Lessons from Commercial Bank of Dubai v Almheiri

Answer

In cross-border disputes, one of the first and most important questions to consider is: which law applies? It’s common practice – and indeed best practice – for parties to predetermine which country’s laws will apply in the event of a dispute. This is called the governing law (or choice of law). It’s a vital clause that enables parties to specify what substantive law the court will use to interpret the terms of their contract.

Where parties haven’t agreed upon a governing law, resolving disputes can be far from straightforward. This brings us to the Rome II Regulation (EC) No 864/2007 (Rome II), which seeks to bring clarity to this issue. It sets out a legal framework for determining the applicable law in cross-border disputes involving non-contractual obligations, which centres on the question of where the damage occurred. For disputes where the place of (non-contractual) damage can be clearly identified – such as when goods are damaged in transit by a third party – Rome II presents an effective solution.

Yet what if the location of damage isn’t clear? As the recent case of Commercial Bank of Dubai v Almheiri [2025] reminds us, Rome II still leaves plenty of room for uncertainty, particularly where the harm involves pure economic loss.

The case: a quick recap

The case of Almheiri involved claims of malicious prosecution in respect of two sets of proceedings in the Dubai International Financial Centre (DIFC). Put simply, malicious prosecution is a common law tort involving the wrongful initiation of legal proceedings against another person with malice and without probable cause, resulting in harm.

The claimants, which included the Commercial Bank of Dubai, sought to bring claims for malicious prosecution against the defendants, whom they alleged had maliciously instituted civil proceedings against them for breaches of contract and mismanagement of investments. The claimants argued that the proceedings brought in the DIFC had caused financial losses in various other jurisdictions, in the form of legal costs defending these claims in the UAE, England and Australia, as well as losses resulting from delays in recovering properties in England and Wales.

Rome II: the basics

Although Rome II applies predominantly in EU member states, and in the UK as “assimilated EU law”, it was relied on in Almheiri due to the absence of a governing law clause and the non-contractual nature of the damage. This isn’t unusual practice. DIFC courts often turn to different international principles for guidance, especially in cross-border matters as it enables the DIFC to align its practices with international standards and ensure a fairer approach across the jurisdictions involved.

Article 4 of Rome II specifies the tiered framework for establishing applicable law:

• The default position under Article 4(1): the applicable law is that of the country where the damage occurs.
• The mandatory exception under Article 4(2): however, where the parties share the same habitual residence, the law of that country shall apply.

• The catch-all provision under Article 4(3): where the circumstances of the tort are manifestly more closely connected to a country other than that indicated in sub-paragraphs (1) and (2), the law of that country shall apply instead.

The problem with pure economic loss

Arguing that they’d suffered loss of money, business opportunities and reputation, the claimants in Almheiri sought compensation only in respect of pure economic loss (ie, financial damage incurred without any physical harm to person or property). The problem with such losses, however, is that it’s not always possible to identify a clear or singular location in which the damage occurred.

While the alleged harm occurred as a result of proceedings in the DIFC, the claimants argued that the financial and reputational damage had been realised elsewhere – in the UAE. Where, then, did the damage occur? Was it where the bank accounts used to pay the legal fees were located? Alternatively, did the damage occur where the legal retainers had been signed, or where the legal work had been performed? Perhaps it was where the claimants’ business interests had suffered the most harm?

Confronting these dilemmas, Justice Foxton distinguished between primary and secondary losses. Addressing Article 4(1), he noted that the focus should lie on identifying the place where the direct damage had occurred. In claims for malicious prosecution, he reasoned, the primary damage isn’t in the consequential financial harm, but in the wrongful initiation of legal proceedings. Since those proceedings were brought in the DIFC, this was deemed the proper place where the damage had occurred, making DIFC law the applicable law for the claims.

Why this matters for businesses

Rome II’s limited and inconsistent application to economic torts isn’t just a legal dilemma – it’s a business risk. Disputes can be difficult to resolve even at the best of times. A lack of consensus as to governing law means a greater risk of complicating matters from the outset and unpredictable outcomes.

As mentioned above, it was found in Almheiri that the DIFC was the place where the damage had occurred. Yet this presented another significant issue: malicious prosecution isn’t a recognised civil tort in the DIFC. As reiterated in The Industrial Group v El Fadil Hamid [2022], DIFC law operates as a closed legal system: unlike English common law jurisdictions where courts may develop torts through precedent, the DIFC courts are bound by statute and can’t apply torts unless expressly stipulated for in DIFC legislation.

What did this mean for the claimants? Although Rome II pointed to the DIFC as the applicable law, the claimants were left without a remedy as DIFC law didn’t recognise the cause of action they sought to pursue. This presented a kind of legal dead end, necessitating the case to be pursued and heard under English law.

Conclusion

Almheiri brings into focus some of the difficulties of applying Rome II to international commercial disputes. In theory, the regulation provides a wide and robust framework for identifying the applicable law in non-contractual disputes. Yet in practice, reliance under Article 4 upon a single place of damage sits uncomfortably with pure economic loss and how this might manifest across multiple jurisdictions. Perhaps, then, in that sense, Rome II is inadequate to handle disputes involving pure economic loss.

Nonetheless, there are steps that commercial parties and their lawyers can take to mitigate complications under Rome II. In the latter part of his judgment, for example, Foxton emphasised strategic use of Article 14 of the regulation, which enables parties to agree in advance on the governing law for non-contractual obligations. This is an underused but effective mechanism for reducing legal uncertainty in cross-border disputes, as far as applicable law goes. By carefully drafting and incorporating express governing law clauses, businesses can directly address the challenges faced by the claimants in Almheiri and significantly reduce legal uncertainty.

Julee Lee is a trainee solicitor at DWF Group Limited.