Tag: DIFC – Dubai International Financial Centre

DIFC Courts to oversee disputes in all free zones?

A survey published by the Dubai Statistics Center has called for input from the public in what appears to be research relating to the application of ‘Common Law’ in all free zones in Dubai. The survey is not about the use of ‘Common Law’ in a general sense. Instead, the Dubai government is focused on integrating DIFC laws and giving jurisdiction to the DIFC Courts for overseeing civil and commercial disputes within the free zones.

 

The DIFC

 

The DIFC is governed by its own body of laws with an independent judicial authority, the DIFC Courts. The DIFC Courts currently have jurisdiction to hear disputes in connection with an entity established in the DIFC, disputes which are connected to the DIFC or disputes in which the parties have agreed to the jurisdiction of the DIFC Courts.

 

The rules of procedure in the DIFC Courts largely follow the Civil Procedure Rules followed by the English courts. The DIFC Courts apply DIFC laws in disputes before it, unless there is an agreement to the contrary. DIFC laws are largely a codification of English common law. The DIFC Courts can also apply any other law agreed among the parties to the dispute, such as UAE law.

 

Under the current legal framework in Dubai, unless a free zone company agrees to resolve its dispute through arbitration or through the DIFC Courts, all disputes will have to be referred to the on-shore Dubai Courts. The on-shore Dubai Courts operate under a civil law system and apply UAE laws by default. Proceedings before the Dubai Courts are conducted exclusively in Arabic, whereas in the DIFC Courts they are conducted in English.

 

The Survey

 

The survey published by the Dubai Statistics Center appears to suggest that the Dubai government is considering two possible means by which the jurisdiction of the DIFC Courts and the laws of the DIFC may be extended to all free zones in Dubai: a hybrid system and a standalone system.

 

a) Hybrid System: DIFC Courts having jurisdiction with UAE laws as default

 

Under this framework, the DIFC Courts would be responsible for overseeing civil and commercial disputes within the free zone. UAE laws will be applicable by default to the dispute. However, for matters concerning litigation procedures and evidentiary rules, the DIFC laws will take precedence. This means that while disputes will be adjudicated by the DIFC Courts, the foundational laws of the UAE would influence and guide the decisions in court cases.

 

b) Standalone System: Extended jurisdiction of DIFC to selected free zones

 

In this setup, the entire legal framework of DIFC’s civil and commercial laws (excluding licensing regulations) would extend to the selected free zone. This would mean that companies in these zones will function entirely under DIFC laws and regulations (e.g. company law, bankruptcy law, employment law, etc.), with the DIFC Courts handling all respective disputes.

 

Outcomes

 

As noted above, if the Hybrid System is implemented, the DIFC Courts will have jurisdiction over any entity in any free zone in Dubai without the need for agreement among the disputing parties to submit to the jurisdiction of the DIFC Courts. However, the DIFC Courts will only apply UAE law (and not DIFC law) unless there is an agreement among the parties to apply a specific different law. In other words, the lex fori (the law of the Court) would be common law.

 

Under the Standalone System, the DIFC Courts will, in addition to having jurisdiction over disputes concerning other free zone entities, also apply DIFC Laws by default. In effect, this system will determine disputes under common law, through a common law process of court (lex fori and lex loci). It is unclear whether a non-DIFC free zone entity engaged in financial services will be subject to the supervision of the Dubai Financial Services Authority in the same manner that applies to DIFC entities. ■

DFSA Decision Notices not Findings of Fact in the DIFC Courts

The DIFC Courts have recently confirmed that Decision Notices issued by the Dubai Financial Services Authority (DFSA) are not binding on the Court as findings of fact.

