The Gulf widens between the Enforcement of Foreign Judgments and Foreign Arbitral Awards in the DIFC as a result of a recent ruling of the Dubai International Financial Centre Courts (“DIFC”) Court of First Instance (“CFI”) (CFI 043/2014 – DNB Bank ASA v. (1) Gulf Eyadah Corporation (2) Gulf Navigation Holding PJSC (“Eyadah”), ruling of the DIFC Court of First Instance of 2nd July 2015), H.E. Justice Ali Al Madhani, one of the UAE-national resident judges of the DIFC Courts, drew a distinction between the role of the DIFC Courts as a “conduit” or “host” jurisdiction in the enforcement of foreign judgments and foreign arbitral awards.
In this matter which concerned the first judgment relating to the enforcement of a foreign judgment (in which Fichte & Co Legal consultants represented the Defendant) it was held that the DIFC Courts could only serve as a conduit jurisdiction in the enforcement of foreign arbitral awards, and not as regards the enforcement of foreign judgments.
Both Parties have appealed this decision and the Court of Appeal has granted Permission for both appeals.
THE STATUTORY BACKGROUND
Jurisdiction in the DIFC Court is governed by Law No. 12 of 2004 of the Judicial Authority Law (as amended by Law No. 16 of 2011) (the “JAL”) and according to Article 5 (A) (1):
The Court of First Instance shall have exclusive jurisdiction to hear and determine:
(a) Civil or commercial claims and actions to which the DIFC or any DIFC Body, DIFC Establishment or Licensed DIFC Establishment is a party;
(b) Civil or commercial claims and actions arising out of or relating to a contract or promised contract, whether partly or wholly concluded, finalised or performed within DIFC or will be performed or is supposed to be performed within DIFC pursuant to express or implied terms stipulated in the contract;
(c) Civil or commercial claims and actions arising out of or relating to any incident or transaction which has been wholly or partly performed within DIFC and is related to DIFC activities;
(d) Appeals against decisions or procedures made by the DIFC Bodies where DIFC Laws and DIFC Regulations permit such appeals;
(e) Any claim or action over which the Courts have jurisdiction in accordance with DIFC Laws and DIFC Regulations.
The Jurisdiction of the DIFC was opened to businesses worldwide in October 2011 (Law No. 16 of 2011) which amended Article 5 to include at Article 5 A (2):
The Court of First Instance may hear and determine any civil or commercial claims or actions where the parties agree in writing to file such claim or action with it whether before or after the dispute arises, provided that such agreement is made pursuant to specific, clear and express provisions.
APPLICATION TO RECOGNITION AND ENFORCEMENT
The jurisdiction to recognise and enforce foreign awards pursuant to Article 5 (A)(1)(e), is pursuant to Article 42(1) of the DIFC Arbitration Law:
An arbitral award, irrespective of the State or jurisdiction in which it was made, shall be recognized as binding within the DIFC and, upon application in writing to the DIFC Court, shall be enforced subject to the provisions of this Article and of Articles 43 and 44. For the avoidance of doubt, where the UAE has entered into an applicable treaty for the mutual enforcement of judgments, orders or awards the DIFC shall comply with the terms of such treaty.
and the authority to enforce Awards outside the DIFC is pursuant to Article 42 (4) of the DIFC Arbitration Law which states:
…Awards recognized by the DIFC Court may be enforced outside the DIFC in accordance with the Judicial Authority Law and recognition under this Law includes ratification for the purposes of Article 7 of the Judicial Authority Law.
Further authority for the DIFC Court’s jurisdiction can be found in Article 24 (1) of the DIFC Court Law which states:
Pursuant to Article 7(4) of the Judicial Authority Law, the Court of First Instance has jurisdiction to ratify any judgment, order or award of any recognised:
(a) Foreign court;
The reference to Article 7(4) of the Judicial Authority Law is the original version of that law, before it was amended by Dubai Law No. 16 of 2011, which stated that ‘Judgments, awards, and orders of any court outside of the Centre may be enforced within the Centre in the manner prescribed in the Centre’s Laws’.
The relevant reference is now found at Article 7 (6) which states:
“The judgments, decisions, orders and ratified Arbitral Awards rendered outside DIFC by any court other than Dubai Courts shall be executed within DIFC in accordance with the procedure prescribed in the Rules of Court”.
