As discussed in our previous bulletin, the relationship between the DIFC and Dubai Courts is governed by the 2009 Protocol of Jurisdiction Between Dubai Courts and DIFC Courts (the “Protocol of Jurisdiction”) and DIFC Law No. 12 of 2004 (as amended by Law No. 16 of 2011) (the “Judicial Authority Law”). Under these laws, a judgment handed down in one of either the DIFC or Dubai Courts must be ratified and executed in the other without consideration of its merits.
Since the DIFC amended its legislation in October 2011 to allow parties to submit to the jurisdiction of the DIFC, regardless of whether there is any connection to the DIFC, several recent cases have explored the extent of the reciprocal relationship between the onshore Dubai and offshore DIFC Courts. After the decision in (1) X1, (2) X2 v (1) Y1, (2) Y2 (ARB 002/2013) (“X v Y”), it appeared to be settled law that Article 5(A)(1)(e) of the Judicial Authority Law and Articles 19(1)(d) and 24(1) of Law No. 10 of 2004 (the “DIFC Court Law”) provided ‘jurisdictional gateways’ that allow the DIFC Courts to recognise and enforce an overseas arbitral award, irrespective of whether the defendant has any attachable assets in or any other obvious connection to the DIFC.
The significance of this is that, once recognised and enforced in the DIFC Courts, under Articles 7(2) and 7(3) of the Judicial Authority Law, the order of the DIFC Courts may be executed in the onshore Dubai Courts without reopening the merits of the underlying dispute, thereby providing a two-step procedure under which a claimant may avoid the need for recognition and enforcement proceedings, and possible review of the merits, before the local Dubai Courts.
Since the decision in X v Y and its sister case Banyan Tree Corporate Pte Ltd v Meydan Group LLC (ARB 003/2013) (“Banyan Tree”), there had been speculation as to whether similar reasoning might apply to enforcement of court orders, as opposed to arbitral awards. This issue was first explored in the decision of the DIFC Court of First Instance (the “CFI”) in DNB Bank.
2. The CFI’s decision in DNB Bank
The claimant successfully obtained an order of the Commercial Court of England and Wales against the defendants, each situated in Dubai, on 30 September 2014 (the “English Order”). On 3 December 2014, the claimant filed a claim in the DIFC Courts, despite the lack of assets in the DIFC being “uncontested”, seeking to rely on the jurisdictional gateways established by X v Y and Banyan Tree to enforce the English Order in the DIFC. The claimant relied on the procedure set out in the Memorandum of Guidance as to Enforcement between the DIFC Courts and the English Commercial Court, signed by representatives of each Court on 23 January 2013 (the “Memorandum of Guidance”). The defendants in turn disputed the jurisdiction of the DIFC Courts to hear the enforcement claim on the basis that the jurisdiction gateways did not apply to the facts of the case.
Describing both parties’ arguments as “misconceived”, the CFI dismissed the challenge to jurisdiction on 2 July 2015, but effectively found in the defendants’ favour. In doing so, the CFI held that the English Order, being a foreign judgment rendered outside the DIFC, as set out in Article 7(6) of the Judicial Authority Law, did indeed fall within a jurisdictional gateway. However, the Judicial Authority Law intentionally draws a distinction between ‘foreign’ judgments, which under Article 7(6) “shall be executed within the DIFC”, and “judgments, decisions and orders rendered by the [DIFC] Courts”, as detailed in Articles 7(2), 7(4) and 7(5) of the Judicial Authority Law. Accordingly, while the DIFC Court was in fact required to enforce the English Order within the DIFC, the English Order would be confined to enforcement “within the DIFC” and could not be referred for execution in Dubai. In effect, the DIFC’s status as a conduit jurisdiction was limited solely to enforcement of arbitral awards, with the consequence that judgment creditors seeking to enforce against assets in Dubai were left frustrated.
However, both parties were granted leave to appeal the decision on 9 September 2016. On 25 February 2016, the DIFC Court of Appeal found in the claimant’s favour, in effect overturning the decision in the first instance.
3. The DIFC Court of Appeal’s decision in DNB Bank
While acknowledging that the Memorandum of Guidance was expressly non-binding, the DIFC Court of Appeal held that, practically speaking, its effect was the codification of established common law principles relating to enforcement of orders between courts of different jurisdictions, “founded on principles of international comity” or, broadly, reciprocity between the foreign courts. In practice, “a foreign judgment is not enforceable as such”, but rather “based on a legal obligation on the judgment debtor to comply with the judgment by a court of competent jurisdiction”.1 Put simply, the overseas judgment represents a legal obligation, tantamount to a debt, on which a party may claim in the courts of another jurisdiction.
Therefore, the party seeking ‘enforcement’ of a foreign order is not seeking a rubber-stamped copy of that same foreign judgment, but rather a fresh judgment of the local enforcing courts, colourfully termed as ‘judgment laundering’ in the legal authorities on which the DIFC Court of Appeal relied. Specifically endorsing the comments made by Justice Sir Chadwick in Bocimar, Chief Justice Hwang asserts in his presiding judgment that “when the DIFC Courts recognise and enforce a foreign judgment, the product is itself a judgment of the DIFC Courts”.
Significantly, Article 7(6) of the Judicial Authority Law is no longer an obstacle in the context of enforcing foreign court orders in Dubai, as the order which is referred to the Dubai Courts for enforcement would in fact be a local DIFC Court order. Such an order would consequently fall within the remit of Article 7(2) of the Judicial Authority Law and could therefore be referred to the Dubai courts for execution under the Judicial Authority Law.
As a result of the DIFC Court of Appeal’s decision, those seeking to enforce in the UAE orders of a foreign court should be able to bring the foreign order before the DIFC Court and convert it into a DIFC Court order for referral to onshore Dubai. Indeed, Chief Justice Hwang even goes so far as to confirm 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. The DIFC Courts are not concerned with what happens in the Dubai Courts in which the Claimant seeks to enforce its judgment as it does not have the jurisdiction to dictate what they should do”.
The DIFC Court of Appeal’s judgment is an important decision in terms of extending the DIFC’s much publicised status as a ‘host’ jurisdiction. The DIFC Court of Appeal’s decision in DNB Bank should provide comfort for commercial parties contracting with Dubai-located entities and encouragement for those seeking to enforce against assets in Dubai.