 

Decision Notices

Under Article 116(2) of the Regulatory Law 2004 (as amended), the DFSA may publish, in such form and manner as it regards appropriate, information and statements relating to decisions of the DFSA, the Financial Markets Tribunal and the DIFC Court, sanctions, and any other matters which the DFSA considers relevant to the conduct of affairs in the DIFC. These include Decision Notices issued under Article 5 of Schedule 3 of the Regulatory Law in respect of Authorised Individuals who are defined as individuals who have been authorised by the DFSA to perform one or more Licensed Functions for an Authorised Firm.

 

The DIFC Claim

In the Court of First Instance case of [2018] DIFC CFI 080, the Claimant initiated proceedings against the Defendant, alleging, among other claims, that the Defendant had misappropriated funds invested by the Claimant in connection with a DFSA Authorised Firm (the Relevant Entity).

 

The Claimant sought to rely on a Decision Notice issued against the Defendant by the DFSA (and unconnected to the DIFC Claim) which referred to a series of misdoings on the part of those engaged in the business of the Relevant Entity and failures to abide by the DFSA Rules and Regulations which applied to financial advisers and investment managers as well as the Defendant’s personal responsibility for breaches.

 

The Defendant contested the admissibility and relevance of the Decision Notice in respect of the DIFC Claim.

 

The Judgment

Issuing the judgment consequent to trial, Justice Sir Jeremy Cooke held, among other things, that:
• the DFSA proceedings were “adversarial” and “disciplinary” in nature; and
• the “conclusions reached by others cannot bind [the DIFC] Court, absent the application of res judicata or specific exceptions to the rule in Hollington v Hewthorn which is binding on English Courts”.

 

The Court also referred to the English cases of Conlon and another v Simms [2006] EWCA Civ 1749 and Three Rivers DC v Bank of England (No.3) [2001] UKHL 16, [2003]2 AC 1 in support of its conclusions and confirmed that the principles set out in those cases “reflect the law of the DIFC” and apply in relation to Decision Notices issued by the DFSA.

 

Conclusion

The case is an important precedent from the DIFC Courts which considers the evidential burden to be met in establishing a claim. It also provides individuals against whom Decision Notices are issued by the DFSA an opportunity to defend themselves in claims brought against them based on the merits of each case.

However, it remains to be seen whether the DIFC Courts would take a different view if the findings in a DFSA Decision Notice directly related to a specific claim in the DIFC Courts, and were properly substantiated by direct witness evidence in relation to the Decision Notice. ■

Service of claim documents within the jurisdiction and abroad Q&A: DIFC

DIFC-specific information setting out the framework for service of claim documents (in relation to domestic and foreign proceedings) within the jurisdiction, and service of claim documents outside the jurisdiction.

Pre-action Letters: Dubai International Financial Centre (DIFC)

This Q&A focuses on Dubai International Finance Centre (DIFC) specific information on all the key issues to consider before issuing or responding to a pre-action better. Furthermore, this Q&A provides country-specific commentary on Practice note, Letter before action (Pre-action or demand letter): Cross-border, and forms part of Cross-border dispute resolution.

Recovery of trade debts Q&A: (DIFC)

This Q&A is DIFC specific information on the legal options available to parties looking to recover a trade debt including ordinary legal proceedings, special fast-track procedures (if any), insolvency proceedings and amicable settlement opportunities.

 

This Q&A also provides United Arab Emirates commentary on Practice note and Recovery of trade debts: a cross-border overview.

Rules of evidence (including cross-border) in civil proceedings Q&A: (DIFC)

This Q&A provides an overview of the rules of evidence in civil proceedings, including rules on the disclosure obligations of the parties, admissibility of evidence, witness evidence, the standard of proof, as well as issues that arise in gathering cross-border evidence.

Compliance with DIFC Data Protection Law 2020 – Deadline 1 October 2020

DIFC entities have until 1 October 2020 to ensure that their data processing activities are compliant with the new Data Protection Law (DIFC Law 5 of 2020) (the DP Law).

 

Who is subject to the DP Law? 

 

  • • DIFC entities.

