Summary: You’ve arbitrated the dispute. At long last, you present the successful award to your client. Immediately they ask: “What Next?” “How do we get the money?” “When will we get paid?”
In the wake of a number of recent successful arbitration awards, we are often asked to advise UAE clients how they can best recover the sum awarded. The UAE (both its onshore and offshore jurisdictions) is a well-established and recognised arbitral jurisdiction, and a popular arbitral seat in the wider MENA region. However, once the award is in hand, enforcing within the UAE has been known to present some unique challenges.
This position is about to change with the imminent introduction of the new UAE Arbitration law, which is hoped to better align the UAE arbitration sector with recognised international standards, and in doing so, make it easier to ratify and enforce arbitral awards.
DIFC as an enforcement hub
Between 2014 and 2017, the Dubai International Financial Centre (DIFC) gained traction as a common law ‘forum of choice’ for the ratification of domestic (UAE) and international arbitration awards (see: Enforcing arbitration awards in the UAE and this Legal update of 2014). The DIFC was more attractive because ratification followed a streamlined process, could be facilitated in English and DIFC were clearly pro-arbitration and less likely to overturn awards. No connection to the DIFC was required to use the DIFC Courts.
The waters get muddy…
In 2016, this option was muddied when the Dubai Courts rejected the established line of authority and created the Joint Judicial Tribunal (the JTT). In the line of cases that followed, the DIFC’s role as a conduit jurisdiction was narrowed, meaning that, absent a connection to the DIFC, choosing to ratify an award in the DIFC meant risking that the ratification would be challenged and the JTT would be empowered to decide which enforcement forum was most appropriate (and potentially require the award creditor to restart the ratification process).
While the onshore path to enforcement always remained open, these developments meant that the offshore route now seemed too risky – if concurrent proceedings had been initiated by the award debtor in the local courts, it appeared that the JTT was likely to find that the DIFC did not have authority to ratify the domestic arbitral award.
Observers were also concerned how (if at all) these decisions could affect the ratification/enforcement role of the ADGM in Abu Dhabi. The English speaking ADGM Court has been actively pursuing and formalising memorandums of understanding with the various court systems to encourage reciprocal enforcement of awards. However, Abu Dhabi is yet to see a case where the local courts and the ADGM both consider that they have jurisdiction – so it is possible ADGM could, as the younger offshore jurisdiction, face the same challenges as the DIFC.
2018 brings clarity?
As recently reported, the DIFC Court of First Instance handed down a decision in Isai v Isabelle where it held, in favour of the Claimant, that the DIFC had jurisdiction to hear an application for the recognition and enforcement of an arbitral award of the DIFC-LCIA, seated in Dubai.
While this decision has been heralded as a positive step towards a DIFC-friendly ratification space, the reasoning in the decision could be very narrowly applied, and may have created more questions than answers for practitioners wondering where they should start the ratification process.
So what are my options?
All that takes us back to where we started – what are the options?
First: Understand the options
The enforcement process has two steps: ratification of the award and execution of that judgment. You can ratify and execute the award:
- exclusively using the local courts;
- using an offshore court for ratification and that same court for execution (if the award debtor’s assets are offshore); or
- using an offshore court for ratification and a local court for execution (if the assets are onshore).
Second: Consider the priorities
Both options have associated risks, and these have to be weighed against the time and cost implications of each system.
On time: In our experience, the local system can take much longer to achieve ratification. Currently, the generally accepted position is that while you may avoid the conflict of jurisdiction at the ratification stage, there is a danger that the award could be overturned for procedural reasons when taken to an execution court. On the other hand, if you opt for an offshore/onshore combination and there are no jurisdictional challenges, it is very likely the award will be ratified without being examined (and relatively quickly).
On cost: The costs of ratification in the ADGM and DIFC are generally recoverable (though will likely be discounted) while local courts only make nominal awards for legal costs. The filing fees in each forum vary, with some being a flat fixed fee and others being calculated based on the judgment amount.
Third: Consider the opponent and the award
If the arbitration was aggressively defended and/or the arbitral award is for a substantial sum, the chances of the award debtor raising a challenge at the ratification stage are generally higher. To avoid a jurisdictional challenge, it could be easier to exclusively use the local courts for the entire process.
On the other hand, in a straightforward case (perhaps a debt claim) where there is little to dispute and the respondent has invested little in defending the arbitration, seeking ratification from an offshore court in the first instance may be more efficient.
Of course, the location of the award debtors assets is also very relevant – i.e. there is no need to use an onshore court where the arbitration and the assets are all offshore.
Prior to now, the generally accepted position was that the offshore jurisdictions offered a number of advantages in the ratification process – and that even with the perceived risks (of jurisdictional challenge etc), the system was the most sensible option for many parties.
With UAE Arbitration Law expected to come into force any day, the perceived advantages of offshore ratification may cease to exist. This is particularly the case where the provisions of the new law directly address procedural issues which previously provided grounds for challenge (see, for example: Article 28 and 41 on where the arbitration can be conducted and signed, Article 52 which affirms the binding nature of an arbitral award, and importantly, Articles 53 and 54, which create a positive obligation on courts to recognise awards and set a time limit in which a party can apply to set aside an award).
With these articles in place, the offshore courts no longer present a unique offering in the ratification space, and it seems likely that the DIFC’s role as a conduit jurisdiction (to the extent it remains) may come to an end. Subject to the new law being tested, this could streamline the ratification and enforcement space in the UAE – with future advice to clients being simply to go where the assets are.
This blog post first appeared on Practical Law Arbitration Blog on 31 May 2018.