Recent decisions emanating from the UAE courts suggest a positive shift in favour of the enforcement of foreign arbitral awards under the New York Convention. However, the process can be long and cumbersome, as award debtors seek to drag enforcement proceedings through several layers of the local courts in order to delay matters.
The same is true for the enforcement of domestic arbitral awards which – in contrast with the enforcement of foreign awards under the New York Convention – are less predictable, as domestic arbitral awards must first undergo a ratification process before the UAE courts, which can involve the courts scrutinising and overturning awards on procedural grounds.
Consequently, award creditors have turned to the Dubai International Finance Centre (DIFC) courts in order to circumvent award debtors' attempts to delay enforcement proceedings before the onshore (ie, non-DIFC) courts.
In Banyan Tree Corporate Pte Ltd v Meydan Group LLC(1) the DIFC Court of Appeal confirmed its jurisdiction as a UAE court and its right to recognise and enforce awards seated in onshore Dubai within the DIFC, notwithstanding the absence of any connection with the DIFC (including any assets in the DIFC against which the award could be enforced at that time), and with the knowledge that the award creditors would seek to enforce the DIFC court's order in onshore Dubai. Banyan Tree thus extended a previous DIFC Court of First Instance decision relating to the recognition and enforcement of foreign arbitral awards (X v Y) to domestic awards.
The recent DIFC Court of First Instance ruling in DNB Bank ASA v Gulf Eyadah Corporation(2) further confirmed the DIFC courts' jurisdiction with respect to the recognition and enforcement of foreign judgments within the DIFC. However, DNB Bank clarifies that in contrast with award creditors, foreign judgment creditors cannot use the DIFC courts as a 'conduit' jurisdiction for enforcement in onshore Dubai.
This update considers the reasoning behind these decisions and the practical implications for award and judgment creditors seeking to enforce arbitral awards and judgments in the United Arab Emirates.
DIFC recognition and enforcement regime
The DIFC is an offshore financial free zone and legal jurisdiction geographically located within the United Arab Emirates. It has an independent judicial system and its own substantive civil and commercial laws, both of which are inspired by common law.
The DIFC Judicial Authority Law (Dubai Law 12/2004, as amended by Dubai Law 16/2011) established the DIFC courts and sets out a number of jurisdictional 'gateways' which confer exclusive jurisdiction on the DIFC courts to hear and determine claims, including the recognition and enforcement of foreign orders, decisions and judgments and arbitral awards ratified by the DIFC courts. The DIFC Court Law (DIFC Law 10/2004) further sets out the DIFC courts' jurisdiction and the practice and procedures that the courts must apply. The DIFC Arbitration Law 1/2008 is based on the United Nations Commission on International Trade Law Model Law.(3) Article 42(1) of the DIFC Arbitration Law provides that an arbitral award – irrespective of where it was made – will be recognised as binding within the DIFC and be enforced, subject only to the limited grounds for refusal set out in Article 44.
Once a DIFC court recognises a DIFC award, it can be enforced in Dubai pursuant to the Judicial Authority Law, which is supplemented by the 2009 Protocol of Enforcement between the DIFC courts and the Dubai courts.(4) Pursuant to the terms of the protocol, arbitral awards and judgments ratified by the DIFC courts can be enforced in the Dubai courts (and vice versa), subject only to certain procedural requirements. Moreover, the Dubai courts cannot examine the merits of a judgment or underlying award.
In accordance with Federal Law 11/1973 regulating Judicial Relations between Member Emirates in the Federation and Article 221 of the Civil Procedures Law, an award or judgment recognised by the Dubai courts should, in principle, also be enforceable in any other emirate within the United Arab Emirates.
X v Y
In X v Y the claimants were award creditors incorporated outside Dubai.(5) They sought an order recognising and granting leave to enforce a foreign arbitral award obtained in their favour against award debtors incorporated in onshore Dubai.
The award debtors challenged the DIFC courts' jurisdiction, arguing that the Dubai courts were the proper forum to hear the recognition and enforcement application since neither party had any connection to or assets in the DIFC. The defendants further alleged that the DIFC court proceedings were an abuse of process because the claimants were seeking to circumvent an enforcement action before the Dubai courts.
Deputy Chief Justice Sir John Chadwick of the DIFC Court of First Instance held that, pursuant to Article 5(A)(1)(e) of the Judicial Authority Law and Articles 42, 43 and 44 of the DIFC Arbitration Law, the DIFC courts have jurisdiction to hear claims in respect of the recognition of foreign arbitral awards, even where the award has no connection with the DIFC. Insofar as the DIFC is concerned, such jurisdiction existed to the exclusion of the Dubai courts. The court further held that it was not an abuse of process for a party to use the DIFC courts as a conduit jurisdiction in support of an enforcement action before the Dubai courts.
The DIFC courts came to the same conclusion in Banyan Tree.(6) Banyan Tree was incorporated in Singapore and had secured an arbitral award in its favour following a dispute relating to the termination of a hotel services agreement entered into between Banyan Tree and Meydan. The seat of arbitration was Dubai and the agreement provided for arbitration under the Rules of the Dubai International Arbitration Centre.
Meydan challenged the DIFC court's jurisdiction on grounds similar to that in X v Y. Justice Omar Al Muhairi of the DIFC Court of First Instance found in favour of Banyan Tree. Meydan sought and was granted leave to appeal on three grounds:
- First, Articles 42 and 43 of the DIFC Arbitration Law could not be read as conferring jurisdiction on the DIFC courts to recognise and enforce arbitral awards rendered in onshore United Arab Emirates where the award in question had no connection to the DIFC.
