham Lovett: All I’m suggesting is that there’s not that much difference between the two processes. Arbitration has become very expensive, very slow. It has the potential for abuse. Your court has rules, and the hope and expectation that judges case-manage cases efficiently, but they’re still taking a long time. You’re not going to get a dispute heard unless you go for a summary judgment or use one of the methods to get a swift judgment. If you’re going to a trial or hearing, you’re still talking about 12 months at least and then the possibility of an appeal. It’s a slow process, isn’t it?

Mark Beer: The General Counsel Forum I was telling you about – we’re the first courts in the world to set one up – have different views to private practice lawyers. In the first meeting, we said: “What do you want from a dispute resolution centre?” It applies just as well to arbitration as litigation. And they said: “Give us the right answer, give us it quickly, give us it cheaply and help us to settle.” Then one of them turned around and said: “Actually, we don’t even care if it’s the right answer: just give us an answer!” They said: “We’ve exhausted so much energy by the time we’ve filed in the arbitration centre of the court, we just want an answer.” Therefore, speed and cost are important factors to them. Is there really a difference between arbitration and litigation? If you took an identical case and ran it through both, would you end up with such a different result? I think you’d probably end up at about the same place. Our settlement rate last year was 83% of US$5.85 billion; since day one, it’s 92%. I don’t know what settlement rates are like in arbitration. Perhaps they’re similar.

So, you may well not find any real difference in speed and cost between the two although I’m sure both sides would tell you that there is. I don’t think there is, but as long as the client knows at the outset what they’re getting into, it shouldn’t matter. Our role is to work together to make sure that the ultimate decision is enforced and, if we do that, then I think that’s great.

Graham Lovett: Linda, what’s your view? People do say that arbitration has become very slow and expensive. Is that a differentiator for the ADGM Courts?

Linda Fitz-Alan: I think it is a differentiator. I could give you a very cute answer and say it’s very quick in ADGM Courts now [laughs]. Courts and very experienced judges from commercial backgrounds case-manage cases to within an inch of their lives, confine those issues and get them on very quickly. I think, for want of a better phrase, the adult supervision that’s imposed to dispose of a case in court has become almost an art form, to be honest. The rules are highly attuned to that. You can bring points in and get them over quickly: “OK, get rid of that and a whole lot of other things fall away.” I see that working much faster in courts than in an arbitration setting.

There’s more of a public duty as well in courts. We heard this morning about the vagaries of an arbitrator or counsel’s availability. I don’t hear of the judges in this region catering so much for counsel’s availability. They’re quick to get it on, so I think it is faster in court and, inevitably, it’s cheaper. It is always the case that the longer it goes on, the more expensive it is. Lawyers have to pick it up again. There are new points to be raised, new evidence. It’s got to be fast. That’s what commercial courts deliver, so I think they’re incredibly competitive. That said, going back to Mark’s point, lawyers advise clients that it either works in arbitration or going to court. That’s where the decision is made. It’s not a competition, in my view, but a reasoned, principled discussion with a client at the start of the contract as to what is going to work best if things go wrong.

Graham Lovett: Is that how you see things with clients when you look at the difference and the options, setting to one side enforcement and the confidentiality issues? Do you see the arbitration option in a different setting to the court option, or is one consideration the comparative cost and speed of both processes?

Raza Mithani: I would say that, unfortunately, gone are the days when arbitration is a faster and cheaper process. I started out as a High Court litigator in England and one huge advantage in common law litigation is that you have a procedure by which claims that have no real prospect of success can be weeded out at an early stage through a summary judgment procedure. You have a strike-out procedure. Having said that, the arbitration institutions are beginning to catch up. You have the new SCC Rules, the new SIAC Rules, which contain provisions for an equivalent to summary judgements, but it remains to be seen how robust arbitrators are going to be when faced with summary judgment-type applications. There are a lot of arbitrators in this part of the world who will be reluctant to award a summary judgment because they’re going to think: “My award may not be enforceable because somebody is going to raise allegations against me.” This recent amendment to the penal code probably doesn’t help.

Graham Lovett: Sami, the final word from you on the comparative speed and cost issue.

Sami Tannous: We have to recognise that there isn’t a distinction anymore in terms of speed and cost. If you advise a client that arbitration is faster and cheaper, you’ve got the wrong edition of Redfern and Hunter. But I don’t think you can look at it at that level either. A Dubai-seated arbitration is going to be a lot slower in practice than a DIFC Court proceeding because, with the Dubai-seated arbitration, I’m likely to be dragged through the Court of Cassation for 18 months. It’s different if the seat is London or Paris I might have to go to the Supreme Court in extreme circumstances. These are the considerations you have to look at on an individual basis to work out whether one is going to be faster and cheaper than the other.

