Shearman And Sterling

Saudi Arabia

May 29, 2020

Founding Law of Abu Dhabi Global Market Amended to Bring Greater Certainty to Dispute Resolution in the Free Zone

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FOUNDING LAW OF ABU DHABI GLOBAL MARKET AMENDED TO BRING GREATER CERTAINTY TO DISPUTE RESOLUTION IN THE FREE ZONE

On 27 May 2020, Abu Dhabi Global Market’s (ADGM) founding law, Abu Dhabi Law No (4) of 2013 (the “Founding Law”),[1] was amended in a number of important respects to bring greater certainty to the scope of jurisdiction of the ADGM Courts and to align it with the provisions of the ADGM Courts, Civil Evidence, Judgments, Enforcement and Judicial Appointments Regulations 2015 and the ADGM Arbitration Regulations 2015, which Shearman & Sterling assisted ADGM in drafting (the “Amending Law”).[2]

The Amending Law is of particular importance for users of ADGM dispute resolution because, amongst other things, it: (a) confirms ADGM’s status as an “opt in” jurisdiction (i.e. parties without a connection to ADGM can agree to resolve their disputes in ADGM, whether in the courts or in arbitration); (b) clarifies the scope of those matters for which the ADGM Courts have exclusive jurisdiction; and (c) confirms the ADGM Courts’ status as courts of the Emirate of Abu Dhabi, which is particularly significant for enforcement purposes.

This note provides a summary of these and other key aspects of the Amending Law.

A consolidated version of the Founding Law produced by Shearman & Sterling is attached to this client note.

Summary of Key Aspects of the Amending Law

Confirmation that ADGM is an “Opt-In” Jurisdiction

The Amending Law confirms ADGM’s status as an “opt in” jurisdiction. This means that parties with no connection to ADGM can agree in their contracts to have civil and commercial claims or disputes adjudicated by the ADGM Courts or by arbitral tribunals in ADGM-seated arbitrations. The parties’ agreement to “opt in” to ADGM dispute resolution must be in writing, and that agreement can be made before or after the dispute has arisen.

The confirmation of ADGM’s status as an “opt in” jurisdiction is significant because even though the Founding Law and ADGM regulations provided for “opt in” jurisdiction, there was some doubt expressed by certain commentators within the dispute resolution community as to whether a nexus with ADGM was required. Those doubts can now finally be put to rest.

Clarification that ADGM Courts have Exclusive Jurisdiction in Respect of Certain Matters

The Amending Law also clarifies the scope of the matters for which the ADGM Courts have exclusive jurisdiction. The Amending Law provides that the ADGM Court of First Instance has exclusive jurisdiction to consider and decide on the following matters:

  • civil or commercial claims and disputes involving ADGM itself or any of the ADGM authorities or establishments;
  • civil or commercial claims and disputes arising out of or relating to a contract entered into, executed or performed in whole or in part in ADGM, or a transaction entered into or performed in whole or in part in ADGM, or to an incident that occurred in whole or in part in ADGM;
  • any appeal against a decision or a procedure issued by any of the ADGM authorities under ADGM regulations;
  • any request, claim or dispute which the ADGM Courts have the jurisdiction to consider under ADGM regulations; and
  • any issues concerning the interpretation of any articles of ADGM regulations.

Although these matters have been within the exclusive jurisdiction of the ADGM Courts since the Founding Law was enacted, there was some doubt expressed within the dispute resolution community as to whether these matters were truly exclusive to the ADGM Courts because of the formulation used in the Founding Law (i.e. that the ADGM Court of First Instance “shall solely consider and decide” these matters). The Amending Law now provides that the ADGM Court of First Instance “shall have exclusive jurisdiction” in respect of these matters.

Again, this aspect of the Amending Law is significant because it should put to rest any lingering doubts (and potential disputes) regarding the scope of the ADGM Courts’ exclusive jurisdiction.

ADGM Courts may not be Used as an Impermissible Device for Enforcement of non-ADGM Judgments, Orders and Awards

The Amending Law also seeks to bring greater certainty regarding the use of the ADGM Courts as a “conduit route” for the enforcement of judgments and orders that originated outside of the Emirate of Abu Dhabi and for arbitral awards made outside of ADGM.

The Amending Law makes clear that ADGM cannot be used for the enforcement of non-ADGM judgments and awards in other jurisdictions (save for judgments rendered by other courts in the Emirate of Abu Dhabi).

