Consequences of ADGM’s expansion into Al Reem Island – Special Remedies in the ADGM Courts

In May of 2023, it was announced that as a result of UAE Cabinet Resolution No. 41 of 2023 (CR No. 41), the jurisdiction and territory of the ADGM was to be expanded to include the area of Al Reem Island, Abu Dhabi. This expansion resulted in a tenfold increase in the area and jurisdiction of the ADGM, making it one of the largest financial districts in the world.

Previously governed by UAE federal and Abu Dhabi local laws, from 24 April 2023, Al Reem Island forms part of the ADGM and will fall under its legal system.

In this article, we set out what CR No. 41 means for litigants in onshore proceedings where there is a nexus to Reem Island and discuss the remedies available to litigants in the ADGM courts.

The effect of CR No. 41

As a result of CR No. 41, the Abu Dhabi courts have begun to decline jurisdiction to hear cases where there is a nexus to Reem Island, even where those cases have already commenced.  For example, we have seen recent cases where the Abu Dhabi courts have declined to hear:

1. A bankruptcy case where the bankrupt company was registered in Reem Island, even though the Court had already appointed an expert to assess the financial position of the company and creditors had been notified;
2. A claim against a purchaser of a property in Reem Island under an “Ijara” contract.

What these decisions show is that regardless of how far along a particular case may be, if there is a connection to Reem Island, the Abu Dhabi courts may decline jurisdiction and the proceedings will have to be re-commenced in the ADGM courts under the ADGM civil procedure rules.

Obviously, such decisions will cause disruption and delay and will be particularly inconvenient for claimants who may have spent significant sums in legal fees in prosecuting their claims before the Abu Dhabi courts.  However, it is not necessarily all bad news.   The ADGM courts have several advantages over the onshore courts in terms of the range of remedies available to litigants.  We discuss these in more details below.

Forms of relief in the ADGM courts

1. Injunctive relief

Similar to other common law jurisdictions, ADGM Courts have the power to provide injunctive relief.

While the onshore courts can order interim relief in the form of attachment orders and the preservation of property, they do not really have the tools to grant mandatory injunctions compelling parties to undertake certain actions such as disclosing assets or producing documents.  Nor do they typically grant anti-suit injunctions.

The ADGM Courts on the other hand have a relatively wide range of injunctive remedies including:

1. interim injunctions;
2. interim declarations;
3. property preservation and inspection orders;
4. orders for the sale of property;
5. freezing orders;
6. disclosure and search orders; and
7. interim payment orders.

These remedies can be very useful in preserving contractual, proprietary and other rights pending the resolution of the underlying dispute.

2. Summary judgment

The Civil Procedure Code provides for a summary judgment procedure where a creditor’s entitlement is confirmed, urgent and where the claim is for a specified amount.  In practice, this relief is limited to cases where there is an admitted debt and the admission is expressly recorded in writing in the form of a settlement agreement, promissory note or cheque.

Part 9 of the ADGM Court Procedure Rules for a summary judgment procedure which allows parties to obtain a judgment without having to go through a full blown court proceeding.  A summary judgment on a claim or striking out a claim can be obtained if:

(a) the claimant has no real prospect of succeeding on the claim or issue; or

(b) the defendant has no real prospect of successfully defending the claim or issue; and

(c) there is no other compelling reason why the case or issue should be disposed of at trial.

Under the ADGM summary judgment procedure, there does not have to be an express admission of liability.   A party simply has to demonstrate that the other party’s case has no real prospect of succeeding.  If the Court agrees, then judgment will be issued without the need for an evidential hearing, substantially reducing the cost and time in disposing of the proceedings.

3. The Rule 30 procedure

In addition to the summary judgment procedure, the ADGM Civil Procedure Rules provides for a special, shortened procedure, for cases where the facts are clear and declaratory relief is required.  This is the “Rule 30 Procedure”. Under the Rule 30 Procedure, a claimant may use a simplified procedure to obtain a ruling from the Court on a question which is unlikely to involve a substantial dispute of fact.

4. Small claims

For claims or disputes having a value of US$100,000 or less (except for employment claims which must be commenced in the Employment Division) the ADGM has a small claims procedure.

Parties in the Small Claims Division can either be legally represented or they can represent themselves. Further, the Small Claims Division may give permission to a party to be represented by a non-lawyer employee or director, if the chosen person is able to present the party’s case in a manner to assist the court in reaching a just result. Further, lawyer costs are capped according to a sliding scale depending on the value of the claim, up to a maximum of US $1,000 for the commencement of the claim.

The procedural time frames in the Small Claims Division are short in order to support a swift resolution of the dispute. A defendant has only seven days after service of the claim to file a defence and a counterclaim (if applicable) and the claimant has another 7 days to file a reply and defence to counterclaim (if applicable).

5. Insolvency

ADGM offers one of the most sophisticated insolvency regulations in the region and provides for sometimes more flexible solutions than the onshore Courts.

The Insolvency Regulations were amended in 2020, primarily with the objective of providing greater clarity on the prescribed form and content in procedural matters. In addition, the ADGM provides for priority financing, allowing administrators to avail financing for purpose of administration costs and expenses.

In the onshore Courts, the Court’s consent is required to enforce a security, whereas such consent is not required in the ADGM for secured creditors.

In addition, cross border bankruptcy proceedings are not recognized by the onshore Courts, whereas the ADGM Courts recognize cross border insolvency, including winding up of non-ADGM companies (in limited circumstances) and recognition of foreign insolvency proceedings.

6. Legal costs

With respect to legal costs, specifically referring to the legal fees incurred, the ADGM Courts come with the advantage that such costs are recoverable under the usual common law rules  –  the loser pays the winning party’s costs on either the standard or indemnity basis.

The costs provisions for the onshore Courts provide for the inclusion of “costs” in the Courts’ judgments, and those generally should be borne by the party who lost the dispute. However, in the onshore Courts “costs” includes all costs incurred in the legal proceedings, including court fees, expert fees etc. Typically, the onshore Courts will grant the successful party the court and expert fees (if one is appointed by the court) it has incurred but no more than a very minimal token amount in respect of its legal costs, which inevitably proves to be more than insufficient to cover the actual legal fees incurred.

Summary

The change from local laws to the ADGM Courts might be a blessing in disguise for some claimants or defendants, who can benefit from the more flexible approach when it comes to interim injunctions and specific procedures and shortened times to judgments.

The above are just examples of the adaptiveness to disputes of the ADGM Courts and it can be seen that it is of vital importance to consider the dispute in question and then choose the right route to the Courts in order to reduce time and cost of any dispute and/or in order to achieve a result in the shortest possible time.