Status of DIFC Courts for Enforcing Foreign Awards under the New York Convention

Introduction

The United Arab Emirates (UAE) is a civil law jurisdiction except the two financial free zones i.e. Dubai International Financial Centre (DIFC) and Abu Dhabi Global Markets, (ADGM). DIFC and ADGM follow a legal framework based largely on international model laws and the common law legal system. Therefore, the UAE courts can be put into two categories i.e. civil law onshore courts (based in the entire UAE except DIFC and ADGM) and common law offshore courts (based in DIFC and ADGM).

As a result of this dual legal system, conflict of jurisdictions arose in cases where parties had filed parallel proceedings in the offshore courts and the onshore courts. To address this concern, in 2016, through Dubai Decree No. 19 of 2016, the Joint Judicial Committee (the Judicial Committee) was established to adjudicate upon such conflicts of jurisdiction between the offshore courts and the onshore courts.

Conflict of jurisdiction in relation to enforcement of foreign arbitral awards

Since its inception, the Judicial Committee has adjudicated upon a variety of cases and one such category of cases pertains to conflict of jurisdiction in relation to enforcement of foreign arbitral awards.

In its decision dated 22-5-2017, in Gulf Navigation Holding PSC v. Jinhai Heavy Industry Co. Ltd.¹, the Judicial Committee relied upon the “general principals of laws” and held that Dubai Courts had “general jurisdiction” (over the DIFC Courts) to enforce foreign arbitration awards. However, in the decision dated 22-3-2021, in Al Ghaith Holding Co. PJS v. Cessna Finance Est. and Seven Investments Est.², the Judicial Committee rightfully relied upon the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards³ (the NYC) instead of the “general principals of laws” and held that DIFC Courts have the jurisdiction to enforce foreign arbitral awards.

In Al Ghaith Holding Co. PJS case⁴, the Judicial Committee also differed from its earlier anomalous approach of giving priority to Dubai Courts over DIFC Courts for enforcement of foreign arbitral awards.

The analysis of Gulf Navigation Holding PSC case⁵ and Al Ghaith Holding Co. PJS case⁶, and the evolution in approaches and application of law by the Judicial Committee is detailed below.

Gulf Navigation Holding PSC case

Facts

The award-holder of a London-seated arbitral award filed enforcement proceedings before the DIFC Courts. The DIFC Court passed a decision directing enforcement of the foreign arbitral award. Thereafter, the award-debtor initiated proceedings before the Dubai Court in respect of the same disputes which had already been decided in the arbitration proceedings. Owing to this conflict of jurisdiction, the award-debtor filed an appeal before the Judicial Committee.

Judicial Committee’s findings — Majority decision

The majority held that the provisions of the NYC would not be applicable to the present case because the “two courts are in one Emirates, viz. Dubai Emirates” and in view of the “general principles of law”, the Dubai courts have “general jurisdiction” and are competent to adjudicate this case.

Dissenting opinion

The dissenting opinion highlighted the anomalies in the above findings which are detailed below:

1. The majority decision holding that Dubai Courts have general jurisdiction is erroneous since there are no such general principals of laws embodied in the Dubai law. Moreover, such an interpretation of law implies that whenever there is a conflict between Dubai Courts and DIFC Courts, DIFC Courts must give precedence to Dubai Courts.

2. The majority decision that the NYC would not be applicable to the present case because the “two courts are in one Emirates, viz. Dubai Emirates” is an incorrect interpretation of the NYC. NYC can be enforced in different parts of the countries. Furthermore, under Article 42 of the DIFC Arbitration Law of 2008, DIFC Courts are given the express power (and duty) to enforce awards irrespective of the State or jurisdiction in which it was made. As a result, the majority decision is in violation of Article 3 of the NYC which imposes an obligation on each contracting State to recognise and enforce foreign arbitral awards.

3. The majority view that Dubai Court is the competent court having jurisdiction over the dispute is also in violation of Article 2 of the NYC which states that if parties have voluntarily agreed to refer a dispute to arbitration, then the courts of the contracting States will not exercise jurisdiction over that dispute and will refer it to arbitration.

Al Ghaith Holding Co. PJS case

Facts

The award-holders initiated proceedings before the DIFC Court for preventive attachment, and affirmation of an arbitral award passed by a New York-seated Arbitral Tribunal, arising from the guarantee bonds/securities submitted by the award-debtor to the one of award-holders. The DIFC Court considered the relevant facts (including that the parties were not subject to DIFC and have no geographical relationship with DIFC) and held the arbitral award to be enforceable.

The award-debtor initiated proceedings against the award-holders before Dubai Court, inter alia, to obtain a declaration that the award-debtor’s liability against the award-holders was discharged, and for annulment of the bonds of security/guarantees which were the subject of the dispute. The aforesaid proceedings before DIFC Court and Dubai Court led to conflict of jurisdiction and the award-debtor filed an appeal before the Judicial Committee.

The Judicial Committee’s findings

The Judicial Committee dismissed the award-debtor’s appeal and, inter alia, recorded the following findings:

1. Dubai Courts do not have exclusive jurisdiction to adjudicate upon the enforcement proceedings of the arbitral award.

2. The UAE is a party to the NYC, which mandates to enforce foreign arbitral award in accordance with the rules of procedure of the jurisdiction where the award is relied upon, and the DIFC courts is one of such jurisdictions in the UAE.

3. Dubai Courts do not have the jurisdiction to adjudicate the proceedings filed by the award- debtor in view of the arbitration agreement entered by the parties and dispute being already decided by the arbitral award.

Conclusion

The decision in Al Ghaith Holding Co. PJS case⁷ is a step forward in putting the DIFC Courts and Dubai Courts on equal footing with respect to enforcement of foreign arbitration awards under the NYC. Further, in Al Ghaith Holding Co. PJS case⁸, the Judicial Committee also ensured that the UAE is in compliance with its obligation under the NYC (specifically Articles 2 and 3) which appeared to have been breached in Gulf Navigation Holding PSC case⁹. This decision implies that an award-holder in a foreign-seated arbitration has the right to choose the court — whether DIFC or Dubai — for enforcement of a foreign award. Thus, the decision of the Judicial Committee in Al Ghaith Holding Co. PJS case¹⁰ fortifies the relevance of the DIFC Courts in the judicial system of the UAE.

It would be relevant to observe if the Judicial Committee continues with this pro-enforcement approach and contribute to the evolution of law and compliance with the international laws. However, it appears that there has been a delay in the publication of the Judicial Committee’s decisions owing to the pandemic. Moreover, no decisions of appeals filed in 2021 and 2022 appear to have been uploaded on the Judicial Committee’s website as on the date of this article.