On 03 November 2021, the DIFC Court handed down a lengthy and detailed judgment reiterating, considering and clarifying some of the key principles applicable to establishing DIFC jurisdiction.
Background
The judgment was given in the context of $600m claims brought by the Joint Liquidators of two companies in the Abraaj Group (which was the largest private equity company in the Middle East but which collapsed spectacularly in 2018 with purportedly $14bn of assets under management) against former auditors KPMG Lower Gulf Limited and KPMG LLP.
The judgment considers, which can be found here:
- the thresholds required to meet the jurisdictional gateways set out in Article 5 of the Judicial Authority Law (for example what is meant by a contract ‘partially concluded’ or ‘partially performed’ in the DIFC);
- the impact of a contractual agreement regarding jurisdiction which the Judge found was not specific, clear or express in determining whether the Dubai Courts or DIFC Courts had exclusive jurisdiction, which therefore did not amount to an ‘opt in’ or ‘opt out’ agreement, but left the parties to choose between two competing forums “as appropriate”;
- what residual discretion the DIFC Court has even in the face of a specific, clear and express ‘opt in’ or ‘opt out’ clause;
- procedural issues regarding the DIFC Court’s ‘necessary and proper party’ test, clarifying the position post the Court of Appeal’s decision in Nest Investment Holdings Lebanon SAL v. Deloitte & Touche (ME) & Fardi [2018] DIFC CA 011; and
- whether it is necessary to determine governing law of a contract in order to consider a jurisdiction clause contained within it.
Context: Allegedly competing claims in the DIFC and Dubai
KPMG LG had brought the application challenging the DIFC Court’s jurisdiction in May 2021. It did so after it failed to secure a stay of the DIFC claims following the filing of a reference to the Joint Judicial Committee of the Dubai Courts (which resolves disputes about the competing jurisdiction of the Dubai and DIFC Courts). After the Liquidators filed their DIFC Court claim, KPMG LG filed its own claim in the Dubai Courts claiming a declaration of non-negligence and that the onshore Dubai Courts had jurisdiction. KPMG LG claimed the existence of proceedings before the two courts was enough for the reference before the JJC to proceed. Sir Justice Jeremy Cooke in the DIFC disagreed saying neither Court had accepted or failed to decline jurisdiction at that point, there was therefore no conflict of jurisdiction as required by the Decree establishing the JJC, and the DIFC Court proceedings should proceed.
Result
As a result of the 3 November judgment, KPMG LG has now failed to convince the DIFC Court that it is not the proper place for the Liquidators’ claims to proceed. To the contrary, the DIFC Court has said that it would be “contrary to the interests of justice” for the claims to proceed anywhere else.
Reasoning
This result was on the basis, in particular, that KPMG LLP had already conceded that one of the two Abraaj Group companies’ claims, that of ‘ACLD’, should proceed against it in the DIFC and the Judge found that the claims of both companies were “inextricably intertwined” – their accounts were consolidated, the two claims had been pleaded as one, would turn on the same evidence, the same counterfactuals and that under or double recovery could arise if the claims were divorced from one another by reason of jurisdiction.
But even aside from that fact, the DIFC Court’s starting point was that ‘AIML’, the second of the two Abraaj companies, had established to the requisite degree on the evidence that the audit engagement letters were partially concluded in the DIFC; that much of the audit work carried out by KPMG LG was done in the DIFC at the Abraaj Group’s DIFC offices where AIML was based and that the audit concerned transactions that took place in the DIFC (the DFSA having already found that AIML was carrying out investment activity there).
Finally, the Court confirmed that it had jurisdiction under the gateway at 5(1)(e) of the Judicial Authority Law on the basis that DIFC Regulations allowed a party to the joined to proceedings where it is desirable (ie because they are a necessary and proper party). KPMG LG had argued, following the recent Nest decision, that for this gateway to be established, there needed to have been an application seeking AIML’s joinder to the proceedings brought by ACLD (which there was not). KPMG abandoned this submission during the course of the hearing but nonetheless, the DIFC Court has clarified that no such application is necessary – the gateway is established where parties would be liable to be joined pursuant to DIFC Rules of Court. Here the Court found it was not just desirable that AIML be joined, but “essential”.
Importance
The judgment will be welcomed by all parties looking for their international cases to be heard in Dubai’s international forum. It is a careful and detailed judgment covering most of the key principles but also sends a strong message that the DIFC Court will robustly defend its jurisdiction over cases that are capable of meeting the thresholds for being heard there.
Anneliese Day QC and Daniel Edmonds of Fountain Court Chambers acted for the Liquidators, instructed by Simmons & Simmons LLP.
