REUTERS | Ilya Naymushin

UAE public policy at the crossroads between onshore and offshore: a variable geometry of sorts

In a recently published ruling (see Loralia Group LLC v Landen Saudi Company), the Dubai International Financial Centre (DIFC) Court of First Instance (DIFCCFI) contemplated the application of UAE public policy within the meaning of articles 41(2)(b)(iii) and 44(1)(b)(vii) of the DIFC Arbitration Law (see DIFC Law No. 1 of 2008 on Arbitration). These articles encapsulate the public policy exception as a ground for challenging or refusing to enforce an arbitral award rendered in the DIFC. More specifically, article 41(2)(b)(iii) empowers the DIFC courts to nullify or set aside an award that “is in conflict with the public policy of the UAE”, whereas article 44(1)(b)(vii) provides a corresponding tool to the DIFC courts to refuse enforcement for violation of that same public policy. Importantly, the public policy concerned here is that of the UAE, and as such suggests that the public policy applicable in the DIFC is identical to the public policy applicable onshore. Albeit that the ruling under discussion appears to confirm as much, it suggests that even though UAE public policy is identical as a concept and in content onshore and offshore, it might apply differently in the DIFC.

By way of background, in the main action, the DIFCCFI was asked to deal with a Part 8 application for the setting aside of a DIFC award rendered under the DIFC-LCIA Rules in favour of Landen Saudi Company (LSC), the respondent. LSC was awarded USD 7,356,016.22 plus costs and post-award interest for breach by Loralia Group LLC (Loralia), the applicant, of a distribution agreement in relation to the promotion and sale of the applicant’s products in the Kingdom of Saudi Arabia. Importantly, the costs element of the award included an award of the respondent’s legal fees in an amount of USD 692,002.66, USD 514,921.11 of which were calculated on the basis of 7% of the amount awarded to the respondent in the terms of the award. According to the applicant, this constituted a contingency fee in violation of UAE public policy, both under articles 41(2)(b)(iii) and 44(1)(b)(vii) of the DIFC Arbitration Law, the latter in response to the LSC’s cross-application for enforcement of the award.

In Loralia’s submission, public policy within the meaning of these articles was to be construed as federal UAE public policy, a public policy that was unitary and indivisible in its application throughout the UAE. According to Loralia, there was, more specifically, a UAE public policy against contingency fees. This was derived from and supported by the following sources, both onshore and offshore:

  • Article 31 of Federal Law No. 23 of 1991 regarding the Regulation of the Legal Profession (Law No. 23), according to which “it shall not be permitted for a lawyer to buy all of part of the rights which are in dispute, nor to agree to take a part thereof in respect of fees.”
  • Ministerial Resolution No. (666) of 2015 on the Code of Ethics and Professional Conduct of the Legal Procession in the UAE (Resolution No. 666), which ensures that Law No. 23 applied to all lawyers providing legal services in the UAE, including those acting in the DIFC and those involved in arbitration.
  • Article 7(c) of the Draft Charter for the Conduct of Advocates and Legal Consultants in the Emirate of Dubai, which stated that fees “must not be a share in kind of the disputed property rights”.
  • Article 9.3 of the DIFC Courts’ Code of Best Legal Professional Practice (DIFC Courts’ Best Practice Code), according to which “[a] Lawyer may not receive a contingency fee in respect of any litigious or contentious action”.
  • Article 8(2) of the Mandatory Code of Conduct for Legal Practitioners in the DIFC Courts (DIFC Courts’ Mandatory COC), according to which “[p]ractitioners shall not… undertake work in a manner which improperly increases the fees payable to them”. For the avoidance of doubt, LSC’s lawyers in the arbitration being registered with the DIFC courts and representing a party in a DIFC-seated arbitration under the DIFC-LCIA Rules, Loralia submitted that the disputed contingency fee arrangement fell within the scope of article 8(2) of the DIFC courts’ Mandatory Code of Conduct.

In response, LSC essentially contended for a transnational approach to UAE public policy, which did not prohibit contingency fee arrangements. Failing this, LSC invited the court to differentiate between DIFC and onshore Dubai public policy, advocating in favour of a transnational approach to public policy in the DIFC, which, according to LSC, was allowed to function differently from onshore Dubai.

Against this background, H.E. Justice Shamlan Al Sawaheli, handing down the ruling of the DIFCCFI, concurred with the submission that contingency fees formed part of onshore UAE public policy, placing reliance in particular on Law No. 23 read together with Resolution No. 666. According to the justice, the prohibition of contingency fees applied both to litigation and arbitration. That said, the justice ultimately concluded against the linear application to the DIFC of the prohibition on contingency fees that prevailed in the UAE and introduced a variable geometry of sorts in the application of UAE public policy onshore and offshore.

More specifically, in the justice’s reasoning, the structured body of legal instruments with respect to lawyer conduct and remuneration applicable in the DIFC warranted a differentiation in the application of the UAE public policy against contingency fees in the DIFC and onshore Dubai. Focusing on the DIFC as the main area of concern, the justice concluded that, even though contingency fee arrangements applied to lawyers’ fees might be illegal per se in onshore Dubai (on the basis of a plain reading of article 31 of Law No. 23, combined with the various provisions of Resolution No. 666 (see paragraph 38 of the DIFCCFI’s ruling)), the legal instruments in place with respect to lawyers’ fees in the DIFC warranted a more nuanced approach (the DIFC courts’ Mandatory Code of Conduct not containing any express reference to contingency fees) (see paragraphs 39 and 40 of the DIFCCFI’s ruling).

In turn, in the justice’s words, this invited  a “case-by-case scrutiny in the DIFC” (paragraph 43). In the justice’s reasoning, the common point of reference to which considerations on the admissibility of contingency fee arrangements were anchored both onshore and offshore was the question as to whether they qualified as “reasonable fees”. Whereas the onshore answer to this question might categorically be in the negative, in that contingency fees were regarded as falling within the category of unreasonable legal fees by definition, in the justice’s view, not all contingency fees were unreasonable within the DIFC. To the extent that they were not, they would be regarded as being compliant with UAE public policy (paragraph 44). Whether or not a specific contingency fee arrangement qualified as reasonable, and was hence compliant or not, was a question left for determination by the merits judge or an arbitral tribunal on a case-by-case basis.

Applied to the facts at hand, Justice Shamlan found that the subject tribunal had made sure in its award that the assessment of LSC’s lawyers’ fees was reasonable. Justice Shamlan concurred with that assessment. On that basis, the justice concluded that the award of costs, including the contingency fee arrangement, did not violate UAE public policy under articles 41(2)(b)(iii) and 44(1)(b)(vii) of the DIFC Arbitration Law, rejected Loralia’s application for setting aside, and granted LSC’s cross-application for recognition and enforcement of the award.

In the light of the forgoing, it is compelling to conclude that the justice’s ruling in Loralia lays the foundation stone for a variable geometry of UAE public policy onshore and offshore across the emirates. This will allow the UAE’s judicial free zones, including both the DIFC and the Abu Dhabi Global Market, to develop their own application of binding concepts of UAE public policy without running the risk of violating the public policy parameters set by the courts for application in the wider union. As a result, this will enable the informed practical differentiation of the application of the UAE public policy concept at the crossroads between onshore and offshore. This in turn, from a comparative law perspective, will facilitate the deeper systemic integration between the offshore common law and the onshore civil law legal systems. For all intents and purposes, the DIFCCFI’s ruling in Loralia demonstrates integrational judicial forces at their best in full motion.

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