In two decisions published last month (Banyan Tree v. Meydan Group LLC (Case No. ARB 003-2013) and X1 and X2 v. Y1 and Y2 (ARB 002-2013)), the DIFC Court of First Instance confirmed its jurisdiction to recognise and enforce within the DIFC arbitral awards rendered outside the DIFC. The decisions themselves are not surprising given the law was clear on this issue, although given neither award debtor had assets in the DIFC it does raise the question as to why the creditors did not immediately seek recognition and enforcement in the Dubai Courts (where the award debtors did have assets).
Key legal provisions
The United Arab Emirates (UAE) is a civil law state made up of seven Emirates. The legal system consists of federal laws that apply to each Emirate and also certain Emirate-specific laws. There is no separate arbitration law in the UAE, and, instead, rules relating to arbitration are set out in the UAE Civil Procedure Code (UAE Federal Law No. 11 of 1992).
In Dubai and a number of the other Emirates, the Government has established Free Zones, one of which is the Dubai International Financial Centre (DIFC). The DIFC is an autonomous jurisdiction and it has its own laws based on principles of common law as well as its own courts with judges taken from a number of leading common law jurisdictions. It has its own Arbitration Law which is based largely on the UNCITRAL Model Law (DIFC Law No. 1 of 2008), and court decisions and arbitral awards from the DIFC should be enforced in Dubai (and vice versa) pursuant to a 2009 Memorandum of Understanding between the Dubai Courts and the DIFC Courts and Dubai Law No. 16 of 2011. The Dubai Courts also should not review the merits of a DIFC Court judgment or arbitral award prior to its enforcement in Dubai.
The UAE is a signatory to the New York Convention, and DIFC law provides that any international treaty binding on the UAE should be applied in the DIFC.1 The DIFC Arbitration Law also provides that the DIFC Courts should recognise or enforce arbitral awards "irrespective of the State or jurisdiction" (Article 42 of the DIFC Arbitration Law) unless certain circumstances exist – these circumstances effectively mirror Article V of the New York Convention, although none were relevant in the context of Banyan Tree or X v. Y.
The DIFC Judicial Authority Law (Law No. 12 of 2004) sets out five "gateways" to DIFC Court jurisdiction. The key provision of the Judicial Authority Law in both the Banyan Tree and X v. Y cases was Article 5(A)(1)(e) which states that the DIFC Courts have exclusive jurisdiction to hear and determine "Any claim or action over which the [DIFC] Courts have jurisdiction in accordance with DIFC Laws and DIFC Regulations".
Issues for the DIFC Court to consider
In both Banyan Tree and X v. Y, the DIFC Court had to determine whether it had jurisdiction to hear an application for an order seeking recognition and enforcement of an arbitral award in favour of parties incorporated outside Dubai who were looking to enforce against parties incorporated in Dubai. In X v. Y, the award was also from outside the UAE (the judgment does not provide details of where), and in Banyan Tree, the award was a domestic UAE award from the Dubai International Arbitration Centre (DIAC).
As noted above, pursuant to Article 5(A)(1)(e) of the DIFC Judicial Authority Law, the DIFC Courts have jurisdiction over any claim in accordance with DIFC Laws and DIFC Regulations. The claimants asserted that the DIFC Arbitration Law gives the DIFC Court jurisdiction to recognise and enforce arbitral awards "irrespective of the State or jurisdiction", and therefore the DIFC Court had jurisdiction.
In both cases, the defendants challenged the DIFC Court's jurisdiction and asserted that the correct venue to hear the enforcement applications was the Dubai Courts. In particular, the UAE Civil Procedure Code states that unless the law provides otherwise jurisdiction shall be vested in the court within whose area the defendant has his domicile or the court in whose area the agreement was made or was performed (Article 31(1) and (3) of the Civil Procedure Code). It follows therefore, the defendants argued, that the DIFC Courts were established as a carve out to the federal civil legal system, and therefore in order to establish DIFC Court jurisdiction a claimant must show some special requirement to permit it to trump the general jurisdiction of the Dubai Courts. The defendants also argued that Article 42 of the DIFC Arbitration Law could not be read as conferring jurisdiction on the DIFC Courts to the exclusion of the Dubai Courts.
