Beyond COVID-19: Crisis response or road to recovery?
Crisis response or road to recovery?
In recent years, the Dubai International Financial Centre Courts (DIFC Courts) have taken a literal and expansive approach when rendering decisions regarding the jurisdiction of the DIFC Courts. One consequence is that the DIFC Courts have developed a conduit jurisdiction — namely, recognizing and enforcing arbitral awards (both foreign and domestic) and foreign judgments in circumstances where some argue it should not have.
This conduit route for enforcement has been questioned and challenged by recent decisions of the newly established Joint Judicial Committee (JJC), which determines conflicts of jurisdiction between the onshore Dubai Courts and the DIFC Courts. The establishment of the JJC has altered the legal landscape of Dubai significantly and is a development of which practitioners and corporates must be cognizant. This article discusses these important recent developments.
The jurisdiction of the DIFC Courts was established by Dubai Law No. 12 of 2004 (as amended) (Judicial Authority Law). The DIFC Courts’ jurisdiction was initially limited to matters relating to corporate entities established in the DIFC, cases involving a DIFC body (such as the Dubai Financial Services Authority) or transactions conducted in whole or in part within the DIFC. However, a 2011 amendment to the Judicial Authority Law extended the DIFC Courts’ jurisdiction to include circumstances where parties have opted in to the jurisdiction, regardless of whether the parties or subject matter of the contract have any connection to the DIFC.
A number of parties have chosen the DIFC Courts (in preference to the Dubai Courts) when seeking to enforce arbitral awards and foreign judgments. This is for a number of reasons. Although the UAE is a signatory to the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), enforcement of foreign arbitral awards through the onshore Dubai Courts has not been without its challenges. Parties have on occasion faced judicial interventionism, including a review of the merits of the award or judgment sought to be enforced. Moreover, in proceedings before the onshore Dubai Courts, parties have an automatic right of appeal with limited adverse costs consequences for the losing party which can result in appeals being launched with little chance of success. This means that such proceedings can be expensive and time‑ consuming. In addition, proceedings are conducted in Arabic which may not be the preferred language of the parties or the language of the relevant contract.
The DIFC Courts, some contend, have a pro‑arbitration and pro‑enforcement approach, supported by provisions of the DIFC Arbitration Law (as amended) based largely on the provisions of the UNCITRAL Model law. There are limited grounds for resisting enforcement or appealing decisions and DIFC Court proceedings are conducted in English. The combination of these factors has led to the development of the DIFC Courts’ “conduit” jurisdiction.
Parties seek to passport arbitral awards (both foreign and domestic) by obtaining recognition and enforcement by the DIFC Courts, which then enables them to enforce against assets in onshore Dubai and beyond under the UAE’s international and regional treaties (such as the Riyadh Convention).
Central to the DIFC Courts’ conduit jurisdiction is Article 7 of the Judicial Authority Law which provides that the DIFC Courts and the onshore Dubai Courts are required to enforce arbitration awards which have been ratified by the other court. In principle therefore, a party may enforce a foreign arbitral award in the DIFC Courts and then seek execution in the onshore Dubai Courts. Crucially, in so doing, parties may avoid any review by the onshore Dubai Courts of the merits of the award or judgment sought to be enforced.
On June 9, 2016, H.H. The Ruler of Dubai issued Decree 19 of 2016 (Decree 19) establishing the Joint Judicial Committee (JJC) whose primary task is to resolve conflicts of jurisdiction between the DIFC and Dubai Courts. Some commentators view the formation of the JJC as a response to what they consider to be the expansive (and creeping) jurisdiction of the DIFC Courts.
Decree 19 comprises eight articles (which, arguably, do not provide detailed and prescriptive guidance). It establishes the JJC and provides that it shall be comprised of four onshore Dubai judicial members (the President of the Dubai Court of Cassation sitting as the Chairman with a casting vote) and three DIFC judicial members. Amongst the powers conferred on the JJC is to determine, where there is a conflict of jurisdiction between the onshore Dubai Courts and the DIFC Courts, which court has jurisdiction. Where conflicting judgments are entered by the onshore Dubai Courts and the DIFC Courts in actions involving the same parties and the same subject of dispute, it may also determine which judgment should be enforced. It also has the ability to order a stay pending the JJC’s decision (although some argue such a stay is automatic). This latter power has raised concerns that parties may use a referral to the JJC as a dilatory tactic, frustrating proceedings through unmeritorious applications.