 

  • • Non-DIFC entities that regularly engage with DIFC entities as part of a “stable arrangement”, which involve data being processed in the DIFC and/or transferred out of the DIFC.

 

Practical Guidance 

 

1. Maintain a record of Personal Data.

 

2. Delete Personal Data when the purpose for processing ceases.

 

3. Maintain (written) consents obtained from Data Subject(s).

 

4. Have in place technical and organisational measures.

 

5. Have in place a data protection policy.

 

6. Ensure that notification of processing operations was submitted to the Commissioner.

 

7. Have in place a legally binding agreement between: (i) Joint Controllers, (ii) a Controller and a Processor, (iii) a Processor and a Sub-Processor.

 

Additional Guidance – Entities carrying out High Risk Processing Activities

 

An entity carrying out High Risk Processing Activities has the following additional requirements:

 

8. Appoint a Data Protection Officer.

 

9. Submit an Annual Assessment to the Commissioner.

 

10. Undertake a Data Protection Impact Assessment prior to conducting High Risk Processing Activity.

 

Transfer of Personal Data outside of DIFC

 

Personal Data can be transferred outside of the DIFC if it satisfies one of the conditions under the DP Law.

 

Country with Adequate Level of Protection: Personal data can be transferred out of DIFC if the recipient country has an adequate level of protection. The Commissioner determines the countries that have an adequate level of protection.

 

Country without an Adequate Level of Protection: If the recipient country does not have an adequate level of protection, then the transfer can be done only if certain additional requirements are satisfied.

 

 

Sanctions and Compensation 

 

The sanctions are substantial for non-compliance of the DP Law with the maximum fine ranging from USD 20,000 to USD 100,000 depending on the breach.

 

Where a Data Subject suffers material or non-material damage by reason of any contravention of the DP Law, the Data Subject may apply to the DIFC Court for compensation from the Controller or Processor in addition to, and exclusive of, any fine imposed on the same parties.

 

In terms of the apportionment of liability between Controllers and Processors, where the Controller and Processor are held liable for the damages caused:

 

  • A Controller involved in processing that infringes the DP Law shall be liable for damages caused.

 

  • A Processor shall be liable for damages caused by processing only where it has not complied with the obligations specifically directed to Processors or where it has acted outside or contrary to the lawful instructions of the Controller.

 

  • Where multiple Controller(s) or Processor(s) are involved in the processing and where each is responsible for any damage caused by the processing, each shall be held jointly and severally liable for the entire damage. ■

DIFC Increases Scope and Fines

The DIFC has expanded the scope of the common reporting standards, meaning more people must make filings plus increased fines for non-compliance.

 

With effect from 16 August 2020, DIFC Law 6 of 2020 (the CRS Law Amendment Law) was enacted to amend the Common Reporting Standard (CRS) Law, DIFC Law 2 of 2018 (the CRS Law). This enactment follows the issuance of the new CRS Regulations, which came into effect on 30 July 2020.

 

Briefly, the CRS Law serves to apply CRS on the financial institutions within the DIFC (known as the ‘Reporting Financial Institutions’ in the CRS Law). CRS is a standard developed by the Organisation for Economic Cooperation and Development (OECD) by which the DIFC (and other participating jurisdictions) are required to obtain financial account information from financial institutions and automatically exchange them with the other participating jurisdictions on an annual basis. Under the CRS Law, Reporting Financial Institutions that fail to report such information shall be subject to a fine for non-compliance, ranging between USD 280 (with an additional fine per each day of non-compliance up to a limit) for a minor non-compliance and USD 70,000 for a significant non-compliance. The main purpose behind CRS is to limit tax evasion.

 

The CRS Law Amendment Law made the following changes to the CRS Law:

 

  • The CRS Law now additionally applies to a Controlling Person (as defined in the CRS Law). This means that where an account with the Reporting Financial Institution is held by an entity, the natural persons exercising control over such entity are also subject to the CRS Law.

