Introduction
On 21st November 2024 the DIFC amended its Law on the Application of Civil and Commercial Laws (No 3 of 2004) (“the Application Law”) to clarify the relationship between the laws of the DIFC and the common law.
Background
The law of the DIFC frequently looks to other common law jurisdictions to shape its jurisprudence. However, the extent to which it can properly do so has been controversial, culminating in the DIFC Court of Appeal’s decision in The Industrial Group Ltd v Hamid [2022] DIFC CA 005 and 006.
In The Industrial Group, the Court held:
· DIFC Court judges were ‘not free to incorporate into DIFC law any common law development from any common law jurisdiction, simply because there has been such a development elsewhere and because the outcome might prove attractive to the Judges sitting on the individual case’ (§105);
· ‘Where DIFC (statutory) law identifies principles which come from other jurisdictions, it is legitimate to look to those jurisdictions to determine the content of the principles in question and their appropriate, incremental development.’ (§105)
· Where there are “gaps” in legislation, any reform should be statutory rather than through ‘impermissible judicial legislation’ (§110);
· Although English law is an important foundational feature of DIFC law ‘it cannot be assumed, merely because there has been a common law development in English law, that any such development will be transplanted into DIFC law. The sources of DIFC law are not confined to English law…’ (§111);
· Article 8 of the Application Law is a choice of law provision. If the law chosen under that article does not provide a particular remedy, the Courts do not “default” to the next available jurisdiction in the Article 8 “waterfall” (§120).
Although this confirmed a long-standing view that DIFC judges are not permitted to engage in judicial legislation, some commentators felt it generated uncertainty over the extent to which DIFC law could now be “backstopped” by the common law.
The Amendments
The DIFC Authority therefore consulted on amending the Application Law to clarify the DIFC’s relationship to the common law.
As a result, the Application Law has been amended to:
1. Replace “the Laws of England and Wales” with “DIFC Law” as the final jurisdiction in the Article 8(2) “Waterfall” of jurisdictions;
2. Insert a new Article 8A identifying how “DIFC Law” is to be interpreted:
⁃ Judges must apply any relevant DIFC Statute and any DIFC Court judgments interpreting and applying that statute;
⁃ ‘The common law (including the principles and rules of equity) supplements DIFC statute except to the extent modified by this Law or ay other DIFC law’;
⁃ The “common law” here includes that of ‘England and Wales and other common law jurisdiction’; and
⁃ This DIFC common law ‘must not be inconsistent with DIFC statute’.
3. Insert an Article 8B on how to interpret DIFC Statutes:
⁃ Interpretation ‘may be guided by’ common law jurisprudence ‘regarding the interpretation and application of analogous laws’, and ‘the rules and principles of statutory interpretation’ from those jurisdictions;
⁃ This is so regardless of whether or not the Statute has a common law basis – ones ‘based on an international model law or another common law source’ can still be interpreted according to common law principles; but
⁃ Where a Statute ‘is based on an international model law’, then the Court may also consider ‘international jurisprudence interpreting and applying the international model law, as well as interpretative aids and commentary published by international bodies regarding the International model law.’
Observations
These amendments provide welcome clarity following The Industrial Group Ltd v Hamid. The gaps that can and cannot be filled by the common law, and how the common law can be used to fill them, are now (hopefully) set out with precision.
The DIFC Authority decided against a further proposal to permit their Courts to incorporate causes of action, defences or remedies that existed in the law of England and Wales where it was ‘appropriate in the circumstances’ to do so. The common law can therefore only be used to fill in gaps in the existing law of the DIFC, either as a supplement or an aid to interpretation. But, in line with The Industrial Group, it cannot be used to import legal rights and remedies that do not otherwise exist in the law of the DIFC. Moreover, where the common law conflicts with DIFC Statutes, the latter prevails.
DIFC Statutes are themselves to be interpreted by reference to common law, and it is now explicit that this includes decisions from jurisdictions other than England and Wales. This is a codification of existing DIFC Court practice, which already relies on decision Australia, Canada, the USA and other common law jurisdictions.
Articles 8B(2)-(3) may be of particular interest. Some of the DIFC’s Statutes, such as the Contract Law and the Arbitration Law, are based on international model laws such as those of UNIDROIT and UNCITRAL respectively. Article 8B(3) says that such laws can be interpreted with the assistance of relevant international jurisprudence, interpretative aids and commentary. But this is prefaced by the word “also”, and preceded by Article 8B(2), which states that common law principles of interpretation and application apply ‘to all DIFC Statutes, regardless of whether [they]… are based on an international model law or another non-common law source.’
It follows that even where a DIFC Statute is based on a source such as UNCITRAL model laws, common law decisions can be used to assist with their interpretation. International materials are just one possible tool to deploy in the interpretative exercise. It will be interesting to see how that works in practice.
