Enforcement of a judgment against a debtor’s assets in Dubai can be a difficult process. Therefore, a recent DIFC Court of Appeal’s decision will be of interest to those considering dispute resolution options in Dubai – in particular, where a judgment is handed down by a court outside Dubai against a party with assets in Dubai.
To what extent can the DIFC Courts be used as a conduit for the enforcement of a foreign judgment in Dubai?
Dubai Courts v DIFC
The Dubai International Financial Centre (DIFC) in the UAE is an international financial centre and free zone. It is a separate jurisdiction with its own systems of laws (based largely on the English common law) and its own courts, the DIFC Courts.
Last month, the latest decision in DNB Bank ASA v Gulf Eyadah Corporation and Gulf Navigation Holdings PJSC opened up the possibility of using the DIFC as a conduit jurisdiction for enforcement against assets onshore in Dubai, a process which should be much easier than going directly to the courts onshore in Dubai (the Dubai Courts). The DIFC Court of Appeal allowed an application for the enforcement of a foreign court judgment and the referral of that judgment to the Dubai Courts for execution in a case that had no nexus to the DIFC.
The DIFC Courts have a mechanism for mutual recognition of judgments with the Dubai Courts. In DNB Bank v Gulf Eyadah, the DIFC Courts allowed an English judgment to be referred to the Dubai Courts under this mechanism. Previously, the DIFC Court had held that it would be necessary to approach the Dubai Courts directly in order to enforce a foreign judgment, which would be a more difficult process.
However, the question remains as to how this decision will be received by the Dubai Courts and other courts with which the DIFC has mechanisms for mutual enforcement.
DNB Bank v Gulf Eyadah
This case concerned a London Commercial Court judgment that the Norwegian financial services group DNB had obtained against two shipping companies in Dubai for USD 8.7 million.
DNB sought to enforce that award onshore in Dubai using the DIFC Courts as a conduit jurisdiction on the basis of the mutual enforcement mechanism. (The DIFC Courts have a memorandum of understanding as to enforcement with the English Commercial Court.)
The DIFC Court of Appeal held that it had a wide power to enforce foreign judgments and no nexus to the DIFC was necessary in order for it to accept jurisdiction and refer the matter to the Dubai Courts. The DIFC Court, reversing an earlier decision, held that:
“From the perspective of the DIFC courts, it is not wrong to use the DIFC courts as a conduit jurisdiction to enforce a foreign judgment and then use reciprocal mechanisms to execute against assets in another jurisdiction.”
On the question of enforcement before the Dubai Courts (which do have some discretion despite the mutual enforcement mechanism), the Court of Appeal held that the holder of the judgment would “enforce at its own risk”. The respondents did not make submissions on whether the Dubai Court would enforce the judgment. While the Dubai Courts have increasingly shown willingness to enforce DIFC Court judgments, it remains to be seen whether they share the DIFC’s perspective on the scope of its jurisdiction.
Should the DIFC Court have heard the case in the first place?
The DIFC Court of Appeal’s decision that a separate and independent judgment is created upon the recognition of a foreign judgment appears sensible and in line with established common law jurisprudence. However, it remains to be seen what view the Dubai Courts and other international courts will take on the issue of whether the DIFC Court had jurisdiction to hear the application in the first place (which we refer to as its “primary jurisdiction”).
The pertinent question is whether the DIFC Courts have, or should have, primary jurisdiction to recognise and enforce foreign court judgments where the applicant’s sole intention is to take advantage of mechanisms for mutual enforcement that the DIFC has with other jurisdictions, including the Emirate of Dubai.
In this case, the DIFC Court of Appeal’s consideration of its primary jurisdiction was limited to the question of whether the judgment debtor needed to have any assets in the DIFC in order for it to have jurisdiction. The Court held that:
“…the nature and whereabouts of the assets should only be dealt with after the local DIFC Courts judgment on the foreign judgment is obtained.”
Although the debtors in this case had assets in the UAE, this was not and could not have been a rationale for the DIFC Court of Appeal’s conclusion that it had primary jurisdiction. It confirmed that the presence or absence of assets in the jurisdiction should not be relied on in determining whether the court has primary jurisdiction and commented that:
“…it is not wrong to use the DIFC Courts as a conduit jurisdiction to enforce a foreign judgment and then use reciprocal mechanisms to execute against assets in another jurisdiction.”
What does the decision mean going forward?
This decision will be advantageous to parties looking to enforce foreign court judgments against assets and debtors in Dubai and will be of interest to those considering dispute resolution options with parties based in Dubai. It is of particular interest to those in the construction space who might be less familiar with the DIFC and its use as a conduit for enforcement onshore in Dubai, the potential for which has now been extended from arbitral awards to include foreign court judgments. However, the real impact of this decision is only likely to be felt when parties seek to enforce the DIFC Court judgment elsewhere, whether in Dubai or abroad.
While this decision will be welcomed in so far as it allows for enforcement against assets and debtors in Dubai, it remains to be seen whether the Dubai Courts and other foreign courts with which the DIFC Courts have reciprocal enforcement arrangements will react positively to the decision, particularly in light of the fact that the case had no real nexus with the DIFC and the main reason for approaching the DIFC Courts was to take advantage of the mutual enforcement mechanisms.