Companies owed money by Dubai World and its subsidiaries should be aware of three recent developments.

  • First, the Government of Dubai announced that it has finalised the proposal that will be put to creditors of Dubai World and Nakheel to resolve all outstanding demands and claims
  • Secondly, the Dubai Court of First Instance dismissed a case against Nakheel on the basis that the Dubai World Tribunal had – by Decree 57 of 2009 – taken jurisdiction from the Dubai Courts to hear and decide such matters
  • Third, the Special Tribunal issued a practice direction relating to arbitration clauses in contracts with Dubai World companies

While the first development attracted global media interest, to date there has been little or no comment on the second and the third, which in combination amount to an important clarification of the legal position relating to Decree 57.

Background

As set out in previous updates, upon Decree 57 of 2009 being issued in December 2009, a legal framework for the settlement of demands and claims against Dubai World and its subsidiaries was established. A Special Tribunal created by Decree 57 will hear and decide such matters by reference to the DIFC Insolvency Law and other laws, as tailored to Dubai World by the terms of Decree 57 itself.

To the extent that Decree 57 gave the Special Tribunal such jurisdiction, the Dubai Courts are not permitted to decide claims against Dubai World and its subsidiaries. However, different opinions have been expressed in the legal community as to whether the Special Tribunal is "fully operational" now or whether Decree 57 only gives it a role if and when a Dubai World subsidiary applies for relief under the DIFC Insolvency Law. It was also unclear from Decree 57 whether the Special Tribunal is intended to usurp any arbitration agreement contained in the contracts with Dubai World companies.

Proposal to creditors

On 25 March, the Government of Dubai announced that an arrangement would be proposed to creditors of Dubai World and Nakheel that was backed by up to US$9.5 billion of funding from the Government of Dubai (including US$5.7 billion from the funds previously made available by the Government of Abu Dhabi). While the detail of the proposal will only be revealed to individual creditors in private discussions, the announcement stated that the Nakheel Restructuring Proposal would feature an offer to trade creditors of "a significant cash payment shortly and a tradable security".

Significantly, only Dubai World and Nakheel were the subject of the announcement, with no comment being made on proposals (if any) being developed for other subsidiaries of Dubai World. In addition, neither Dubai World nor Nakheel have – as yet – issued any application to the Special Tribunal in relation to the proposal and therefore the time limits set out in the DIFC Insolvency Law for creditors to submit demands and claims have not yet started to run. Other than saying that "the restructuring process is expected to take several months to implement", the announcement did not specify when such an application to the Special Tribunal might be made.

Decision of Dubai Court of First Instance

On 17 March, the Dubai Court of First Instance dismissed a claim after Nakheel raised the argument that Decree 57 prevented the Dubai Courts from hearing the matter. The case concerned ownership of certain real estate that the plaintiff said should be registered as having been transferred from Nakheel to it. The Court declined to hear the matter on the basis that Decree 57 had given the Special Tribunal exclusive jurisdiction, apparently without considering the issue of whether Decree 57 only intended that such jurisdiction should arise if and when Nakheel makes an application to the Special Tribunal under the DIFC Insolvency Law.

The case is a useful insight into the current thinking of the Dubai Courts in respect of Decree 57, however it should be noted the Court of First Instance is an inferior court and does not yield much influence in terms of establishing settled thinking. The case may yet be appealed by the plaintiff and the decision reconsidered or overturned by a superior court. It should also be noted there is no official law of precedent whereby the Dubai Courts are bound by previous decisions. Courts may have regard to and be persuaded by previous decisions, so this should be viewed as an initial step towards the clarity that many creditors are seeking.

Practice Direction issued by Special Tribunal

On 30 March, the Special Tribunal issued Practice Direction No. 1 of 2010 stating that it has a policy "to respect and enforce arbitration agreements made between [Dubai World] and its creditors". The practice direction states further:

"Where disputes have already arisen, the Tribunal expects the parties to continue with pending arbitration proceedings in accordance with their contractual obligations. Applications in relation to arbitration agreements or to pending arbitration references which would otherwise have been made to a Court may be made to the Tribunal."

In confirming that arbitration still has a role to play in disputes with Dubai World companies, this practice direction has addressed one a major point of uncertainty arising from Decree 57. In addition, where a party would have previously applied to the Dubai Courts to enforce an arbitral award or to support an arbitration, such application will now be made to the Special Tribunal.

Notwithstanding this, parties should take account of various strategic considerations before commencing arbitration against Dubai World companies. One issue bearing on this strategy is whether or not the Special Tribunal will still require parties to complete arbitration if the relevant Dubai World subsidiary has issued an application to the Special Tribunal under the DIFC Insolvency Law. Given the announcement issued by the Government of Dubai on 25 March, this issue may become an issue of some importance in the near future.

Upon there being any further developments in relation to these issues, we will issue further updates.

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.