Now there is clearly a recognition within the arbitral community – and not an arbitration conference goes by without the words “due process paranoia” being mentioned – of the need to speed things up and make them more efficient. In the same way you had the Woolf reforms in England recognising that litigation had gotten out of control in terms of length of time (one colleague told me that opening statements in the Bank of England/BCCI litigation lasted for 75 days). So, that was the future of the English courts at one time and something was done to remedy it. The arbitration community has woken up to the concern of users and is taking steps to remedy that little by little. Ultimately, it comes down to enforcement, privacy and possibly confidentiality if you choose the right rules or incorporate it into the arbitration agreement. Those are the real differentiating factors with users.

Graham Lovett: Okay, let’s move on before throwing the panel open to the audience. One issue is the relationship between the offshore courts and onshore courts, and that’s another question of jurisdiction. If somebody starts a case in the onshore courts, is that a case that should be transferred to the DIFC Courts if there’s a DIFC Court jurisdiction clause? Recently, there have been cases where the onshore courts and the DIFC Courts have been presented with circumstances where a party has commenced a claim in both. I think I’m right in saying, historically, if there is an issue over which court should have jurisdiction over a dispute, the matter is stayed and passed to the Union Supreme Court for a decision. In Dubai there is, for want of a better word, a tension between the jurisdiction of the onshore courts and DIFC Courts. A new decree, Decree 19 of 2016, created a Judicial Committee to determine which court should have jurisdiction in the event that a party claims that one court should have jurisdiction over the other.

Two questions really for you, Mark. One is: does that decree start to display cracks in the system, i.e. a tension between the onshore and offshore courts? and two: is the decree working in practice?

Mark Beer: Firstly, there’s no conflict or tension between the two courts. They are the leading civil law Arabic-language court in the region, and we pride ourselves on doing something similar in the English language. There’s no tension at all between the two, but the legal community … we’re talking as friends here, aren’t we, because I wouldn’t like this to go further …? The legal community was using tactics, which the Chief Justice has described as “guerrilla tactics”, to prevent the enforcement of arbitral awards by using both courts against each other: losing in one court, filing in another and then claiming in the first that everything must be stayed until the other court decides the way forward. These techniques are far from ideal. A joint Judicial Committee was set up – three judges from the Dubai Courts, three from the DIFC Courts and a member of the Dubai Judicial Council – to look at issues at an early stage so you can refer any dispute to the committee and it will tell you at the outset which is the right court. The advantage is once they say which is the right court, there’s no prospect afterwards to challenge jurisdiction. You can’t do it in the process, you can’t do it after the case finishes and you can’t do it at enforcement either. So rather than back-ending a debate about which court should hear a dispute, the Judicial Committee’s role is to speed it up so when you start the dispute process, if you think there might be a claim of jurisdiction later, you get an answer and that’s the answer you stay with throughout. I think it’s a very positive development to speed up the ability of the courts to resolve disputes, certainly when it comes to ratification of arbitral awards and then subsequent enforcement of arbitral awards.

Graham Lovett: But the process seems a bit secretive, doesn’t it? It’s not clear to a lot of practitioners how this committee works in practice, how one makes representations and how one finds out how the committee has deliberated. It seems to be a process shrouded in a mystery. Would that be a fair comment?

Mark Beer: I understand. I know that part of the legislation was modelled on the Union Supreme Court, but I don’t know the processes there either. In terms of the development of a set of rules for the joint Judicial Committee, that’s an ongoing process so those rules can be put out. It was only set up quite recently so when it publishes the rules it will become clearer. The intention is to improve the environment, so people know from the outset what’s the right jurisdiction to get an award or judgment as fast as possible, and to have the fewest problems at execution so that you go straight through the system. That’s the intention.

Graham Lovett: Linda, the relationship between the ADGM Courts and the onshore courts. I’ve heard you say the relationship is very interactive. Do you envisage a similar committee being set up in due course to deal with a problem that, in a way, has been created by practitioners, and not by courts themselves?

Linda Fitz-Alan: I don’t envisage it but can’t guarantee anything. We have a strong and close relationship with the Abu Dhabi Judicial Department. We have an MOU and meet regularly to collaborate on things from enforcement of judgments and judges’ training to understanding case-management techniques. Though that discourse will continue for the rest of our lives, so to speak, I imagine there will be discussions of various things as disputes come up, but we don’t have that type of decree at the moment. There’s no suggestion of that.

