Introduction

In the decade since their establishment, the Dubai International Financial Centre (DIFC) courts have become a fundamental feature of the legal landscape in Dubai, the United Arab Emirates, the Gulf Cooperation Council (GCC) and beyond.

As the only common law dispute resolution forum in the United Arab Emirates, the DIFC courts have helped to maintain the United Arab Emirates' position on the world stage as a focal point for local, regional and international business communities. This update explores four significant developments that have dominated the DIFC courts' agenda in 2015.(1)

Expanded reach of DIFC court judgments

The DIFC courts have been actively signing memoranda of guidance on enforcement with judicial authorities across a number of jurisdictions in order to facilitate the mutual recognition and enforcement of judgments and orders. These memoranda aim to provide additional contractual certainty by establishing procedures for the mutual enforcement of money judgments among the following jurisdictions:

  • the US District Court for the Southern District of New York (March 22 2015);
  • the Supreme Court of Singapore (January 19 2015);
  • the Federal Court of Australia (March 29 2014);
  • the High Court of Kenya (Commercial and Admiralty Division) (November 27 2014);
  • the Commercial Court of England and Wales (January 23 2013); and
  • the New South Wales Supreme Court (September 9 2013).

The main purpose of these agreements is to set out the parties' understanding of the procedures for the recognition and enforcement of each other's money judgments in the counterparty's respective courts. The memoranda are concerned only with judgments requiring a person to pay a sum of money to another person.

While these memoranda have no binding legal effect on judges and do not constitute a treaty or legislation, they promote a mutual understanding of, and provide an explanatory guide to, the laws and judicial processes for enforcement in each jurisdiction. Further, they provide an alternative route to enforcement while keeping the party's existing legal rights unaltered. The aim is to promote the economic and commercial interests of the United Arab Emirates and improve its international reputation.

The terms of mutual enforcement are similar in all of the signed memoranda:

  • The judgment must be final, conclusive on the merits of the case and enforceable. The fact that an appeal is pending does not prevent a judgment from being final and conclusive.
  • The sum of money sought must be fixed or ascertainable.
  • The issuing court must have had jurisdiction to determine the dispute.

It is hoped that the international courts' adherence to the memoranda of guidance will instil confidence in commercial communities worldwide that money judgments are recoverable within many of the internationally accredited common law legal frameworks. In terms of DIFC court judgments, it is hoped that the expanded reach of enforcement will enhance the appeal of opting in to the DIFC courts' jurisdiction.

Wills and Probate Registry

Different avenue: creating wills based on common law principles 

As Dubai becomes increasingly multinational, the need to cater to different nationalities has increased. In relation to wills and probate issues, people have been more inclined to keep their money outside the United Arab Emirates in order to protect their successors' interests. While this could be for an array of reasons, the most common is that they do not want UAE law and principles to apply to those assets.

The DIFC courts have recently taken a step towards ensuring that the needs of expatriates with assets in Dubai are considered without prejudicing the existing functionality of the legal system.

Wills under Sharia law and UAE federal law

Following a testator's death, the UAE courts will examine the estate and potentially distribute it in accordance with the Law of Personal Status, which is largely based on Sharia principles, where distributions are based on fixed-share ratios.

Pursuant to the laws and principles of Sharia, a surviving wife who has children qualifies for one-eighth of her husband's estate, whereas a surviving husband who has children qualifies for one-quarter of his wife's estate. The remainder is distributed among other family members.

A surviving wife may not automatically be appointed as the legal guardian of any children from the marriage; however, she may be appointed as their custodian. Conversely, a surviving husband is the legal guardian of any children of the marriage and is likely to be appointed as their custodian as well.

Non-Muslims may create wills in accordance with UAE laws and procedures; however, the UAE courts have full discretion to apply such wills. If such a will expresses the testator's intentions relating to the disposal of assets in the United Arab Emirates, such wishes may be applied in accordance with the laws of his or her home country, as long as they are expressed in the will and the executor and heirs fulfil the various procedural requirements. However, the degree of applicability of such laws in effecting the testator's wishes in relation to the estate is often uncertain and rarely without legal and procedural challenges or hurdles.

The ambiguity that arises in such situations has been the leading motivator for expatriates to retain their assets outside the United Arab Emirates.

