United Arab Emirates

Analysing the two leading decisions from last year on enforcement, Al Suwaidi’s David Lant gives an overview of how this area is developing. We are also given understanding of the jurisdiction’s background as an arbitral hub and an indication why one may decide to use the DIFC Courts in this scenario.
Established in 2004, the DIFC is a globally renowned independent free trade zone within Dubai. It has its own burgeoning legal jurisdiction with the courts operating in the framework of an English language common law system. This is, of course, anchored by judicial precedent set in prior cases heard before the courts. Such an approach is both distinct and separate from the Dubai courts where an Arabic civil law system is in place with the core principles codified and applied by the judges from that centralised body of law. Nevertheless, from a constitutional angle, the DIFC courts are still part of the Dubai judicial authority.

In addition, the DIFC has the benefit of its own arbitral body – the DIFC-LCIA. It follows that the DIFC courts are readily available for enforcing awards issued by the DIFC-LCIA against individuals and entities within the DIFC.

The DIFC also has an exclusive body of arbitration law, derived mainly from the UNICTRAL Model Law. There is a reciprocal enforcement protocol in place with the Dubai courts allowing the enforcement of DIFC-LCIA awards and court decisions in Dubai, and vice versa.

With the above formations in mind, this article addresses the ability of the DIFC Courts to enforce arbitral awards made outside its boundaries, by reference to two cases decided in 2014. The following scenarios are relevant: a request to the DIFC Courts to recognise and enforce a foreign arbitral award against a debtor located outside the DIFC, in Dubai; and a request to the DIFC courts for recognition and enforcement of a domestic arbitral award made in the Dubai International Arbitration Centre (DIAC) against a party based in Dubai.

X1 and X2 v Y1 and Y2

The parties were companies incorporated in Dubai – ostensibly they had no connection whatsoever to the DIFC.

The claimants successfully obtained an arbitral award against the defendants, although the judgment does not say where the award was rendered. In this case, the claimants were seeking an order from the DIFC Courts for recognition and enforcement of the relevant arbitral award against the defendants.

The defendants disputed jurisdiction and considering that particular issue only at that stage, Sir John Chadwick in the Court of First Instance held that the DIFC courts did have authority to hear the claimants’ application. The nub of why this decision was made is explained below.

Banyan Tree Corporate Pte Ltd v Meydan Group LLC
The brief facts are that Meydan Group is a real estate developer incorporated in the UAE. Banyan Tree is a hotel operator incorporated in Singapore. The crux of the dispute was whether or not Meydan Group had validly terminated an agreement pursuant to which it was intended Banyan Tree would manage a hotel built by Meydan Group. An arbitration clause in the contract provided for referral of disputes to the DIAC.

The arbitration decision went in favour of Banyan Tree, based on wrongful termination of the agreement. Damages were awarded in the sum of around US$20m. However, Meydan Group failed to make payment, bringing about an application by Banyan Tree to the DIFC Court of First Instance to recognise and enforce the arbitral award. In response, Meydan Group made an application of its own, challenging the jurisdiction of the DIFC courts. The challenge was driven by neither of the parties having any connection with the DIFC. More detailed arguments were advanced relating to forum non conveniens and abuse of process, which are beyond the scope of this article.

At First Instance H.E. Justice Omar Al Muhairi dismissed the defendant’s application and later gave permission to appeal.

An appeal judgment was handed down on November 3, 2014, which upheld the Court of First Instance’s decision. The Court of Appeal judgment, written by Sir David Steel (both Justice Roger Giles and HE Justice Ali Al Madhani fully agreed with his reasoning and conclusions), confirms that the DIFC courts have jurisdiction to recognise and enforce any arbitral award irrespective of its origin. This is true even where the parties do not have a nexus to the DIFC.

Sir David Steel concluded, quoting H.E. Omar Al Muahiri of the DIFC Court of First Instance:

“I reject the submission…that it cannot have been the intention of the Dubai legislator in promulgating the Judicial Authority Law to allow the DIFC courts to be used as a conduit jurisdiction for enforcement of an arbitration award against assets in Dubai (outside the DIFC) in circumstances where the owner of those assets has a legitimate expectation that such enforcement action can only properly be brought in the Dubai courts. It seems to me plain, from the provisions in Article 7 of the Judicial Authority Law, that the legislator did contemplate that there could be circumstances in which recognition of a foreign arbitral award by the DIFC court could trigger enforcement proceedings, through the Dubai courts, against assets in the Emirate of Dubai (but outside the DIFC) without the need for separate recognition of the award by the courts of Dubai; and vice versa.” (see Case CA-005-2-14, para. 49)

The point must be made that the decision in this case is also confined to jurisdiction but it has potentially wider consequences, as intimated above. Turning to the reason for the decision.

Without getting too immersed in the technicalities, it is sensible to say something about the reasons underpinning the above judgments.The Judicial Authority Law (Dubai Law No. 12 of 2004) as amended by Dubai Law No. 16 of 2011 establishes the DIFC courts and sets out five jurisdictional “gateways”. Article 5(A)(1)(e) 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”.Furthermore, Article 42 of the DIFC Arbitration Law provides that “An arbitral award, irrespective of State or jurisdiction in which it was made, shall be recognised as binding with the DIFC and, upon application in writing to the DIFC courts, shall be enforced subject to the provisions of this Article and of Articles 43 and 44”.

It is apparent from Sir David Steel’s judgment in the Banyan Tree case that the combined effect of Article 5 A(1)(e) and Article 42 galvanises the DIFC courts by enabling its judiciary to recognise and enforce any arbitral award, regardless of seat.

Why use the DIFC courts?
We will never know the exact and full range of reasons why the claimants decided to direct their cases to the DIFC rather than, prima facie, using the more glaring choice of the Dubai courts to deal with the issues.

However, one attractive inference is that the claimants may have been seeking to rely on the judicial authority law, which stipulates that the Dubai courts do not have discretion or jurisdiction to review the merits of a DIFC court judgment or arbitral award. The UAE civil code requires an award rendered in onshore UAE to be ratified by the UAE courts before it can be enforced. This can lead to a lengthy and frustrating process for the claimant, and there is a risk that an interventionist judge in the Dubai courts may go into the merits of the underlying decision. That is not an attractive scenario for any claimant, once the party has gone through the court process already and won what they thought was a final decision. In summary therefore, the claimants in the Banyan Tree and X v Y cases may have been engaged in a strategy to circumvent the potentially combustible ratification process in the Dubai courts.

It will be interesting to see how this story plays out if and when the claimants approach the DIFC courts again for substantive recognition and enforcement of the arbitral awards. Subsequently, assuming that hurdle is cleared, it would be necessary to ask the Dubai courts to approve the DIFC judgment for the purposes of enforcing against the entities in Dubai. At that juncture, the key question is ‘would the Dubai courts look at the merits of the underlying dispute or would the DIFC judgment simply be ‘rubber stamped’?’ A close watching brief will be kept.


Related Articles
Related Articles by Jurisdiction
Merger clearance matters in the UAE
Despite the limited number of filings and the dearth of decisions, parties conducting M&A in or from the UAE should consider the impact of the competition regime.
The New UAE Bankruptcy Law
Perhaps the most important new feature of the new Law is the introduction of a regime that allows for protection and reorganization of distressed businesses ...
Latest Articles