Earlier this week, the Dubai International Financial Centre Courts have issued Practice Direction No. 1 of 2017 (the Practice Direction).
The Practice Direction is part of the strategy of the DIFC Courts to demonstrate that their procedures for the enforcement of arbitration awards are streamlined and straightforward, and that the Courts are have strongly pro-arbitration stance. Evidently they hope that this will further encourage parties to use the DIFC Courts as a conduit jurisdiction to enforce arbitration awards through the DIFC Courts, even when the parties (and in particular, the award debtor) has no connection or presence in the DIFC.
Following the establishment of the Judicial Tribunal, pursuant to Decree No. 19 of 2016, which has been established (among other things) to determine disputes of jurisdiction between the Dubai Courts and the DIFC Courts, there has been some uncertainty as to whether the DIFC Courts can still be used as the conduit jurisdiction, and are still an appropriate forum for the enforcement of arbitration awards outside the DIFC. In this context, the Practice Direction may be a declaration to award creditors in Dubai that the DIFC Courts remain a good and available option if you wish to enforce your arbitration awards.
Specifically, this Practice Direction addresses the costs for parties that seek to challenge the enforcement of arbitration awards on unmeritorious grounds, and indicates that such tactics will not be tolerated by the judges. Furthermore, if such tactics are employed by recalcitrant respondents, then the Courts can penalise the relevant party in two ways.
Firstly, the Practice Direction provides that a respondent, if they wish to challenge the enforcement of the arbitration award, may be ordered to pay the arbitration award debt (as ordered by the Tribunal in the underlying arbitration) into Court. The Practice Direction stipulates that the presiding judge can take into account the merits of a challenge to an application for ratification of an arbitral award and require the respondent to pay the amount of the award into Court first, as security. This is not a new power of the DIFC Court in determining challenges to the enforcement of arbitration awards, but has already been codified pursuant to Article 44(2) of the DIFC Arbitration Law (DIFC Law No. 1 of 2008, as amended). Under this provision, if an application for the setting aside or suspension of an award has been made, the DIFC Court may, if it considers it proper, adjourn its decision and may also, on the application of the party seeking recognition or enforcement of the award, order the other party to provide "appropriate security". The Practice Direction now provides guidance on the nature of that security and enables the judge to make sure an order of its own volition (and not necessarily on application by the enforcing party).
Secondly, the Practice Direction provides that, when the Court is exercising its discretion as to costs, the principle of awarding indemnity costs may be invoked for unsuccessful applications relating to arbitrations, such as unsuccessful applications for setting aside of arbitral awards and unmeritorious challenges to remove arbitrators. Indemnity costs contrasts with costs awarded on a "standard basis" in allowing the successful party to recover a higher percentage of its legal fees, in circumstances where it is forced to resist an application to set aside the recognition and enforcement of an award on what is deemed "unmeritorious" grounds. There is no guidance from the Court as to what is unmeritorious, and we expect that the Court will use its broad discretion in determining whether to award costs on an indemnity basis in accordance with Part 38 of the Rules of the DIFC Courts (RDC).
Again this is not a new power of the Court and the Court has always had the right to order costs on an indemnity basis under RDC 38.17. Guidance on indemnity costs have been provided in another Practice Direction (No. 5 of 2014) and the subject of significant consideration in Rafed Al Khorafi v Bank Sarasin (28 October 2014) CFI 026/2009. Generally, as a broad approach, if costs of are ordered on a standard basis, the Court will order that the unsuccessful party pay 50 – 60% of the successful party's costs while if the party is awarded indemnity costs, that percentage may be as high as 80%.
The Practice Direction therefore emphasises the discretion and power of judges when faced with challenges to arbitral awards and provides helpful guidance for parties seeking to enforce arbitration awards through the DIFC Courts. There are strategies that can be engaged when dealing with the guerrilla tactics employed by the other side!