International commercial contracts frequently raise a recurring jurisdictional question: is an agreement between the parties conferring jurisdiction on a foreign court sufficient to exclude the jurisdiction of the UAE courts, even where the dispute is connected with the UAE through the performance of the obligation, the location of the funds, or the place of payment?
The Dubai Court of Cassation addressed this issue in a recent judgment that established an important principle in the field of international judicial jurisdiction. The Court held that Dubai Courts may not decline to hear a case where one of the legally prescribed grounds for their jurisdiction exists, even if the parties have contractually agreed to confer jurisdiction on a foreign court. The Court further confirmed that litigation procedures are matters of public order, and that a court may not give effect to a foreign jurisdiction clause where its jurisdiction has been established under the law.
Brief Background to the Dispute
The dispute arose out of an international commercial contract between a UAE-incorporated company, represented by our firm in the proceedings, and a foreign company. The UAE company claimed remuneration for commercial services rendered in connection with a wider cross-border commercial transaction. A substantial part of that remuneration was paid by the foreign company into the UAE company’s bank account in the UAE, before a dispute arose over the unpaid balance of the same contractual obligation.
The UAE company brought proceedings before the Dubai Courts to claim the remaining amounts due. The final first-instance judgment, after examining the merits of the case and the expert report, ordered the foreign company to pay the outstanding amount. The court held that the UAE company had fulfilled its contractual obligations, and that the partial payment made by the foreign company constituted a practical acknowledgment that the conditions for entitlement had been satisfied and that the obligation remained due from the foreign party.
However, the broader significance of the dispute did not lie in the amount awarded, but in the principle laid down by the Court of Cassation on jurisdiction: where a sufficient legal connection with the UAE exists, a contractual clause conferring jurisdiction on a foreign court cannot defeat the jurisdiction of the UAE courts.
The Core Principle Established by the Court of Cassation
The Court of Cassation held that UAE courts have jurisdiction over a foreign defendant with no domicile or place of residence in the UAE where the claim relates to assets located in the UAE, or to an obligation concluded, performed, or required to be performed in the UAE. The Court also held that, in commercial matters, jurisdiction lies with the court within whose territorial circuit the agreement was concluded, where the agreement was performed in whole or in part, or where it ought to have been performed.
On that basis, the partial performance of a financial obligation within the UAE, by depositing funds into a bank account in the UAE, constitutes a legally relevant connection sufficient to establish jurisdiction for the court within whose circuit that performance occurred, provided that the claim concerns the remaining balance of the same obligation.
The importance of the judgment lies in its confirmation that the existence of a foreign jurisdiction clause does not affect the jurisdiction of Dubai Courts once one of the statutory grounds for jurisdiction is present. The Court confirmed that it may neither relinquish its jurisdiction nor follow the parties’ agreement conferring jurisdiction on a foreign court, because rules governing litigation and jurisdiction are matters of public order.
Funds Deposited in the UAE as a Jurisdictional Connecting Factor
One of the most significant aspects of the Court of Cassation’s reasoning is its statement that the connecting factor for assets is the location of the asset in dispute where that asset is situated in the UAE, whether the asset is immovable or movable. The Court further held that this principle also applies to money deposited in the UAE.
This finding is of considerable practical importance in international commercial disputes. Payment into a bank account in the UAE is not always a neutral payment mechanism; it may become a relevant factor in determining jurisdiction where the payment constitutes part performance of the obligation in dispute.
This does not mean that any passing bank transfer will, by itself, be sufficient to establish jurisdiction. The decisive question is whether the funds or transfer are connected to the obligation forming the subject matter of the claim. Where the deposited amount constitutes partial performance of the contract, and the claim concerns the remaining balance of that same obligation, the connection with the UAE becomes substantive rather than incidental.
The Limits of Foreign Jurisdiction Clauses
This principle does not undermine the importance of jurisdiction clauses in international contracts. Rather, it places them within their proper legal framework. Such clauses remain relevant as expressions of party autonomy, but they do not operate in isolation and do not have absolute effect against jurisdictional rules prescribed by the legislature.
Where UAE court jurisdiction is established because the obligation, or part of it, was performed within the UAE, or because the assets in dispute are located in the UAE, a foreign jurisdiction clause cannot, by itself, disable that jurisdiction. The judgment therefore distinguishes between the parties’ freedom to regulate their contractual relationship and jurisdictional rules as mandatory procedural rules connected with the authority of the court and public order.
Practical Effect of the Judgment
The judgment carries an important message for foreign companies, investors, and parties dealing with UAE companies: inserting a foreign jurisdiction clause into a contract is not, by itself, sufficient to avoid litigation before the UAE courts if the manner in which the contract is performed creates a genuine connection with the UAE.
Key examples of such a connection include the performance of part of the obligation in the UAE, the deposit of funds forming the subject matter of the dispute into a bank account in the UAE, or the connection of the claim with an obligation performed, in whole or in part, within the territorial circuit of one of its courts.
The judgment also serves as a reminder to practitioners that jurisdiction clauses in international contracts should be drafted as part of a broader and coherent framework that considers the place of performance, payment mechanics, and the location of funds, rather than merely inserting a theoretical reference to a foreign court.
Conclusion
The Dubai Court of Cassation has established a significant principle for international commercial disputes: where one of the grounds for Dubai Courts’ jurisdiction exists, the courts may not decline to hear the case merely because the parties agreed to confer jurisdiction on a foreign court.
The judgment confirms that jurisdiction under UAE law is not a purely contractual matter. It is governed by mandatory procedural rules connected with public order. Where a dispute is linked to the UAE through performance of the obligation, the presence of funds, or the place of payment, UAE courts remain competent where the legal requirements for jurisdiction are satisfied.
In doing so, the judgment strikes a careful balance between respecting party autonomy in international contracts and protecting the jurisdiction of UAE courts where there is a genuine connection between the dispute and the territory of the UAE.
Abdulla Alhaddad Advocates and Legal Consultants