Wills and Probate Registry

The DIFC will become the first jurisdiction in the Middle East and North Africa region to allow non-Muslims to register a will under common law rules. Providing non-Muslims with this option will hopefully create an element of certainty and security which was previously lacking. Confidence that their successors will benefit from their estate according to their wishes and that their family members will not be subject to the possible uncertainty of UAE court proceedings should encourage expatriates to reside in the United Arab Emirates and retain their investments and assets onshore.

The Wills and Probate Registry will undertake the administration of wills and probate for registered individuals. The overriding objective of the registry is to enable such matters to be dealt with justly and expeditiously.

Registering wills

In order to register a will at the Wills and Probate Registry, the testator must:

  • not be of Muslim faith;
  • be over 21 years of age; and
  • have assets situated in Dubai.

If a testator wants to express his or her intentions regarding the guardianship of his or her minor children, the children must be living with the testator in Dubai. Testators need not retain a UAE residence visa to be eligible to register.

The proposed fee for registering a will is $2,900 (approximately Dh10,000).

Expanding jurisdiction of Small Claims Tribunal

In 2015 the DIFC courts received Dh2.27 billion worth of claims, with the average claim amount in the court of first instance increasing by 447%, from Dh42 million per case in 2014 to Dh106.4 million. As the cases being brought before the courts are increasingly large and complex, changes have been made to offer cheaper, faster and more discreet access to justice. The Small Claims Tribunal can now hear cases up to Dh500,000, regardless of the nature of the case.

This means that the court of first instance will hear cases of greater than Dh500,000 in value. It is hoped that the resources and expertise of the court will be reserved for technical cases which require more specific expertise.

Small Claims Tribunal hearings are held in private with a presiding judge. The parties are not usually represented by lawyers. Additionally, the DIFC courts aim to settle the majority of Small Claims Tribunal cases within four weeks of commencement of the claim. By expanding the jurisdiction of the Small Claims Tribunal, the DIFC courts hope to promote swift resolution of disputes without the need for trial, which in turn should reduce the costs of access to justice and simplify the process.

DIFC courts spearhead conversion of money judgments to arbitral awards

The DIFC courts are constitutionally a part of the Dubai judicial system; therefore, enforcing their judgments is relatively simple, as they carry the same weight as those of the Dubai courts and a system is in place to facilitate their enforcement. The same is true when enforcing DIFC court judgments in countries which are parties to bilateral or multilateral treaties with the United Arab Emirates for the mutual recognition and enforcement of judgments (eg, the GCC and Riyadh Conventions). However, the enforceability of such judgments becomes less certain where no treaty or memorandum of guidance is in place. In such cases enforcement will instead depend on that particular state's laws concerning the enforcement of foreign judgments.

The DIFC courts have devised a new method by which the parties can agree, in certain circumstances, to have a DIFC court judgment converted into an arbitral award, which can then be enforced in 152 states worldwide (including the world's major trading nations and business hubs) under the New York Convention. The state signatories to the New York Convention have agreed to enforce foreign awards in accordance with the test for enforcement laid out in the convention, which consists only of narrow procedural grounds for objection.

Practice Direction 2/2015

On February 16 2015 DIFC Court Practice Direction 2/2015 (renamed "Referral of Judgment Payment Disputes to Arbitration") entered into force. On May 27 2015 the practice direction was amended to clarify the manner in which it should be applied by parties – in particular, to clarify that it is an option open to the judgment creditor, rather than a mandatory procedure.

The amended direction allows for the conversion of DIFC court judgments into DIFC arbitral awards. While it is common for parties to seek to convert an arbitration award into a court judgment, the reverse is a novel proposition. This innovative mechanism is the first of its kind globally and has attracted significant controversy.

The DIFC courts recommend the following arbitration clause:

"Any Judgment Payment Dispute (as defined in DIFC Courts Practice Direction No 2 of 2015) that satisfies all of the Referral Criteria set out in the Practice Direction may be referred to arbitration by the judgment creditor, and such dispute shall be finally resolved by arbitration under the Arbitration Rules of the DIFC-LCIA Arbitration Centre, which Rules are deemed to be incorporated by reference into this clause. There shall be a single arbitrator to be appointed by the LCIA Court pursuant to Article 5.4 of the DIFC-LCIA Arbitration Rules. The seat, or legal place of arbitration, shall be the Dubai International Financial Centre. The language to be used in the arbitration shall be English.

This agreement for submission to arbitration shall in all respects including (but not limited to) its existence, validity, interpretation, performance, discharge and applicable remedies be governed by and construed in accordance with the laws of the Dubai International Financial Centre."

