In the United Arab Emirates, the legal framework governing contractual relationships between private parties is primarily set out in Federal Law No. 11 of 1992 on the Civil Procedures Code, as amended and most recently superseded by Federal Law No. 42 of 2022 on the Civil Procedure Law ("CPC"). This legislation provides the procedural foundation for the resolution of civil and commercial disputes within the UAE.
Upon executing the Agreement, one of the most important terms is, inter alia the clause pertaining to the governing law and jurisdiction, which determines the legal system and forum that will judge any disputes arising from the contract. The CPC recognises the principle of freedom of contract, allowing parties to select the governing law and the jurisdiction. However, the practical enforceability of such choices is nuanced and can be subject to significant limitations under UAE law.
It is important to distinguish between the choice of governing law (the substantive law that will apply to the contract) and the choice of jurisdiction (the forum or court that will hear disputes). A common misconception is that specifying a foreign jurisdiction in a contract will automatically preclude the UAE Courts from hearing any disputes. In reality, the UAE Courts may, in certain circumstances, assert jurisdiction notwithstanding the parties' agreement to the contrary.
Under the CPC, the UAE Courts have jurisdiction over claims brought against UAE nationals and foreign individuals or entities that are domiciled or resident in the UAE. Furthermore, the CPC extends the jurisdiction of UAE Courts to certain cases involving foreign parties who do not have a domicile or residence in the UAE, such as where one of the defendants is a UAE resident, or where the contractual obligations are to be performed, or the cause of action arises, within the UAE.
Where parties have agreed to submit disputes to a foreign court (excluding arbitration), such clauses may be challenged before the UAE Courts. The UAE Courts may disregard the parties' choice of foreign jurisdiction and instead assume jurisdiction themselves, particularly where there is a nexus to the UAE, such as the presence of assets, parties, or the subject matter of the dispute within the UAE. In such cases, the CPC will govern the proceedings, and the UAE Courts will determine the extent to which foreign law may be applied.
Although it is possible to request the application of foreign law before the UAE Courts, this process is not straightforward. The party seeking to rely on foreign law bears the burden of proving its existence and content, typically through the submission of certified translations, etc. UAE Courts, however, are often reluctant to apply foreign law, especially where the evidence is deemed insufficient or unclear, and may default to the application of UAE law.
It is worth noting that arbitration clauses are generally respected by the UAE Courts, provided they are clearly drafted and meet the formal requirements set out in UAE law. Arbitration offers parties greater certainty regarding the forum for dispute resolution and the applicable law, and arbitral awards are enforceable in the UAE under the New York Convention, subject to certain conditions.
In summary, while the UAE legal system recognises the contractual freedom of parties to determine the governing law and jurisdiction, the enforceability of such provisions is ultimately subject to the overriding jurisdiction of the UAE Courts and the procedural requirements of the CPC. Parties entering into contracts with a UAE nexus should carefully consider the drafting of governing law and jurisdiction clauses, taking into account the practical realities of enforcement and the potential for the UAE Courts to assert jurisdiction or apply UAE law, regardless of the parties' intentions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
