Dubai resurgence sees drop in legal disputes

By Asa Fitch

As Dubai’s economy rebounds, the number of commercial disputes in one of its main courts appears to be waning, too. Perhaps taking a cue from rising real estate prices and an influx of tourists, lawyers say many people are trying to settle their differences and move on.

The courts of the Dubai International Financial Centre, Dubai’s main financial free zone, have seen just nine new cases this year, and none has been filed since March. By this time last year, there were around 30 cases.

Disputes that once may have ended up in court are increasingly getting worked out before they get there, says Ludmila Yamalova, a lawyer at JPL Yamalova & Plewka in Dubai. The improving economy may play a role, but another reason that’s happening is that there’s a growing body of precedent in the DIFC courts. When people know what the legal outcome is likely to be, they’re more likely to settle out-of-court than go through a costly process with predictable results.

“Parties are now starting to settle,” Ms. Yamalova says. “If there’s a threat of taking it to the DIFC court, parties are much more inclined to settle than in the past.”

Another factor in the decline, she says, is the creation of special judicial bodies to hear disputes involving several large Dubai government-related companies, including Dubai World and Zabeel. Those judicial committees have taken disputes that would otherwise have been heard in the DIFC to other forums.

While fewer cases might seem like bad business for the courts, Mark Beer, the courts’ registrar, contends it’s evidence that the DIFC’s legal system is working: if the courts are known for a fair and speedy judicial process and if its rulings lay down a clear set of precedents, people will naturally see settlement as the most efficient path.

“We’re seeing high settlement rates, which means first that the court is getting it right and secondly that the economy is getting better,” he says. “The economy is buoyant, and the court is putting in place the right incentives for people to settle disputes.”

Whatever the complex of reasons, this year’s drop reverses a trend of growing legal action that followed the financial crisis. Nine cases were filed in 2008, the year when the crisis began to dent Dubai’s economy and send real estate prices tumbling. The number jumped to 36 in 2009, fell to 25 in 2010 and then went back up to 30 in 2011 and 46 last year.

The same trend of a declining number of cases has been playing out in the local Dubai commercial courts, which are more opaque but are much larger than the DIFC courts. A total of 893 large-value civil claims were filed in the Dubai courts last year, according to the courts’ annual report, down from 1,174 in 2011.

But while the number of new cases seems to be going down in Dubai, the hangover from the crisis is far from gone. A large contingent of disputes filed in recent years have stemmed from the decline in the local real estate market, which delayed major projects, left many investors penniless and forced some of the emirate’s largest companies to seek new terms on debt.

Many of those cases are still working their way through the courts, and will continue to be a thorn in the side of property developers as they try to get back to business.-Wall Street Journal