MEMORANDA OF GUIDANCE
The DIFC has also entered into the following Memoranda of Guidance with the following jurisdictions as regards the enforcement of Money Judgments:
Commercial Court of England and Wales 23.01.13
Supreme Court of New South Wales 09.09.13
Federal Courts of Australia 28.03.14
The High Court of Kenya
(Commercial & Admiralty Division) 27.11.14
Supreme Court of Singapore 19.01.15
US District Court Southern District NY 22.03.15
Supreme Court of the Republic of Kazakhstan 28.08.15
The DIFC also entered into a Protocol of Enforcement between the Dubai Courts and the DIFC on 21st June 2009.
ENFORCEMENT DECISIONS IN THE DIFC
The DIFC Courts have confirmed their status as a host jurisdiction in the enforcement of foreign arbitral awards in the case of ARB 002/2013 – (1) X1, (2) X2 v. (1) Y1, (2) Y2, (ARB 002/2013 (CFI)). What this means is that the DIFC as a‘host’ or ‘conduit jurisdiction’ allows an international award creditor to execute an award against assets of an award debtor in mainland (or onshore) Dubai through the DIFC Courts. Therefore, a foreign award ratified before the DIFC Courts will benefit from the mutual recognition regime in place between the Dubai and DIFC Courts under Article 7 of the Judicial Authority Law
Subsequently, the DIFC Courts have also confirmed their role as a host jurisdiction for the recognition and enforcement of domestic awards. It had been assumed by many that the DIFC Court’s jurisdiction to recognise and enforce a local award would be limited to cases which had some connection with the DIFC, however the DIFC Court of Appeal in Meydan Group LLC v Banyan Tree Corporate Pte Ltd (CA-005-2014) (“Meydan”) confirmed that once service had properly been effected in compliance with the Judicial Authority Law as amended ( Dubai Law No. 12 of 2004 as amended by Dubai Law No. 16 of 2011), “the court must recognize the award” subject to the exhaustive grounds for refusal set out in Article 44 of the DIFC Arbitration Law. In addition, Sir David Steel noted that
“[t]he absence of assets in the jurisdiction may be relevant consideration to the exercise of discretion to grant execution. But even then a judgment creditor is entitled to levy execution against assets which come into the jurisdiction after the judgment is entered or which did not even exist at the time. Furthermore an enforcement order alone may be of value in the tracing of assets by, for example, oral examination…… In any event, it is clear that there is no barrier to enforcement given the absence of assets within the jurisdiction.”
Whilst the Court of Appeal in Meydanrejected that the submission that the application for recognition constituted an abuse of process the DIFC CFI in, X (1) X (2) v Y1 (1) Y2 (2) July 29th 2015considered the public policy argument for the first timein considering whether recognition and enforcement in the DIFC would be contrary to the Public Policy of the UAE for the following reasons:
a) The Defendants had no assets or presence in the DIFC
b) The commencement of the present proceedings is a device to obtain automatic enforcement otherwise applicable in the courts of non-DIFC Dubai where the Defendants carry on business. Are domiciled and may have assets.
c) To proceed in this manner would be to bypass the procedure for enforcement otherwise applicable in the courts of non-DIFC Dubai which would conduct a full investigation of the award and its enforcement in accordance with the Civil Procedure Code (“CPC”) of non-DIFC Dubai.
d) This procedural device is contrary to the public policy of the UAE and operates as a defence to an application for recognition and enforcement in this court
After consideration of expert evidencethe Court found that ‘the expert evidence indicates that the non-DIFC Dubai Courts would confine their investigation of the award to those same matters under Article V.2(b) of the New York Convention which the DIFC must consider held that the enforcement of Foreign Arbitral Awards, recognised and referred by the DIFC, in the Dubai Courts is not contrary to public policy, it being the purpose for which the relevant legislation was enacted’ and that any such challenge would be ‘founded on an untenable basis, namely that such an order, notwithstanding the clear availability of judicial procedure (the Arbitration Law and the JAL) properly enacted, within the DIFC, would be contrary to the very public policy which it was intended to enact.’
Whilst the situation is now relatively settled as regards the recognition and enforcement of both Foreign and domestic Arbitral Awards, namely that they can be recognised and referred out of the DIFC for enforcement; the situation is far from settled in the case of Foreign judgments. In fact, the DIFC Courts have only recently ruled on this point in the case of DNB Bank ASA v. (1) Gulf Eyadah Corporation (2) Gulf Navigation Holding PJSC, (CFI 043/2014 of 2nd July 2015), which resulted in the first judgment concerning the enforcement of a Foreign judgment within the DIFC.
