DUBAI: A landmark ruling by the court system in Dubai’s financial free zone suggests the emirate is starting to influence the way international business disputes are resolved in the Middle East, partly taking over that role from London and New York.

Last month a court in the Dubai International Financial Centre (DIFC) found Switzerland’s Bank Sarasin had mis-sold $200 million of investment products to Kuwait’s Khorafi family, ordering it to pay compensation.

Sarasin, which denied any wrongdoing, may appeal the ruling, and the amount of compensation hasn’t yet been fixed. But it was a startling judgement by a court system that has been operating only since 2006.

The case is an example of how the DIFC is emerging as a major legal jurisdiction for business in the region. A decade ago, the dispute would probably have been handled by a court in Geneva, London or New York.

“For many clients, mainly financial institutions and blue-chip corporations, DIFC Courts have become very important as a service centre,” said James Abbott, partner at global law firm Clifford Chance, which operates across the Middle East.

“They’re one reason, if not the main reason, for being headquartered in the DIFC.”

As the Middle East’s main banking hub, the DIFC channels much of the region’s oil wealth into Western financial markets. Many banks have been using a model in which investments are arranged by a DIFC-based subsidiary but actually sold from a foreign centre.

The court judgement found that although Sarasin used that model, the parent bank was effectively still doing business in the DIFC, leaving it liable for any mis-selling.

In legal terms, the DIFC Courts are a strange phenomenon: an island of British- and American-style common law inside an Islamic monarchy. They operate in English; other business courts across the Middle East work almost entirely in Arabic and tend to follow the French civil law tradition.

Like Dubai itself, the courts are entrepreneurial, actively seeking to attract more business because of the economic benefits to the emirate of hosting a big legal industry. Most of the world’s court systems simply handle cases that the law requires to be put before them.

In 2011, Dubai’s ruler moved to attract more legal business by allowing parties around the world to agree to refer their commercial disputes to the DIFC Courts, even if the disputes had nothing to do with the DIFC.

Michael Hwang, the DIFC Courts’ Chief Justice, said it was too early to tell whether this opt-in arrangement would bring many more cases to Dubai.

The DIFC Court system is the only common law court which uses for disclosure International Bar Association standards on taking evidence in international arbitration.

The courts have yet to see the high-profile Middle Eastern business disputes handled by London and New York.

Published in Dawn, September 30th , 2014