Graham Lovett: Wait until your local lawyers get going.

Linda Fitz-Alan: That’s right, their creativity, but these are early days for us. We enjoy a very good close relationship with the local judiciary.

Mark Beer: In terms of arbitration, I think it further re-enforces Dubai’s commitment to ensuring that an arbitral award be ratified and enforced quickly without an award debtor using techniques to slow it down. It’s a very positive thing for arbitration in Dubai.

Graham Lovett: Time to answer some questions from the audience, if we have any.

Alec Emmerson: I wanted to talk about speed and efficiency in arbitration and to remind everyone here that there are more types of arbitration than are focused on by this audience. There are thousands of arbitrations in the commodity trades, for instance, that are quick, speedy and where lawyers do not represent the clients – except behind the scenes. There are also institutions that developed fast and low-cost arbitration rules long before CIAC and ICC. The problem with those rules is that nobody wants to use them. That is a client issue. It was 30-odd years ago that the LMAA introduced Fast and Low-Cost Arbitration, the FALCA Rules. They’re opt in – and almost nobody opts in – but the way those rules work are: sole arbitrator, papers only, very brief, bullet point-reasoned awards. It all happens very quickly, but you can’t get clients to opt in. People may have told Mark that what they’re interested in is speed and cheapness and so on. But, when it comes to the crunch, those of you who are party counsel know that often, when you have cheaper and quicker ways to run cases, you can have a problem with a client who says: “No, I want everything argued.”

I’d like to ask the in-house counsels who are here what they think about that comment because it’s my experience that it’s often clients who drive the requirement that every point is argued, no stones left unturned and they’d rather have everything argued than do something quickly and cheaply.

Graham Lovett: We do have one or two in-house counsel on the delegate list. Is there anybody who wants to put their head above the parapet?

Lara Hammoud: I’m not completely in agreement with Alex because obviously in-house counsel is instructing external counsel to do the best he or she can to win the case and support his or her client. Now, in-house counsel are not very sophisticated in arbitration, that’s why they take on external counsel to help. They trust external counsel in the sense that they want them to fight every single argument, but I think that in-house counsel also want to see cost saving. It’s the responsibility of external counsel to tell in-house counsel that, on the one hand, we could do this and gain this, but it would cost that. And, on the other hand, if you don’t do this, maybe it’s not that relevant, but you would be gaining that amount, etc. It’s for the external counsel to guide in-house counsel to decide what, at the end of the day, is ultimately their decision as to what is relevant in terms of efficiency.

Michael Schneider: It is with great affection that I listened to this debate, having sat down with the first Chief Justice of the DIFC and been asked to present a court system which we did, but it is a work in progress. The answer to Alex’s question and indeed the costs issue, is that it’s a work in progress. When we looked at setting up the DIFC, the original idea was to go back to the Harvard model from 1977, the Pound Conference and the Multi-Door Court House. You didn’t have this dichotomy between arbitration and the courts: they’re part of the same system and there is a single gate keeper. You go in and case management, as Linda said before, chooses which route it goes down. There may be routes which are cheaper and more cost-effective for a particular dispute: there may be routes which go to the main court, which go to full-scale arbitration, which go to adjudication or which go to ADR. That is the ideal a court system should be striving for: to work together with arbitral institutions. That was originally the hope with the DIFC and I know the DIFC is still trying to work towards that goal. When you talk about costs, we now have active cost budgeting in the UK. The court controls the costs and, to prevent lawyers’ fees from running away, courts are asking them to justify throughout. Not good news, I know, for a lot of external counsel but good news for clients. And I still say the Multi-Door Court House is the goal.

Graham Lovett: Thank you. The gentleman at the front here

Audience member: I agree with what you said, Lara, but you described the ideal situation. I want my external counsel to advise me on a wide range of issues regarding the financial implications of an arbitration, but I can’t always rely on that. It’s my role, since I have responsibility towards management, to consider all kinds of other opportunities to save on costs. I want external counsel to take the same perspective, but I can’t rely on it entirely. The responsibility lies with me.

Graham Lovett: Time for one more question.

Audience member: I have another question regarding the Judicial Committee. Taking into account that first decision, don’t you think that it provided a lot of insecurity? The relevant award was meant to be executed against a company registered in the DIFC; the whole case concerned a project in the DIFC; and yet the competence of the DIFC Court was rejected in spite of these factors, which spoke in favour of giving the DIFC Court the confidence to judge the execution of the award in the DIFC.