Scope of definition of 'dispute'

The system applies only to a money judgment for a set amount. If, following a demand for payment of a judgment sum pursuant to a DIFC court money judgment, payment is not made for any reason, the judgment creditor can refer the judgment payment dispute to the DIFC-London Court of International Arbitration (LCIA) Arbitration Centre.

The direction defines 'judgment payment dispute' as "any dispute about the ability or willingness of the judgment debtor to pay the outstanding portion of the judgment sum". Admitting liability but demonstrating an inability to pay will not exclude the judgment creditor from satisfying the referral criterion.

In an explanatory lecture, Chief Justice of the DIFC Courts Michael Hwang SC clarified that jurisprudence in multiple common law jurisdictions establishes that, for the purposes of arbitration, a dispute exists where one party makes a claim for payment of a sum and the respondent either refuses to pay or remains silent, but in any event does not make the payment. This is so even where the debt owed is beyond dispute.

Only clear and unequivocal admission of liability or actual payment will mean that there is no dispute. The definition also expressly excludes disputes relating to the validity or merits of a DIFC court judgment, clarifying that opportunistic debtors will be unable to raise arguments on the merits of the underlying dispute in any conversion proceedings.

Technicality of conversion

Referring a dispute to arbitration will not create disadvantages for the judgment creditor; rather, it will augment the enforceability of the DIFC court judgment by providing additional avenues to secure payment of the judgment sum. Further, it will not affect the enforceability of the judgment, as the judgment creditor would not lose its rights. In his lecture, Hwang emphasised that the term 'conversion' is merely a metaphor, as the judgment would remain intact and fully enforceable without regard to the progress of the arbitration.

Opt-in jurisdiction

Hwang acknowledged that the direction does not affect the validity of the opt-in jurisdiction of the DIFC courts, even if the recommended arbitration agreement is not adopted. In other words, parties can opt in to have the primary dispute jurisdiction be the DIFC courts without expressly adding that there may be submission to arbitration for post-judgment disputes. However, the arbitration agreement is predicated on there being a DIFC court judgment to enforce, so it will normally follow an opt-in clause choosing the DIFC courts as the dispute resolution forum.

Seat of arbitration

Hwang has insisted that, under the direction, parties remain free to choose another seat and institutional forum as a procedural framework for their arbitration. That said, according to Hwang, the conversion process will likely be facilitated if referred to arbitration before the DIFC-LCIA (as an institution that will be sensitive to and supportive of the direction and therefore more likely to accept the validity of the clause).

Referral criteria 

The direction sets out the circumstances in which the parties to a dispute may use the method of conversion:

  • The judgment has taken effect in accordance with Part 36.30 of the Rules of the DIFC Courts.
  • The judgment is not related to an employment contract or consumer contract that is subject to Article 12(2) of the Arbitration Law 2008 which precludes the arbitration of such contracts.
  • The judgment is not subject to appeal or the time permitted for a party to appeal has expired.
  • There is a judgment payment dispute.
  • The judgment creditor and judgment debtor have agreed in writing that any judgment payment dispute between them will be referred to arbitration, pursuant to the direction.

Success of Practice Direction 2/2015

There are still concerns as to whether the premise of the practice direction will be borne out of practice. A defaulting party is unlikely to agree to amend any original dispute resolution clauses; likewise, a party which stands only to be the money debtor and never the creditor may have no motivation to agree to the original inclusion of this clause.

Further, in order for the parties to avail of the procedure, arbitrators must be appointed and their fees paid. Statements of case for the arbitration must then be filed. In addition, although the arbitral tribunal should not reconsider the merits of the DIFC court judgment, a non-paying party may seek to stall or rehearse its substantive case. This could lead to an arbitrator disagreeing with or seeking to unravel the original judgment. Parallel enforcement proceedings may give rise to potentially contradictory outcomes.

Hwang has called this "an experiment without parallel in arbitration history". The workability of the mechanism envisaged by the direction will ultimately depend on arbitral tribunals and the receptiveness of state courts that are seized of the recognition and enforcement of DIFC judgment converted awards. Nevertheless, the direction demonstrates the forward-thinking nature of the DIFC and its appetite to address big issues.

For further information on this topic please contact Robert Maxwell Marsh or Fatima Ali Alnumairy at Al Tamimi & Company by telephone (+971 4 3641 641) or email (r.maxwellmarsh@tamimi.com or f.alnumairy@tamimi.com). The Al Tamimi & Company website can be accessed at www.tamimi.com.

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