In 2022, the UAE Ministry of Justice confirmed there is reciprocity between the UAE and Great Britain and Northern Ireland with regards to enforcement in judicial matters. This happened after the landmark Lenkor [1] case, where the High Court of England and Wales recognized for the first time that a UAE judgment was enforceable in the UK.
On the same line, another important development occurred in June 2023, when the High Court of England and Wales held that a judgment issued by Dubai Courts in favor of Emirates NBD is enforceable in UK, against a UAE national who issued a personal guarantee to the bank.
Background
A UAE national was the beneficial owner and board member of a UAE company. The Company entered insolvent liquidation in 2014. To cover the company’s debts towards one of the creditors, Emirates NBD, the company directors – including the UAE national- provided personal guarantees to this bank.
During the insolvent liquidation process, Emirates NBD sought recovery of its dues from the guarantors and Dubai Courts (up to and including Dubai Court of Cassation) ordered the guarantors to pay the bank’s dues, along with the requisite interest.
The UAE national transferred his assets to family members early in the UAE proceedings, more particularly after the issuance of the Dubai Court of first Instance Judgment obliging him to pay the debt to Emirates NBD.
Emirates NBD then sought enforcement of the Dubai Courts judgment in UK, against the UAE national.
English Courts’ reasoning for rendering the judgment as enforceable
The judgment issued by Dubai Courts is enforceable in UK as a matter of common law, with a precedent set in such respect in Lenkor case. Moving forward, the UK Courts concluded that the UAE judgment was final, was issued for a definite amount of money and was issued in personam. The English Courts recognized that the UAE judgment was not contrary to the principles of natural justice, which would have made it unenforceable, and finally affirmed the enforceability of the UAE judgment in the UK.
The salient point retained by the English Courts is that the transfers of assets operated by the UAE national to his family members (e.g. minor children) were gratuitous and resulted in a trust situation, them being made for the purpose of putting assets beyond the reach of the creditors.
Whereas the English Courts have ascertained and recognized that the said transfers may have operated for succession planning purposes, the time of such transfers being made raised concerns regarding the real purpose behind them. Provided the assets had been transferred after Dubai Court of First Instance issued a judgment against the UAE national, the English Courts concluded that such transfers have been indeed made to prejudice the creditors.
On the above rationale, the High Court of England and Wales held that the Dubai Courts judgment is enforceable in the UK.
Key Takeaways
- This judgment reconfirms once again the principle of reciprocity between the two jurisdictions, being ascertained that enforcement actions issued by the UAE Courts can be honored in the UK and vice versa.
- Secondly, transferring assets to put them far from the reach of creditors has been proved unsuccessful. Litigators have probably observed such patterns increasingly applied in cross border cases in the last couple of years. We are unsure where the assets at issue were in this case, however the recovery action in this case was successfully enabled by the UAE / English Courts, irrespective of such location.
- Third, despite personal guarantees being synonymous with the unlimited liability of the issuer, banks and financial institutions may generally face opposition on the part of local courts in the enforcement of personal guarantees. Subsequently, better lending practices with clear collaterals must be sought by the creditors as well. This is in line with the public order approach of the UAE Central Bank, which requires banks to take sufficient and appropriate security prior to granting loans to individuals and small companies (especially sole proprietorships), personal guarantees being by themselves insufficient to such aim.
- Fourth, the case at issue is an example of successful cross border enforcement in a commercial matter and an example to be followed in the legal practice of the following years.
[1] Lenkor Energy Trading DMCC v Puri [2020] EWHC 75