 

  • New offences and penalties are introduced in the CRS Law. An account holder or a Controlling Person that provides inaccurate or incorrect self-certifications where he knew or ought to have known to be inaccurate or incorrect shall be fined USD 5,500. A Reporting Financial Institution that fails to obtain valid self-certifications when a new account is set up shall be fined USD 300.

 

The amendments to the CRS Law are aimed to elevate the compliance requirements of Reporting Financial Institutions thereby aligning DIFC’s legal and regulatory framework with international best practice. ■

DIFC – Innovation License

The Dubai International Financial Centre (DIFC) has recently launched a new type of license called an “Innovation License”. An Innovation License is available to technology and innovation start-ups for a select number of activities including technology, research and development and software houses. An Innovation License is not appropriate for start-ups who wish to conduct regulated financial activities for which a license from the Dubai Financial Services Authority is required.

 

Applicants will need to ensure compliance with all the laws of the DIFC as applicable to any other entity established in the DIFC.

 

The licensing fee for an Innovation License has been significantly subsidized to USD 1,500 per annum. As per the DIFC’s current policy, this subsidy in the licensing fee is available for the first four years and the standard licensing fee of USD 12,000 per annum shall apply thereafter.

 

A start-up will have the flexibility to lease an independent office or a co-working space/flexi desk. The number of visas which can be sponsored by the start-up will depend on the type and size of facility leased.■

 

* * * *
Afridi & Angell’s corporate department works with many DIFC companies and has extensive experience in advising such companies. Should you have any questions with respect to the innovation licence or more generally on DIFC companies, please contact one of the authors, Danielle Lobo (partner) or Saurbh Kothari (senior associate) or your usual Afridi & Angell contact.

Employment Measures for Dubai International Financial Centre (DIFC) Employers During COVID-19

Presidential Directive No. 4 of 2020 (Directive) is the most recent measure taken in the DIFC to ensure proper management in the DIFC during COVID-19.

 

The Directive, issued on 21 April 2020 with immediate effect, announced employment and workforce measures which shall stay in effect up to and including 31 July 2020 (referred to herein as COVID-19 emergency period).

 

We will discuss in this inBrief employment measures included in the Directive. In so far as may be required to facilitate the implementation of employment measures included in the Directive, the Directive will supersede other relevant provisions contained in Law No. 2 of 2019 (DIFC Employment Law).

 

Emergency Employment Measures

 

During the COVID-19 emergency period, employers may impose one or more of the following employment measures in respect of any of their employees:

 

• reduction in working hours

• vacation leave

• leave without pay

• temporary reduction in remuneration

• workplace access restriction

• remote working conditions including remote working requirements

 

To that effect, the following provisions in the DIFC Employment Law shall not apply to employees during the COVID-19 emergency period:

Article 14(3)

 

‘Any amendment to an Employment Contract must be in writing and signed by both the Employer and Employee, unless such amendment is of an administrative nature only, in which case the Employer shall be required to record such amendment in writing and to give written notice thereof to the Employee prior to the amendment taking effect.’

 

Article 29(2)

 

‘The Employer may require an Employee to take Vacation Leave on specified days in the current Vacation Leave Year by giving at least seven (7) days prior written notice to the Employee.’

 

Article 30(1)

 

‘Vacation Leave accrues during an Employee’s first year of employment on a monthly basis at the rate of one-twelfth (1/12) of the Employee’s annual entitlement to Vacation Leave.’

 

Article 4(1)(b)(i) of the DIFC Employment Law, stating the physical location of employees to whom the DIFC Employment Law applies, is deemed to be satisfied for employees who work for employers in or from the DIFC by way of remote working during the COVID-19 emergency period.

 

An employer wishing to apply any of the above measures can do so without the prior consent of the affected employee. The employer is required, however, to give five days prior notice in writing to the affected employee.