- Second, the DIFC court should deny its jurisdiction on the grounds of forum non conveniens (ie, that it was not the most appropriate forum), as the Dubai courts were the natural and proper forum for domestic arbitral awards to be recognised and enforced.
- Finally, Meydan claimed that the only legitimate reason for seeking an order for recognition and enforcement of an award in circumstances where neither party has assets in the DIFC is to take advantage of the enforcement policies in place to enforce a DIFC money judgment in the Dubai courts (through the protocol and the Judicial Authority Law) and that this was an abuse of process.
The DIFC Court of Appeal dismissed Meydan's appeal and confirmed that the DIFC courts have jurisdiction to recognise and enforce any arbitral award. In relation to the three grounds of appeal, it held as follows:
- The DIFC courts' jurisdiction was based on Article 5(A)(1)(E) of the Judicial Authority Law and Article 42 of the DIFC Arbitration Law. The court observed that:
"on its face [Article 42 of the DIFC Arbitration Law] imposes an obligation on the DIFC Court to recognise and to enforce an award irrespective of the state or jurisdiction in which it was made."
It further noted that, once service had been effected in compliance with the Judicial Authority Law, the court must recognise the award, subject to the limited grounds for refusing recognition set out in Article 44 of the DIFC Arbitration Law (which mirror those in Article V of the New York Convention). None of those grounds were the subject of the appeal. Further, the court rejected Meydan's argument that the physical presence of Meydan or its assets within the DIFC was a condition of the DIFC court's jurisdiction.
- The court also rejected Meydan's forum non conveniens argument, finding that:
"there is no alternative (let alone more appropriate) forum for the determination of the question whether the award should be recognised and enforced in the DIFC. The DIFC courts have exclusive jurisdiction and thus the point fails in limine."
- The court also found little favour with Meydan's abuse of process argument, concluding that it was legitimate for Banyan Tree to seek recognition and enforcement of the award in the DIFC. The court found that, while there was no evidence that Meydan had assets in the DIFC, it may have assets in the future against which enforcement could be sought. The court went on to note that an enforcement order would enable Banyan Tree to obtain details of any available assets. Thus, there was a legitimate purpose for seeking recognition and enforcement in the DIFC.
The DIFC Court of Appeal also considered that it was difficult to view the use of the DIFC courts' machinery as an abuse of process – not least before that machinery had even been invoked. The court noted that Meydan could still challenge the recognition and enforcement of the award under Article 44 of the DIFC Arbitration Law.
While X v Y and Banyan Tree confirm that the DIFC courts have jurisdiction to recognise and enforce any arbitral award – whether domestic or foreign – irrespective of any connection with the DIFC or an award creditor's intention to use the DIFC courts as a conduit to enforcement in the Dubai courts, the DIFC Court of First Instance's recent decision in DNB Bank has clarified that there are limitations insofar as foreign judgments are concerned.
In DNB Bank the claimants applied to the DIFC courts to recognise and enforce a judgment order issued by the English High Court requiring the defendants to pay $8.7 million plus costs under various finance documents. The defendants contended that the DIFC courts had no jurisdiction to recognise and enforce the English judgment on the basis that neither the parties nor the assets against which enforcement was sought had any connection with the DIFC. The defendants also alleged that the claimants' attempts to do so were an abuse of process.
The court rejected the defendants' arguments and held that it had jurisdiction to recognise and enforce a foreign judgment, irrespective of whether there were assets within the DIFC.
However, in rejecting the defendants' abuse of process argument, the court distinguished Banyan Tree by observing that, contrary to the recognition and enforcement of arbitral awards, the DIFC courts have no power to refer foreign judgments recognised by the DIFC courts to the Dubai courts for execution in onshore Dubai. Key to this distinction was the wording of Article 7(2) of the Judicial Authority Law, which refers only to the DIFC courts' ability to refer their decisions or ratified arbitral awards to the Dubai courts, not foreign judgments.
In dismissing the appeal in Banyan Tree the DIFC Court of Appeal confirmed its jurisdiction to recognise and enforce both foreign and domestic onshore arbitral awards, irrespective of any connection to or assets in the DIFC. Further, these judgments open the door to award creditors seeking to use the DIFC courts as a conduit jurisdiction so that DIFC orders recognising such awards can be enforced in onshore Dubai under the protocol, thereby circumventing the Dubai courts' ratification procedures.
However, these decisions pertain only to the DIFC courts' jurisdiction to entertain such claims. Whether the DIFC courts exercise their jurisdiction (including whether the courts exercise their discretion under Article 44(2) of the DIFC Arbitration Law to adjourn a recognition and enforcement application pending the outcome of an appeal to the courts of the seat of the arbitration) will ultimately depend on the facts of each individual case. It also remains to be seen how the Dubai courts will respond to this novel means of circumventing their ratification procedures.
Following DNB Bank, judgment creditors hoping to use the DIFC courts to circumvent the limited ability to enforce foreign judgments in the United Arab Emirates will be disappointed. While the matter has not yet come before the DIFC Court of Appeal, for now, parties doing business with UAE counterparties should continue to favour arbitration.
For further information on this topic please contact Sami Tannous or Sandra Azima at Freshfields Bruckhaus Deringer LLP by telephone (+971 4 5099 100) or email (email@example.com or firstname.lastname@example.org). The Freshfields Bruckhaus Deringer LLP website can be accessed at www.freshfields.com.
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