In practical terms, this means that parties may not use the ADGM Courts as a “conduit” to enforce non-ADGM judgments or awards in other jurisdictions for the purpose of avoiding the procedures for judgment and award enforcement in those other jurisdictions (i.e. by taking advantage of arrangements between ADGM and those jurisdictions for the mutual recognition of each other’s judgments and awards). Instead, parties must go directly to the place where the relevant assets are located for the purpose of enforcement.

To be sure, parties are still able to apply to the ADGM Courts for the recognition and enforcement of non-ADGM judgments and awards even if there are no relevant assets in ADGM. That said, in such cases, the Registry of ADGM Courts will not affix the “executory formula” to any ADGM Court judgment or order for the purpose of enforcement (including execution) in other jurisdictions.

Court of First Instance to Decide Matters of Interpretation of ADGM Regulations

The Amending Law provides that exclusive jurisdiction for deciding matters relating to the interpretation of ADGM regulations now sits with ADGM’s Court of First Instance. These matters were previously decided by the Court of Appeal.

This change reflects ADGM’s view that, in practice, issues of statutory interpretation are more likely to arise and be dealt with at the first instance level in cases that come before the ADGM Courts.

Codification of Enforcement Framework between ADGM Courts and Abu Dhabi Judicial Department

The Amending Law codifies the enforcement framework set out in the Memorandum of Understanding between the ADGM Courts and the Abu Dhabi Judicial Department, which provides for the mutual enforcement of judgments and arbitral awards in the ADGM Courts and the onshore Abu Dhabi Courts, without any review of the merits by the enforcing court.

The codification of this arrangement between the ADGM Courts and the onshore Abu Dhabi Courts is a welcome development because it strengthens ADGM’s judgment and award enforcement regime, thereby giving parties greater certainty with respect to enforceability.

Clarification that ADGM Courts are Courts of the Emirate of Abu Dhabi

The Amending Law confirms the status of the ADGM Courts is as courts of the Emirate of Abu Dhabi.

Although this was the case under the Founding Law, again certain doubts had been expressed as to whether ADGM Courts have the same status as onshore Abu Dhabi Courts, particularly in relation to judgment and award enforcement pursuant to international treaties and conventions to which the UAE is a party.

The Amending Law now brings clarity and closure to this issue and parties can be confident that the ADGM Courts have the same constitutional status as onshore Abu Dhabi Courts, such that treaties and conventions entered into by the UAE apply to ADGM judgments and awards. This, again, is an important step in strengthening the enforceability of ADGM judgments and awards.

Judgments to be Issued in the Name of the Ruler of Abu Dhabi

The Amending Law also confirms that ADGM Court judgments are to be issued in the name of the Ruler of Abu Dhabi. This also strengthens the enforceability of ADGM judgments under international treaties and conventions by removing any doubts as to the legal status of ADGM Court judgments within the Emirate of Abu Dhabi’s constitutional framework.

Netting Agreements Protected in the Enforcement of non-ADGM Judgments, Orders, Decisions and Awards

The Amending Law gives effect to any provisions for the protection of netting agreements under ADGM law, in particular under the Insolvency Regulations 2015, when any non-ADGM judgment, decision, order or arbitral award is enforced within ADGM. ISDA has made available a legal opinion (prepared by our firm) on the effectiveness of close-out netting in ADGM, which is widely relied upon in the market.

Conclusion

The Amending Law has brought welcome clarity to several aspects of ADGM’s dispute resolution framework, including ADGM’s status as an “opt in” jurisdiction, the scope of the ADGM Courts’ exclusive jurisdiction and the ADGM Courts’ status within the Emirate of Abu Dhabi’s constitutional framework. This greater clarity should lead to enhanced certainty for parties wishing to resolve their disputes in ADGM and give parties greater confidence regarding the enforceability of ADGM judgments and awards.

View the consolidated version of the Founding Law produced by Shearman & Sterling.

Authors and Contributors

Barnabas Reynolds

Partner

Financial Institutions Advisory & Financial Regulatory

+44 20 7655 5528

+44 20 7655 5528

London

Thomas Donegan

Partner

Financial Institutions Advisory & Financial Regulatory

+44 20 7655 5566

+44 20 7655 5566

London

Alex Bevan

Partner

International Arbitration

+971 2 410 8121

+971 2 410 8121

+971 4 249 2100

+971 4 249 2100

Abu Dhabi

Susanna Charlwood

Partner

Litigation

+44 20 7655 5907

+44 20 7655 5907

London

Jesse D.H. Sherrett

Associate

International Arbitration

+1 202 508 8084

+1 202 508 8084

Washington DC

Wilf Odgers

Associate

Financial Institutions Advisory & Financial Regulatory

+44 20 7655 5060

+44 20 7655 5060

London