REUTERS | Navesh Chitrakar

How wide a conduit is the DIFC Court for ratification and enforcement of awards?

DNB Bank ASA v Gulf Eyadah Corporation and another has provided further clarity on the recognition and ratification of foreign awards and has, for now, drawn a line between the recognition and enforcement of arbitral awards and the recognition and enforcement of foreign judgments in the DIFC court.

Background and history

The UAE has a federal court system. In Dubai it comprises of the local or “onshore” courts and the “offshore” court, which is the DIFC court and is based in the Dubai International Financial Centre (a free zone in Dubai which has its own independent legal system).

One of the principal differences between the two jurisdictions is the legal system:

  • Onshore Dubai is a civil law jurisdiction with no official system of binding precedent.
  • Offshore DIFC is a common law jurisdiction that does utilise precedent.

Naturally, in a jurisdiction where there is no binding precedent, the outcome of proceedings is more difficult to predict. The perception is also that the onshore courts impose a more demanding procedure, particularly in relation to the enforcement of foreign arbitral awards.

Many judgment creditors are keen to avoid litigating or enforcing arbitral awards in the onshore courts. This has led to attempts to circumvent such procedural requirements by applying to the DIFC Court for enforcement even where the award debtor has no assets, and is not domiciled, in the jurisdiction (that is, there is no immediate nexus). As such the DIFC has come to be referred to as a “conduit” jurisdiction in these circumstances.

Legislative structure for enforcement in the DIFC

Article 42(1) of the DIFC Arbitration Law provides that arbitral awards shall be recognised as binding within the DIFC and shall be enforced subject to the provisions of articles 42-44. If the UAE has entered into a treaty for the mutual enforcement of judgments, orders or awards, the DIFC Court shall comply with the terms of that treaty.

Further, article 42(4) states that awards “recognised” by the DIFC Court may be enforced outside of the DIFC in accordance with the Judicial Authority Law (JAL). “Recognition” includes ratification for the purposes of article 7 of the JAL:

  • Article 7(2) provides that ratified awards will be enforced, provided it is “appropriate for enforcement” and “has been translated into Arabic”.
  • Article 7(3) states that the Dubai Court has no jurisdiction to review an award’s merits.

Thus, if the DIFC recognises (ratifies) an arbitral award, it should be “automatically” enforced by the mainland courts, without review of the merits. The key benefit being that the parties can avoid the potentially lengthier process of ratification in the local Dubai courts.

Recent cases on this issue

A spate of recent cases have demonstrated the reciprocal nature between Dubai’s federal court system’s courts. In each instance, parties without assets in the DIFC have had their arbitral awards ratified by the DIFC courts, thus confirming that the DIFC Court can be used as a “conduit” for enforcing both domestic and foreign arbitral awards in mainland Dubai.

This is a positive indication of the UAE’s increasing support for international arbitration.

XX (1) X1 (2) X2 v (1) Y1 (2) Y2

In July 2015, Justice Sir Anthony Coleman examined the issue in XX (1) X1 (2) X2 v (1) Y1 (2) Y2. The award creditor sought to enforce the tribunal’s award in the DIFC by making a claim to the DIFC Court, despite the fact that it did not have proof that the defendants had any assets in the jurisdiction, and were not located there.

The defendants’ resisted enforcement on several grounds, including an argument that the DIFC Court should refuse recognition and enforcement as the proceedings were:

“…a device to obtain, by means of Article 7… enforcement in non-DIFC Dubai without a substantive hearing in the courts of non-DIFC Dubai, thereby depriving the Defendants of the judicial procedure otherwise available to them.”

According to the defendants, it followed that the enforcement proceedings were contrary to the UAE’s public policy and contrary to Sharia Law. The defendants invited the court to exercise its discretion under articles 42 and 44 of the Arbitration Law to refuse recognition.

However, Justice Sir Anthony Coleman dismissed the defendants’ arguments and confirmed that:

  • The legislative structure had to be understood in the context of the New York Convention, to which the UAE was a party. The reference to public policy in Article 44 was consistent with Article V2(b) of the Convention. The judge quoted the UNCITRAL Digest, which summarises the general international approach to the meaning of public policy defence:

    “Only if the arbitral award fundamentally offended the most basic and explicit principles of justice and fairness in the enforcement State, or evidences intolerable ignorance or corruption of the part of the arbitral tribunal.”

  • The effect of Article 7 was that once an order for enforcement:

    “…lands on the executive judge’s table, he or she is bound to enforce it, provided that the pre-conditions specified in Article 7 (2)(a) and (b) are satisfied.”

  • An arbitration creditor who has chosen the DIFC Court “for enforcement purposes” could only be challenged on the grounds of non-compliance with Article V2(b) of the Convention (as expressed in Article 44 (1) of the DIFC Arbitration Law), once in the DIFC.
  • Neither the Convention nor the Arbitration Law required an award creditor to prove that the award debtor had relevant assets in the territory in order to obtain recognition and enforcement. The judge pointed out that if no assets were “available for execution”, that was the arbitration creditor’s:

     “misfortune and not the concern of the judge making the order for recognition.”

The judge noted that this was the first time the issue of public policy had been raised in the DIFC court in the context of recognition and enforcement of foreign arbitral awards. He drew a comparison to Meydan Group v Banyan Tree Corporate Pte Ltd, where the award debtor had argued that enforcement via the DIFC was an abuse of process by the award creditor because it did not have any assets in or connection to the DIFC.

Meydan Group v Banyan Tree Corporate Pte Ltd

Meydan v Banyan was concerned with a domestic arbitral award. The DIFC Court of Appeal dismissed Meydan’s argument, stating that it was difficult to classify the use of the legislative machinery as an abuse of process.

Justice Sir Anthony Coleman gave his support to the Court of Appeal’s decision and pointed out that, in choosing the mechanism by which to enforce the award, the claimant was doing no more than what Dubai’s procedure allowed.

DNB Bank ASA v Gulf Eyadah Corporation

DNB v Gulf is the latest case on this subject.  Here, DNB took the principles of reciprocity discussed above and attempted to apply them to the ratification of a foreign judgment. DNB obtained an English court order for payment and applied to the DIFC to ratify it.

The DIFC confirmed that it would recognise and enforce foreign judgments within the DIFC. However, unlike foreign and domestic arbitral awards, the “automatic” enforcement mechanism did not apply to foreign judgments, meaning that the DIFC could not be used as a conduit when it comes to the enforcement of foreign judgments.

Therefore, DNB v Gulf draws a line between the recognition and enforcement of arbitral awards and the recognition and enforcement of foreign judgments.

Where does that leave things?

This recent enforcement case law demonstrates that the Emirate of Dubai is clearly adopting a pro-arbitration stance, a key factor when it comes to being able to hold itself out as being a pro-business environment. The UAE recognises that the more straightforward, reliable and transparent such procedures are, the more certain parties can be when it comes to contracting with persons holding assets in the territory.

Parties do not have to have a connection to the DIFC to apply to the DIFC courts to enforce domestic and foreign arbitration awards (which can then be taken to the onshore Dubai courts for execution). The scope has been clarified by DNB v Gulf and, for now, the same rules on ratification and enforcement that apply to arbitration awards do not apply to foreign court judgments.

To end on a practical note, those involved in the drafting of contracts should carefully consider the dispute resolution clause and if the contracting parties have assets within Dubai, should think through the implications of including arbitration as the mechanism for dispute resolution.

Osborne Clarke Matthew Heywood Neeva Rice

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