The introduction of Decree 19 caused concern that the DIFC Courts’ status as a conduit jurisdiction was being attacked — particularly in respect of domestic Dubai seated arbitrations. From the JJC decisions on this question to date (discussed below), it would appear that parties may no longer be able to enforce Dubai seated arbitral awards before the DIFC Courts until any ongoing annulment proceedings before the onshore Dubai Courts have concluded. Unfortunately, as discussed below, these key JJC decisions do not contain sufficiently detailed reasoning to allow a full extrapolation of the JJC’s general approach. It is hoped that future decisions will allow further insights.
In the JJC’s first case, Daman Real Capital Partners Company LLC v Oger Dubai LLC, Oger applied to the DIFC Courts for recognition and enforcement of an award made in an arbitration seated in onshore Dubai. Daman in turn applied to the onshore Dubai Courts to annul the award and sought a stay of the DIFC Court proceedings pending the outcome of the Dubai Court proceedings. The DIFC Courts granted a stay on the condition that Daman paid security into the DIFC Courts. When Daman failed to comply, the DIFC Courts proceeded to recognize and enforce the award. In the meantime, the onshore Dubai Court of First Instance and, subsequently, the Dubai Court of Appeal both determined that they lacked jurisdiction to annul the award because it had already been enforced by the DIFC Courts. While on appeal, Daman referred the matter to the JJC. The JJC confirmed the existence of a “conflict of jurisdiction” between the Dubai and DIFC Courts in that enforcement proceedings had been brought before the DIFC Courts and parallel annulment proceedings had been filed before the onshore Dubai Courts. The JJC concluded that the onshore Dubai Courts were the competent courts to make a determination on the validity of the arbitral award and DIFC Courts should cease from “entertaining the case.”
The three DIFC Court judges sitting in the JJC (Chief Justices of the DIFC Courts Michael Hwang and Omar Al Muhairi and Deputy Chief Justice of the DIFC Court Sir David Steele) dissented from the part of the JJC ruling which stated that the DIFC Courts should refrain from entertaining the case. Their dissenting opinion stated that, while the DIFC Courts have always respected that the court with competence to annul an award rendered in onshore Dubai is the Dubai Court, the DIFC Courts have exclusive jurisdiction to hear applications to enforce those arbitral awards within the DIFC. Accordingly, both courts have separate but concurrent jurisdiction to determine certain issues relating to the award, be it annulment in Dubai or enforcement in the DIFC.
A similar decision was handed down in the JJC’s second case, Dubai Water Front LLC v Chenshan Liu, which concerned a Dubai International Arbitration Centre (DIAC) award against an onshore company with no presence or assets in the DIFC, that the DIFC Courts had ordered be recognised and enforced. Echoing its decision in the Daman case, the JJC ordered that the case be remitted to the Dubai Courts and that the DIFC Courts cease entertaining the case.
The effect of these JJC judgments on the DIFC Courts’ ability to enforce foreign arbitral awards and judgments is less clear. There is some suggestion that the JJC would adopt a different approach when considering the enforcement of foreign arbitral awards rendered outside of Dubai.
The reasoning in Daman suggests that the JJC would adopt a different approach when considering the enforcement of arbitral awards rendered outside of Dubai. The JJC stated that: “There is no similarity between this case and the case when it sought to enforce or annul a foreign arbitral award in several jurisdictions pursuant to the New York Convention 1958."
In the JJC’s third case, Marine Logistics Solutions LLC and another v Wadi Woraya LLC and others, Woraya had obtained an award against Marine Logistics in a London seated arbitration and sought to enforce the award in the DIFC Courts despite Marine Logistics being located in onshore Dubai and having no connection to the DIFC. Marine Logistics applied to the JJC to determine whether the DIFC Courts or the Dubai Courts had jurisdiction to hear the enforcement action. The JJC rejected the application because no parallel application for annulment had been made to the Dubai Courts.
