DIFC Courts: Question of judgement and jurisdiction a key concern

Companies and individuals in the UAE have traditionally had little to fear from the English commercial courts and the prospect of British bailiffs coming after their assets in the UAE.

If a judge in London decides you owe Dh100 million to, for example, your ex-business partner, said ex-business partner is unlikely to be able to get his or her hands on your luxury yacht moored in Dubai Marina.

No reciprocal treaty exists between the UAE and the United Kingdom for the automatic recognition and enforcement of each other’s commercial court judgements, meaning your ex-business partner will have to try his or her luck pleading his case before the local courts.

And while mechanisms do exist on paper for the enforcement of English judgements in the local courts, the procedures are complex and time-consuming enough to put off even the most dogged ex-business partners, and have seen little usage.

Recently, however, two international banks have experimented with a novel way of getting their English judgements recognised and enforced in the UAE to get a little closer to seizing those metaphorical yachts, by utilising the court of the DIFC. Should they prove successful, it may make some of the UAE’s yacht owners think about weighing anchor and heading for the open ocean.

Under the terms of the DIFC Court Law of 2004, the DIFC Courts have jurisdiction to ratify any judgement of a recognised foreign court, including the English commercial court.

In 2011, the DIFC Courts entered into an agreement with the local Dubai Courts allowing for the mutual enforcement of each other’s judgements.

Such agreements offer, in theory at least, a pathway that enables English judgements to be directly recognised in the courts of Dubai, putting a potential debtor’s yacht at risk.

“The way you try to do this is to bring your judgement first to the DIFC Courts to have them recognise it and enforce it within their jurisdiction,” says Stuart Paterson, a disputes resolution partner with Herbert Smith Freehills (HSF) in Dubai.

“The next step is to use the protocol of enforcement between the DIFC Courts and the [onshore] Dubai Courts to have it enforced in the Dubai Courts.”

The first of the two cases trying out this path was filed in August 2014 by Standard Chartered against IGPL, as part of a long-running and messy restructuring of the Sharjah conglomerate’s debt obligations.

Standard Chartered is seeking US$129 million from IGPL over two alleged defaulted loan agreements dating from 2009 and 2010, and is also seeking to enforce security over a number of shares in listed companies based in Dubai and Abu Dhabi, pledged as security in respect of the 2009 agreement.

The second claim, filed in December last year, was brought by the Norwegian Bank DNB against Dubai’s Gulf Navigation and two associated companies.

Once again, DNB is seeking the enforcement of an English high court judgement that ordered the shipping company to pay the bank $8.7m plus costs following Gulf Navigation’s defaulting on loan agreements from July 2013.

Both IGPL and Gulf Navigation contested the right of the DIFC Courts to hear the claims, insisting they had little connection to the free zone. In both instances, however, these arguments were dismissed by the courts.

In seeking enforcement of foreign litigation judgements via the DIFC Courts, Standard Chartered and DNB were partly motivated by recent trends within the slightly less politically sensitive realm of arbitration.

In November last year the DIFC Courts ruled in the case of XXvYY (the parties remain anonymous) that it had jurisdiction to hear a claim for a foreign arbitral award where the successful party was incorporated outside the UAE, and the unsuccessful party was incorporated in Dubai but had no connection with the DIFC. The courts’ ruling in this respect was fairly uncontroversial, with both the DIFC Courts and the local courts technically obliged to recognise foreign arbitration awards, following the UAE’s ratification in 2006 of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

“Where you have a foreign arbitration award the test criteria used [for enforcement] is basically the same for both the Dubai Courts and the DIFC Courts, namely whether the New York Convention applies,” according to Adrian Chadwick, a disputes resolution partner with Hadef & Partners in Dubai.

The decision to seek recognition and enforcement of the foreign arbitration award in the DIFC Courts even if there are no assets within the DIFC to enforce against, rather than the onshore courts, is largely taken for tactical reasons, says Mr Paterson.

“Parties have the concern that if they take their arbitration award directly to the courts of the relevant onshore emirate they may face greater challenges in having it recognised and enforced than if they go to the DIFC,” he notes.

“This is due to factors such as the Arabic language setting of the local courts, the perceived slower pace of operations, as well as a traditional reluctance that still remains throughout the region to embrace arbitration.”

But while the considerations about whether to recognise and enforce arbitration awards is relatively straightforward, litigation judgements such as those brought by Standard Chartered and DNB are a very different matter, given the lack of mutual enforcement agreements in place, says Mr Chadwick.

“While the DIFC Courts would recognise a foreign common law judgement, the Dubai Courts would refuse to do so without a reciprocal enforcement treaty in place,” he says.

“I think DIFC Courts should be hesitant about allowing themselves to be used as a conduit court in that respect, as it’s straying into the realm of the Federal Government, who ultimately decide with which countries they want to sign reciprocal treaties.”

Recognising what is at stake, the DIFC Courts have so far trodden carefully.

In the Standard Chartered case, IGPL was granted leave in February to appeal the DIFC Court’s decision to hear the claim, with IGPL subsequently referring the case to the Sharjah courts.

Thus far however, both the Sharjah Court of First Instance and the Court of Appeal have refused to hear the case, referring it back to the DIFC Courts, leaving the matter evenly poised.

In the DNB case, Justice Al Madhani ruled in July that the DIFC Courts only had jurisdiction to recognise and enforce the bank’s high court judgement within the DIFC itself, stating that the DIFC Court could not refer its judgement to the local Dubai Courts for enforcement.

Justice Al Madhani’s judgement seems to have settled the matter for the moment, with ex-business partners and creditors only able to go after assets within the physical confines of the DIFC (which, let us remind ourselves, is a relatively small area and one that currently offers no berthing opportunities for yachts). The issue has not been finally settled yet, however, with DNB being granted leave in September to appeal the judge’s decision.

Should that appeal be successful, it may be the right time to trim the sails, pack your waterproofs and set sail – before the local bailiffs come a-knocking.


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