In a ruling by H.E. Justice Al Madhani, a resident UAE Judge of the Court of First Instance (CFI, the DIFC CIF has held that:
“Unlike the situation in cases where an Arbitral Award is brought for recognition and then for enforcement, Recognised Foreign Judgments or Orders by the DIFC Courts cannot be said to be referred to the Dubai Courts for execution beyond the DIFC jurisdiction”
And, importantly, that the DIFC Court:
“cannot be said to be a conduit jurisdiction Court if the matter before it is related to a Foreign Court Judgment.”
The practical effect of the Judgment is that a Claimant cannot use the DIFC Court as a “conduit jurisdiction” to execute against a Defendant’s assets in Dubai (onshore), but must, instead commence separate and independent original proceedings in the onshore Courts of Dubai before a Foreign Judgment can be recognized, enforced, or executed there. In short, the ruling means that whilst there can be recognition of foreign judgments, there can be no referral to the Dubai courts for enforcement.
Background to the Case
The Claimants had sought enforcement of a foreign judgment obtained in the High Court of London which required the Defendant, the judgment debtor, to pay the judgment creditor US$ 8.7 million plus costs.
The Claimant’s core contention was that following the decisions of the DIFC Court of Appeal and CFI in Banyan Tree Corporate PTE Ltd v Meydan Group LLC (CA 005/2014) and X1 & X2 v Y1 & Y2 (ARB 002/2013), the DIFC Court could be used as a “conduit jurisdiction” to obtain execution against the Defendant’ assets in Dubai (onshore).
The Defendants had challenged the Court’s jurisdiction in this matter, essentially on the basis that in the absence of any assets in the DIFC, a foreign judgment could not be enforced against it through the DIFC Courts. The Defendants challenged the jurisdiction of the DIFC Court under Rules 12.1(1) and/or (2) of the Rules of the DIFC Court on the basis that none of the gateways set out in Article 5 of the Judicial Authority Law applied and that the claim was an abuse of process in that it had been brought in the DIFC Court for the sole purpose of executing against assets in Dubai (onshore) without having to make an application to the onshore Courts of Dubai. The Defendants argued that the Claimant should be prevented from using the DIFC Court as a “conduit jurisdiction” to execute against assets outside the DIFC.
The main issue, therefore, for the courts, was whether the DIFC Courts could act as a “conduit” jurisdiction on the basis that the Claimants were at all times aware in their application that the Defendants held no assets within the jurisdiction of the DIFC.
Based on an analysis of Articles 5 and 7 (as amended) of the Judicial Authority Law and Article 24 of the DIFC Court Law, H.E.Justice Al Madhani found that the DIFC Court did have jurisdiction to recognize and enforce a foreign court judgment, however, that no such order for recognition or enforcement could be referred to the onshore Dubai Courts or could be said to be binding on such courts.
In particular, the Court decided, among other things, that:
In this Article [7 (2)] there is reference to judgments, decisions and orders rendered by the DIFC Courts and the Arbitral Awards ratified by the DIFC Courts to be referred for execution but no reference at all to any foreign judgment recognised by the DIFC Courts. The Article has excluded Recognised Foreign Judgments from that rule. This is not by mistake, because Articles 7(4) and 7(5) of the said law stated that Dubai Court decisions and Arbitral Awards ratified by the Dubai Courts could be brought for execution in the DIFC but not Foreign Courts Judgments recognised by Dubai Courts.
In my view, the meaning of Article 7 of the Judicial Authority Law […] along with Article 24(1) of the Court Law in regards to Foreign Court Judgments is that although this Court may execute judgments, decisions and orders rendered by any Recognised Court other than Dubai Courts, that execution shall not go beyond the jurisdiction of this Court which requires this Court not to refer Recognised Foreign Judgments to the Dubai Court for execution and vice versa.
52. In conclusion, although this Court has jurisdiction to recognise and enforce Foreign Judgments and that power shall be within the DIFC and cannot extend beyond the DIFC, this Court has no power to refer Recognised Foreign Judgments to Dubai Courts for execution. […]” (italics in the original
As stated at the outset, the matter is far from settled as the Court of Appeal has yet to decide on the issue and the case awaits a full hearing before the Court of Appeal in December 2015. In the meantime the situation remains,pending the outcome of the appeals, that whilst the DIFC courts have accepted both the jurisdiction and the recognition and enforcement of foreign arbitral awards, the ruling of H.E. Justice Al Madhani means that the DIFC Courts can only serve as a conduit jurisdiction in the enforcement of foreign arbitral awardsand not in regards to the enforcement of foreign judgments.
Therefore, at present, the gulf is very wide, indeed, between the enforcement of Foreign Arbitral Awards and Foreign Judgments.