In addition, the defendants argued that by accepting jurisdiction the DIFC Courts would in effect deprive the Dubai Courts of any jurisdiction which they may have in respect of the recognition and enforcement of foreign awards. Furthermore, given that neither claimant had assets in the DIFC, the defendants asserted it was plain that the claimants were seeking recognition and enforcement of the awards in the DIFC with the sole purpose of taking the DIFC Court Order to the Dubai/UAE Courts and in doing so the claimants were seeking to "usurp" the Dubai Courts’ recognition and enforcement jurisdiction. The defendants accordingly asked the DIFC Court to establish the limits of its jurisdiction under the DIFC Arbitration Law.
The DIFC Court of First Instance (Sir John Chadwick in X v. Y and H.E. Justice Omar Al Muhairi in Banyan Tree) found in favour of the claimants and dismissed each of the arguments raised by the defendants. In particular, the DIFC Court noted that the DIFC is an autonomous jurisdiction and therefore Article 31 of the UAE Civil Procedure Code is irrelevant to the question of jurisdiction of the DIFC Courts. On the contrary, Article 5(1)(A)(e) of the Judicial Authority Law provides that the DIFC Courts have jurisdiction over any claim in accordance with DIFC Laws and, in relation to recognition and enforcement of arbitral awards, such jurisdiction is provided by Article 42 of the DIFC Arbitration Law. However, the DIFC Court's jurisdiction is only in relation to recognition and enforcement within the DIFC and there is nothing in the judgments, DIFC law or the Judicial Authority Law which suggests that recognition of an arbitral award by the DIFC Court could trigger enforcement proceedings through the Dubai Courts and against assets in Dubai (but outside the DIFC) without the need for separate recognition of the award by the Dubai Courts.
The DIFC Court also confirmed that: (i) the doctrine of forum non conveniens only applies in the DIFC where the alternative court is a foreign court (as opposed to a UAE Court), following a line of previous DIFC Court judgments that have considered this same point2 and (ii) the New York Convention is not applicable to the enforcement or recognition of UAE awards in the DIFC as these are considered domestic awards. (This second point was only an issue in the Banyan Tree case.)
The decisions are not particularly surprising given both the Judicial Authority Law and the DIFC Arbitration Law were clear on the issue of the DIFC Court's jurisidcition to recognise and enforce arbitral awards irrespective of the state or jurisdiction. X v. Y also confirms that a foreign award can be enforced in the DIFC via the New York Convention without first having to seek ratification of the award in the Dubai Courts, although again this is not surprising as DIFC law expressly provides that international treaties binding on the UAE should be applied in the DIFC.
However, neither award debtor had assets in the DIFC and both had assets in Dubai, therefore why did the claimants not seek enforcement in Dubai directly? In particular, both judgments made it clear that the DIFC Courts only have jurisdiction to make an order in relation to the DIFC and therefore the creditors will have to take any DIFC Order to the Dubai Courts if they want to get any money (assuming they succeed in the merits of their recognition and enforcement applications before the DIFC Courts as both decisions only deal with jurisdiction). It is possible that the claimants are of the view that the Judicial Authority Law does not permit the Dubai Courts the discretion or jurisdiction to review the merits of a DIFC Court judgment and therefore perhaps the Dubai Courts would not engage in the "usual" process for ratification of awards which can sometimes be time-consuming and can (although it should not) involve a review of the merits of the underlying dispute. Accordingly, it will be interesting to see what position the Dubai Courts take if they form the view that the underlying enforcement applications were ones that they should have heard in the first place. These are cases that anyone with an interest in the interplay between the DIFC and Dubai Courts should follow, and we will be sure to report on developments as they occur.