License, not location: Determining ADGM Court Jurisdiction over businesses

In the dynamic and rapidly evolving commercial environment of the United Arab Emirates, the question of which court is competent to adjudicate disputes arising from a company's operations is not a mere procedural formality but a matter that goes to the heart of corporate risk management and the protection of commercial assets. A recent decision of the Abu Dhabi Court of Cassation illustrates with particular clarity why businesses must remain attentive to the forum in which they may be sued, the manner in which their contractual arrangements will be construed, and, above all, the decisive role that corporate licensing plays in determining the court of competent jurisdiction.
 

The question before the court: Geographic presence or licensing status

The dispute raised a question of considerable practical significance for the business community operating in Abu Dhabi, namely whether the mere fact that a company maintains its headquarters or an operational office on Al Reem Island is, of itself, sufficient to subject that company to the jurisdiction of the Abu Dhabi Global Market (ADGM) Courts. The court of first instance had answered that question in the affirmative, holding that the ADGM Courts were competent to hear the claim solely by reason of the company's physical presence within the geographic boundaries of Al Reem Island. That reasoning was challenged on appeal and the Abu Dhabi Court of Cassation set aside the lower court's ruling, thereby affirming a clear and authoritative principle as to the basis upon which ADGM jurisdiction attaches to entities located within its expanded geographic scope.
 

The principles established by the Court of Cassation

In interpreting the extension of ADGM's geographic jurisdiction effected by Law No. 12 of 2020, which amended Law No. 4 of 2013 concerning the Abu Dhabi Global Market, the Court of Cassation articulated the following principles, each of which merits the careful attention of corporate decisionmakers. Registration and licensing as the determinative criterion. For an entity operating on Al Reem Island or Al Maryah Island to fall within the jurisdiction of the ADGM Courts, it must be duly registered and licensed as an establishment within the ADGM framework. Physical presence within the relevant geographic area, without more, is legally insufficient to confer jurisdiction upon the ADGM Courts. The continuing effect of an onshore license. Where a business operating on the island holds an independent commercial license issued by the Abu Dhabi Department of Economic Development (ADDED), it remains subject to the jurisdiction of the onshore Abu Dhabi Courts, and not to that of the ADGM Courts, notwithstanding its location. The position during transitional periods. The Court further observed that, during any transitional or grace period afforded to companies to regularise their status within the expanded geographic scope of ADGM, a business cannot be brought prematurely within ADGM jurisdiction where it has not yet completed the formal registration and licensing procedures required to constitute it as an ADGM establishment.
 

Why the forum matters

Whether a company is concluding commercial contracts, managing joint ventures and partnerships, or responding to the prospect of litigation, certainty as to the competent forum is of fundamental importance. The onshore UAE Courts and the courts of the financial free zones, such as the ADGM Courts, operate under distinct procedural rules and substantive bodies of law, conduct proceedings in different languages (Arabic and English respectively), and are rooted in different legal traditions, the former in the civil law and the latter in the common law. A company that finds itself drawn into an inappropriate forum, whether by reason of a counterparty's misapprehension of the applicable geographic boundaries or otherwise, may suffer significant operational disruption, be exposed to an unanticipated interpretation of its contractual rights and obligations, and incur legal costs well in excess of those it would otherwise have borne. The decision of the Court of Cassation therefore underscores the importance of a precise and proactive legal strategy in the drafting of commercial agreements, in the review of corporate structures and licensing arrangements, and in the assessment of any claim at the threshold stage of jurisdiction.
 

How we can assist

The protection of a company's commercial interests in this context calls for a thorough understanding of the local legal landscape, sound technical judgment, and the ability to anticipate how jurisdictional questions are likely to be resolved before they become the subject of contested proceedings. Our team regularly advises clients on onshore and free zone structuring, the drafting of jurisdiction and dispute resolution clauses, and the conduct of proceedings before the onshore Courts as well as the ADGM and DIFC Courts.
Should you wish to review the jurisdictional position of your business, or require assistance in navigating these frameworks, we would welcome the opportunity to discuss how we may assist you.
This article is provided for general information purposes only and does not constitute legal advice. Specific advice should be sought in relation to any particular circumstances.

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