 

COVID-19 Related Sick Leave 

 

Under the Directive, sick leave taken by an employee during the COVID-19 emergency period as a consequence of having contracted COVID-19 or for being placed in quarantine shall not count towards sick leave entitlement of the employee as stated in the following provision of the DIFC Employment Law:

 

Article 34(1)

 

‘An Employee is entitled to Sick Leave of sixty (60) consecutive or intermittent Work Days in aggregate in a twelve (12) month period. Any references in Articles 35 and 36 to a twelve (12) month period shall be deemed to be the same period as referred to in this Article 34(1).’

 

Additionally, employees in this case shall be entitled to 100 percent of their daily wage for the duration of the sick leave and may not be subject to any of the above emergency employment measures if those measures were not imposed on them prior to taking a COVID-19 related sick leave.

 

Finally, the following provision of the DIFC Employment Law shall not apply in the case of a COVID-19 related sick leave:

 

Article 36(1)

 

‘Where an Employee takes more than an aggregate of sixty (60) Work Days of Sick Leave in a twelve (12) month period, the Employer may terminate the Employment Contract with immediate effect on written notice to the Employee.’

 

 

Working Conditions

 

The following provisions of the DIFC Employment Law (both inclusive) do not apply to employees that are working remotely during the COVID-19 emergency period:

 

Article 43

 

‘General duties of Employers

 

1) An Employer has a duty to ensure, as far as is reasonably practicable, the health, safety and welfare at work of all its Employees.

 

2) An Employer shall provide and maintain a workplace that is free of discrimination and victimization and without risks to an Employee’s health and safety.

 

3) An Employer who contravenes Articles 43(1) or (2) is liable to a fine as set out in Schedule 2.’

 

Article 53

 

‘No penalties for preventing health and safety risks

 

An Employer shall not dismiss or otherwise penalise, directly or indirectly, any Employee for:

 

1) carrying out activities that may reasonably be considered to prevent or reduce risks to health and safety in the workplace where the Employee has been specifically designated to do so; or

 

a) taking reasonable steps to avert serious and imminent danger or for refusing to return to

 

b) the place of danger until the danger no longer exists.

 

2) An Employer who contravenes Article 53(1) is liable to a fine as set out in Schedule 2.’

 

Visa and Permits of Terminated Employees

 

During the emergency period, employers may defer the cancellation of residency visas of terminated employees provided that the employer continues to provide basic medical insurance and accommodation (where the terminated employee is dependent on the employer for accommodation) until the cancellation of terminated employees’ visas. No other core benefits or rights shall accrue in favour of terminated employees who remain on an employer’s sponsorship during the COVID-19 emergency period.

 

The following provision of the DIFC Employment Law shall not apply in the case of terminated employees during the COVID-19 emergency period:

 

Article 57(3)

 

‘If an Employee is sponsored for UAE residence visa purposes by their Employer, the Employer and the Employee must cooperate to ensure the cancellation of the Employee’s UAE residency visa as soon as reasonably practicable following the Termination Date and by no later than thirty (30) days following the Termination Date.’

 

DIFC Available Employee Database

 

The Government Services Office in the DIFC shall create and maintain the DIFC Available Employee Database (Database) consisting of employees that have been terminated or those that are surplus to employers’ need during the COVID-19 emergency period. This Database may be shared with any other competent authority maintaining a virtual labour market during the COVID-19 emergency period. DIFC employers wanting to employ new employees during the COVID-19 emergency period may search the Database.

 

Gratuity Payment Protection

 

The Directive ensures that end of service gratuity payments will not be adversely affected by the implementation of any of the Directive’s emergency measures. For purposes of Article 66(1) and Article 66(6) of the DIFC Employment Law, gratuity payments during the COVID-19 emergency period for all employees will be calculated by reference to an employee’s basic wage as at 29 February 2020.

 

Any shortfall of gratuity payment by employers who terminated employees subsequent to 1 March 2020 and prior to the issuance of this Directive shall be rectified by the employer topping up the shortfall. ■