The Dubai International Financial Centre (DIFC) is a separate and distinct jurisdiction established within the UAE in 2004 as a financial free zone, in which the civil and commercial laws of the UAE are disapplied. The DIFC has its own court system operating in English (the DIFC courts) and operates under its own common law legal system (in stark contrast to the local onshore Dubai courts, which is an Arabic civil law system).
The DIFC is also home to its own arbitral institute (the DIFC-LCIA), and the DIFC is increasing in popularity as the seat of international arbitrations. As the curial court for arbitrations seated within the DIFC, the DIFC courts are used to enforcing awards issued by the DIFC-LCIA within the DIFC. A protocol of enforcement also exists with the onshore Dubai courts enabling the enforcement of DIFC awards onshore in Dubai.
In December 2014, in a truly innovative move, the DIFC courts released Practice Direction Y of 2015[i]for a final period of consultation. If implemented, this would provide a unique mechanism for the conversion of a DIFC court judgment into a DIFC arbitral award and open up all of the potential international avenues of enforcement from which arbitration awards benefit (for example, through the New York Convention). It would be the first mechanism of its kind across the globe.
The final consultation period in respect of Practice Direction Y of 2015 closed in January 2015 and an update from the DIFC courts is awaited with anticipation.
The conversion procedure would be available where there is a dispute over non-payment of a DIFC court judgment in respect of a monetary sum. Separate and distinct arbitral proceedings would take place dealing solely with the issue of non-payment of the DIFC court judgment. The award of the tribunal would, on paper, then be capable of enforcement through all internationally recognised avenues.
Interestingly, as drafted, the practice direction would not affect a DIFC judgment creditor's ability to enforce the DIFC court judgment through the usual available channels (for example, through execution proceedings in the DIFC courts, or through the Protocol on Enforcement that exists with the onshore Dubai courts, or through any of the international treaty options that exist in the UAE).
Practice Direction Y of 2015 also contains strict criteria that define the circumstances in which such conversion arbitral proceedings are likely to be available to parties with a dispute over non-payment of a DIFC court judgment. In summary, the criteria (each of which must be satisfied) are that:
- The judgment has taken effect in accordance with [DIFC] Rule 36.30
- The judgment is not in respect of an employment contract or consumer contract which is subject to Article 12(2) of the Arbitration Law 2008 precluding arbitration in respect of such contracts
- The judgment is not subject to any appeal and the time permitted for a party to the judgment to apply for permission to appeal has expired
- There is a payment dispute in relation to the judgment and
- The judgment creditor and judgment debtor have agreed in writing that any payment dispute between them shall be referred to arbitration pursuant to this Practice Direction.
This exciting development in DIFC court procedure is likely to have a beneficial impact on arbitration practice and procedure in the UAE.
If the practice direction was to come into force, DIFC court judgment creditors would be provided with a further avenue for enforcement, both locally within the UAE and internationally. This is welcomed as it can only bolster the UAE's ambition to be one of the world's leading dispute resolution venues.
That said, the fifth criteria set out in Practice Direction Y of 2015 (as set out above) raises some doubts as to the impact of the practice direction, at least in the short term. Much is likely to depend on the willingness of locally based entities (under the guidance of their lawyers) to draft appropriate dispute resolution frameworks into their underlying contracts, as the circumstances in which a DIFC court judgment debtor would agree to such conversion arbitral proceedings once already faced with an adverse DIFC court judgment are likely to be limited.