Landmark decision by the DIFC Court

“….. in deciding as it did the Dubai Court of Cassation was in breach of the NYC….”

On November 17, 2019, the DIFC Court handed down a landmark decision in YYY Limited v ZZZ Limited [DIFC] 2017 ARB 005¹  (DIFC Court Judgment). In his judgment, Justice Sir Richard Field declined to recognise and enforce a decision of the Dubai Court of Cassation dated October 7, 2018 concerning the validity of an Arbitration Clause (Cassation Judgment). Readers may recall, the Cassation Judgment was the subject of a previous article penned by this firm². Practitioners and stakeholders in the DIFC will no doubt welcome the DIFC Court Judgment in circumstances where some may argue that the jurisdiction of the DIFC Court has been under threat in recent times³.

In the Cassation Judgment, the Dubai Court of Cassation found that the Arbitration Clause was invalid as a matter of UAE law as the signatory on behalf of Hotel Owner did not have express written authority to bind that entity to arbitration. It was found in the DIFC Court Judgment that, in reaching its decision, the Dubai Court of Cassation did not take into consideration: (i) the DIFC-LCIA Rules; (ii) the governing law of its contract or (iii) the Convention on Recognition and Enforcement of Foreign Arbitral Awards (New York 1958) (NYC).

In summary, the DIFC Court found that the Cassation Judgment:

• is not automatically recognised as a result of the Judicial Authority Law (12 of 2005) (JAL); and
• the Cassation Judgment was in breach of the NYC and should not, as a result, be recognised at common law on the grounds of public policy.

The Applications

ZZZ (in its capacity as Hotel Operator) and YYY (in its capacity as Hotel Owner) entered into a 30-year hotel management agreement in respect of the Hotel on September 8, 2013 (the HMA). The HMA contained an arbitration agreement which provided for a DIFC-LCIA, DIFC seated arbitration. The governing law of the HMA was English Law.

ZZZ obtained an ex parte injunction on June 22, 2017 on the basis that YYY unlawfully terminated the HMA (the Injunction). The injunction remained in force as at the date of the Cassation Judgment.

Following the Cassation Judgment, YYY successfully obtained an enforcement order dated February 3, 2019 for the recognition of the Cassation Judgment pursuant to Rule 45 of the DIFC Court Rules (RDC) (the Enforcement Order).

Two related applications were before the DIFC Court:

• An application by YYY to discharge the Injunction (Application 1)
• An application by ZZZ to set aside the Enforcement Order (Application 2)

Ultimately, the Hotel Operator was successful with the DIFC Court:

• declining to discharge the Injunction; and
• setting aside the Enforcement Order wrongfully obtained by the Hotel Owner.

Key findings

This is a critical decision of the DIFC Court and each and every practitioner within the Emirate should familiarise themselves with it. Set out below are the key takeaways:

• The enforcement of a judgment or order made by a Dubai Court through the machinery of Article 7(4) and 7(5) of the Judicial Authority Law (JAL) is limited to enforcement through the execution processes operated within the DIFC, as provided for in Part 45 of the RDC. Justice Sir Field accepted that Article 7(4) of the JAL did not bring about the automatic recognition of declaratory judgments, such as the Cassation Judgment, but only applied to judgments that were susceptible to the processes of execution against assets available in the DIFC, namely money judgments or orders equivalent to common law injunctions enforceable by attachment of assets.
• As such, it was impossible to construe Article 7 of the JAL as applying to all Dubai Court judgments. The Cassation Judgment was not, therefore, automatically recognised in the DIFC.
• Given the Cassation Judgment was not automatically recognised, the question arose as to whether the Cassation Judgment should be enforced at common law. The Court refused to do so.
• The Court noted that a Dubai judgment ought generally to be recognised by the DIFC Courts if the judgment is final and conclusive on the merits and unimpeachable on the ground of fraud or public policy. The DIFC Court applied the DIFC Courts conflict of laws rules which are based on the English conflicts of laws rules set out in Dicey, Morris and Collins. Specifically, Rule 51 states: “A foreign judgment is impeachable on the ground that its enforcement or, as the case may be, recognition, would be contrary to public policy”. Pursuant to Rule 51, the DIFC Court found that the Cassation Judgment ought not to be recognised because to do so would be contrary to the public policy of the DIFC. The reasons relied on by the Court were as follows:

1. The NYC requires that the courts of the contracting states uphold arbitration agreements provided certain conditions are satisfied. When a domestic court is asked to find that an arbitration agreement is null and void in the circumstances contemplated in Article II.3 of the NYC,⁴ it should make that decision on the basis of the law to which the parties have subjected the arbitration agreement.
2. In the Cassation Judgment, the Dubai Court of Cassation applied UAE law, when it should have applied English law (being the governing law of the HMA). The Dubai Court of Cassation also took no account of the fact that the Hotel Owner had applied to the Dubai Court for a declaration of nullity, instead of raising this issue in the DIFC Court (being the court of the seat).
3. In deciding as it did, the Dubai Court of Cassation was in breach of the NYC as it failed to apply English law in determining the validity of the arbitration agreement.
4. The recognition of the Cassation Judgment would put the DIFC Court itself in breach of the NYC for failing to uphold the validity of the arbitration agreement.

Observations

• The DIFC Court Judgment was not appealed and therefore going forward, declaratory rulings of the Dubai Courts will not automatically fall within the ambit of Article 7 of the JAL.
• This development is welcomed. Parties should be held to act in accordance with their contractual arrangements, provided this does not contradict mandatory provisions of law. It is clear the DIFC Court will not be persuaded to recognise another court’s decision in circumstances where the DIFC Court itself was the curial court. Such an approach will likely be applauded by the arbitration community.
• The DIFC Court Judgment is in line with other recent positive developments in the UAE in respect of arbitration – namely the Federal Arbitration Law and Cabinet Resolution 57 of 2018 concerning the Executive Regulations of Federal Law No. (11) of 1992 on the Civil Procedure Law.