A similar decision was reached by the JJC in Gulf Navigation Holding PJSC v DNB Bank ASA which concerned a foreign judgment rather than a foreign award. In that case, the JJC clarified that to trigger the JJC’s jurisdiction, there had to be some conflict of jurisdiction — whether positive (i.e. both courts seizing jurisdiction or issuing conflicting judgments) or negative (both courts abandoning jurisdiction). (See also Emirates Trading Agency LLC v Bocimar International N.V., which involved recognition of English court judgments and London‑seated arbitral awards.)
Unfortunately, none of these cases involved instances of an actual conflict of jurisdiction and so off limited insight into the JJC’s approach where parallel proceedings (enforcement and annulment).
In Gulf Navigation Holding P.S.C v Jinhai Heavy Industry Co. Limited, the JJC considered alleged conflict of jurisdiction between the DIFC Courts and the Dubai Centre for Amicable Settlement of Disputes (Centre). The Centre was launched in 2009 by the Department of Economic Development in co‑operation with the Dubai Courts to provide a mediation alternative to litigation. Certain disputes must be referred to the Centre for mediation before commencing litigation, but parties can also otherwise elect to use the Centre. Jinhai had obtained an award against Gulf Navigation in a London‑seated arbitration and applied to the DIFC Courts to recognize and enforce that award under the DIFC Arbitration Law (article 42(1) provides that DIFC Courts are bound by international enforcement instruments that bind the UAE, which includes the New York Convention). But approximately eight months prior, Gulf Navigation had filed an application to the Centre. The JJC found that the Dubai Courts were competent to hear the case because the Centre is “attached” to the Dubai Courts. The majority concluded that the DIFC Courts should cease to entertain the case and that “[...] this case is not similar to cases in which the Courts apply the provisions of the New York Convention 1958 because the two courts are in one Emirate, viz, Dubai Emirate).”
Again, all three DIFC Court judges on the JCC dissented. In their dissenting opinion they disagreed with the majority’s finding of a principle of general jurisdiction according precedence to the Dubai Courts in the event of a jurisdictional conflict between the Dubai and DIFC Courts. They held that nothing in the prevailing legislation indicates that the onshore Dubai courts are to be perceived as hierarchically superior in jurisdiction to the DIFC Courts. Both courts qualify, constitutionally speaking, as part of the Dubai Court system with defined jurisdictional limits. Further, the majority’s conclusions on the New York Convention were incorrect statements of international law — the convention can be enforced in different parts of countries (such as different states in the USA). Moreover, if the DIFC Courts were prevented from enforcing foreign awards, it would place the UAE in breach of its obligations under Article III of the New York Convention, which requires all Contracting States to the Convention to must enforce foreign awards. The dissenting opinion also expressed concern that Gulf Navigation’s application to the Centre violated the important fundamental principles of the New York Convention.
The implementation of Decree 19 and establishment of the JJC has served to restrict the DIFC Court’s developing conduit jurisdiction. At present there appears to still be room for the DIFC Courts to act as a conduit jurisdiction in relation to the recognition of foreign awards and judgments, as long as there are no ongoing parallel proceedings before the Dubai Courts. In practice, this will often be the case given that the appropriate forum for an appeal or annulment application would be the courts of the seat of the arbitration or court that handed down the judgment (and not the Dubai Courts).
The JJC’s decisions to date are, however, regrettably short and could benefit from more clearly defined principles, in particular any finding that the Dubai Courts have “general jurisdiction”. Additionally, the application of such a principle has not been consistent.
It is perhaps encouraging to note that JJC decisions are not binding on future JJC decisions, and so there is a chance that going forward, the JJC’s assumption of a general jurisdiction of the Dubai Courts may be substituted.
Finally, the lack of a filtering system for applications and the longer‑than‑anticipated turnaround time for JJC decisions may have an impact on the international community’s view of the DIFC as a route to enforcing arbitration awards in the UAE. Given the pre‑existing concerns with enforcement before the Dubai Courts, this may have an impact on the attractiveness of the UAE itself as a dispute resolution centre.
The views expressed in this article are the views of the authors and not necessarily the views of Norton Rose Fulbright.
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© Norton Rose Fulbright LLP 2021