United Arab Emirates: Limitation Funds: A Landmark Decision In Dubai

Last Updated: 24 January 2018
Article by Robert Lawrence

A recent decision of a specialist tribunal in Dubai could have far-reaching consequences for the maritime industry. In this article Robert Thomas QC, of Quadrant Chambers, and Robert Lawrence and Leonard Soudagar, of Clyde & Co, examine how it is now possible, in certain circumstances, for a shipowner to set up a limitation fund in the UAE. The decision is of interest to shipowners worldwide given the low limits that would apply and the scope for the specialist tribunal to hear disputes that are entirely unconnected with the UAE, but there is a real concern that there is now an uneven playing field in the UAE.

There is clear anecdotal evidence that the "on shore" courts in the UAE have been unwilling to grant limitation decrees or permit limitation funds to be constituted even in obvious cases.

What is the Dubai World Tribunal (DWT)?

The DWT was originally constituted in 2009 as a specialist tribunal in the aftermath of the international financial crisis to relieve the local courts' caseload and in circumstances where the Government of Dubai was under severe financial pressure and concerned that this might affect the stability of the government-owned Dubai World group of companies.

Unsurprisingly, therefore, Decree (57) of 2009 ("the decree"), which gave life to the DWT, focused primarily on establishing a set of insolvency rules and procedures based on those already applicable in the Dubai International Financial Centre ("the DIFC"). These in turn were based on US and UK law and therefore quite different from those which would otherwise have applied in the UAE. Unlike the DIFC, however, the DWT was mandated to apply UAE law to the disputes before it. The decree (as subsequently amended) also provided that the DWT was to have jurisdiction over "all claims and demands by and against Dubai World or any of its subsidiaries" to the exclusion of the local "on shore" courts.

As the Government of Dubai sought to restructure its business interests, the DWT saw a significant workload in its early years, most notably resolving disputes relating to the real estate company, Nakheel, a former Dubai World subsidiary. However, as the world economic outlook improved and the restructuring progressed, the tribunal's workload decreased to such an extent that in 2017 there were only two cases started before the DWT and it is understood that there have been discussions about disbanding it.

"The CENTAURUS"

The Tribunal's judgment in one of those two 2017 cases may, however, lead to renewed interest in the DWT, particularly from the maritime sector. In a judgment in Claim No DWT 0001-2017, the MV CMA CGM CENTAURUS, published on 22 January 2018 the DWT accepted the shipowner's argument that it had jurisdiction to and should make an order permitting the constitution of a limitation fund pursuant to the Convention on Limitation of Liability for Maritime Claims 1976 ("the 1976 Convention") which the UAE had implemented by Federal Decree No (118) of 1997.

In so finding, the DWT (which included one former English Admiralty Judge) was untroubled by the fact that a limitation decree is a unique legal concept which is generally understood as being "good against the world" (including parties not specifically joined in the proceedings) or by the fact that its rules contain none of the relevant procedures required to govern and administer a limitation action. Its response that it had regularly adjudicated on property rights within the UAE and therefore effectively made rulings in rem and good against "the whole world" is, it is suggested, an inexact analogy and the consequences of its judgment may well be felt far beyond Dubai.

Comments

The judgment would appear to pave the way for the DWT's special jurisdiction to be invoked in maritime disputes that are entirely unconnected with the UAE.

By way of example, if a container ship (the largest of which may now carry not far short of 20,000 containers) was involved in an incident in the Singapore straits, the fact that there was on board a single consignment of cargo belonging to a Dubai World company would justify the commencement of a limitation action before the DWT, even if no claim was brought by that entity. This is because, as part of its judgment, the DWT found that, on the internationally controversial question of the meaning of Article 11 of the 1976 Convention, UAE law follows the English Court of Appeal decision in The Western Regent and does not require any substantive claim to have been made against the shipowner in the jurisdiction before limitation proceedings may be commenced.

Another consequence of the judgment is the real risk of an uneven playing field developing within Dubai. There is clear anecdotal evidence that the "on shore" courts in the UAE have been unwilling to grant limitation decrees or permit limitation funds to be constituted even in obvious cases. The DWT considered this issue in its judgment but dismissed it as irrelevant on the basis that no evidence to support the proposition had been put before it. This is unfortunate not least because both first instance and Court of Appeal judgments are not publicly available in the UAE, while ultimately only some Court of Cassation judgments are, and it was not, therefore, possible to provide such evidence. Since, however, both these courts and the DWT are applying the law of the UAE, the potential conflict is clear.

This also illustrates one of the difficulties which arises from the DWT's mandate to apply the law of the UAE. None of its members are qualified in that jurisdiction and, unlike almost all national courts, therefore, they often find themselves unable to make findings as to the law which they are applying without assistance from local lawyers (ie effectively experts). This is further illustrated in the judgment where the DWT expressed itself as unwilling to accept the submission that, as a matter of UAE law, a P&I Club letter of undertaking ("LoU") was not acceptable as security (for the release of a vessel from arrest and therefore by analogy for the constitution of a limitation fund) and instead cash or a local bank guarantee would be required. Once again, the Tribunal cited the lack of evidence as the reason for rejecting that submission.

Conclusion

The result of the judgment is that before the DWT at least, the law, practice and procedures for constituting a limitation fund and seeking a limitation decree are very similar to those of the UK. The important difference from the shipowner's point of view, however, is that (unlike the UK) the UAE has not acceded to the 1996 Protocol and that, therefore, the figure to which it will be able to limit its liability will be substantially smaller. For any incident in which a Dubai World entity may be involved, seeking to limit in an action brought before the DWT may, therefore, be an attractive choice.

If you have any questions, please do not hesitate to speak to Robert Lawrence and Leonard Soudagar, the co-authors of this update, and the solicitors acting for DP World in "The CENTAURUS".

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.

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