Mark Beer: I can’t talk about a particular case, but I can talk broadly. There was an uncertainty about: if parties have chosen to arbitrate in an arbitration centre, supported and protected by a curial court, is it right that another court interferes in the process? Some will tell you it is right, others will tell you it is not. We didn’t know. The decision of the Judicial Committee makes it clear that where parties have chosen to arbitrate in arbitration centre X, protected by court Y, it’s that process which is tantamount. When that process is resolved and the award is upheld, the normal processes will flow from there. Equally if you choose to be in arbitration centre D, protected by curial court DIFC, that process is absolutely protected as well. People cannot interfere by going to other courts. That certainty is something we lacked and that it is why the clarity that comes from having these decisions at the early stages of a dispute is better for Dubai as a dispute resolution centre.

Audience member: Doesn’t the decision encourage parties to make an application to set aside the award at the seat in order to interfere with the effort of the winning party to enforce that award? For example, in this case about the DIFC, which I think is the guerrilla tactic people have been talking about. Is that the nature of the interference you are asking about? Because the Judicial Committee has said it’s correct that you can’t enforce the award in the DIFC until the Dubai Courts have completed their various challenge processes. This is a phenomenon we have seen in the context of enforcement under the New York Convention: the global debate about whether you can enforce an award internationally in circumstances where it is being challenged at the seat. It has been a problem in certain courts and I wondered why you cast the Judicial Committee’s recent decision as one that helps the community, rather than giving an opportunity to the parties to raise these guerrilla tactics, which I thought was the point the whole process was seeking to avoid.

Mark Beer: I am of the view that it is better not to hang someone until you know for certain that he did it. I thought it was normal practice that if there is a still a live question about whether the award is valid, why on earth should an organisation be required to pay out on it. Normally, in courts around the world many will say: “I stay where I am until I find out if the award is valid.” The alternative is, if it turns out the award is invalid, you start more disputes trying to get the money back. I see the decision as presenting greater clarity. The parties have chosen an arbitration centre protected by a specific court; they chose that in their contract. I am not talking about this particular case. We respect party autonomy and the right for them to do it, therefore we have to respect the right of the court that they have chosen to decide if the award is valid or not.

Audience member: The courts around the world, principally under the New York Convention, fall into one of two camps: the camp that the Judicial Committee has chosen; and what I would call the more avant-garde, progressive camp – which includes France, for example – in which they favour execution of the award on the basis that they know that anyone can make a set-aside application at the seat, and it is widely known that those applications are often made mischievously. So, rather than the enforcing court deferring to the court where the set-aside application is being made, the enforcing court is saying: “I defer to the tribunal and the tribunal issued an award that I am going to enforce under the New York Convention.” Those are the two different views. There is not a consistent pattern. I take your point about the way the Judicial Committee decided to take it, just to note that it is not...

Mark Beer: Probably the best approach, if you don’t mind me saying so, is to choose the DIFC LCIA Arbitration Centre and have the protection of the DIFC courts from the beginning. That would seem a very sensible approach.

Graham Lovett: Another sales pitch Mark! It’s an interesting point because, as practitioners, the thing we hate is uncertainty. For the last few months, people have been saying: “The DIFC is great because it is a conduit jurisdiction now. Not only have you got domestic awards, they can enforce international awards and now foreign judgments.” But the Judicial Committee is calling that certainty into question and, as practitioners, the last thing we want is decisions that don’t follow a pattern. It makes it difficult for us to advise our clients. That’s an issue, isn’t it?

Mark Beer: It came out of the uncertainty, unfortunately, as what we were seeing before was: “Well, yes you can do, it but the other side can use this tactic at the end which will delay everything.” The solution was a committee which tells you the right answer at the beginning and gives you certainty there. You might not like the answer behind the certainty if the answer does not support your client’s interests. It’s painful, but it is better to know at the outset. At least you know the position.

Graham Lovett: There is another question.

Alec Emmerson: Mark, for the sake of clarity, if you want to avoid uncertainty it’s not enough to select the centre, you should select the seat. Because if you select, for example, DIAC, it now has a branch in DIFC. So, if maybe by default he selected the DIFC LCIA, then by default would go for DFIC, but the uncertainty remains. To avoid uncertainty, select also the seat.

Mark Beer: Thank you Alec.

Graham Lovett: Thank you very much for a lively session and thank you for all your questions.

GAR Live Abu Dhabi was held on 22 February 2017 at the Abu Dhabi Global Market Building. It was sponsored by Abu Dhabi Global Market, Shearman & Sterling, Freshfields Bruckhaus Deringer, Berwin Leighton Paisner and BDO.

The next GAR Live will take place in Paris on 12th April 2018. Registration is now open and is complementary for in house counsel.