Over the past year, a series of decisions from the Dubai courts have demonstrated an increasing support for international arbitration (as we discussed in a previous article here). A recent Dubai International Financial Centre (DIFC) Court of Appeal decision provides more good news for businesses, allowing the enforcement of foreign judgments through the DIFC courts and onshore courts, in the same way as an arbitral award.
This latest decision reflects the developing nature of the jurisdiction and its focus on providing confidence that Dubai is a key jurisdiction for international business and trade.
Background: the Dubai courts
The UAE has a federal court system. In Dubai, this consists of separate court systems for two separate jurisdictions:
- “onshore Dubai”, which is a civil law jurisdiction; and
- “offshore Dubai”, or the DIFC, which is a free zone that has its own, independent legal system.
Legally and procedurally, there is a perception that enforcing awards directly in the onshore courts is more demanding than in the DIFC courts. As a result, there have been attempts to use the DIFC as a “conduit” jurisdiction, to get to an award debtor that has assets within onshore Dubai.
DNB v Gulf: Court of First Instance decision
Our previous article discussed the positive steps being taken by the DIFC courts with regard to ratification and enforcement of foreign awards, with particular reference to the recent cases of DNB Bank ASA v Gulf Eyadah Corporation and another and Meydan Group v Banyan Tree Corporate Pte Ltd.
The DIFC Court of First Instance, in DNB v Gulf, drew a clear line between the recognition and enforcement of arbitral awards on the one hand and foreign judgments on the other, both within the DIFC jurisdiction when it came to enforcement and ratification onshore.
The DIFC Court of First Instance had decided that DIFC courts had jurisdiction to hear claims on the enforcement of foreign judgments, so foreign judgments could be enforced within the DIFC. However, unlike arbitral awards, the DIFC courts did not have the authority under the Judicial Authority Law to refer such judgments to the Dubai “onshore” courts for execution.
What did the DIFC Court of Appeal decide?
The DIFC Court of Appeal disagreed with the Court of First Instance, holding that once the DIFC has recognised a foreign judgment and has entered judgment in the same terms, a party has a DIFC judgment that it can enforce onshore. The DIFC judgment will also then be automatically enforceable via the mutual enforcement processes between the two sets of courts (DIFC court judgments, decisions or orders can be enforced through the Dubai onshore courts if three conditions set out in Article 7(2) of the DIFC Law No. 10 of 2004 are met).
As Chief Justice Michael Hwang stated at paragraph 124:
“Enforced foreign awards where the Court has entered judgment in the terms of the award become judgments of the DIFC Courts and as such are already enforceable under Article 7(2) of JAL.”
Justice David Steel agreed and in his judgment at paragraph 138 stated:
“The essential issue on this appeal is the nature of a judgment issued by the DIFC Courts on recognition and enforcement of a foreign judgment. It is not a “recognised foreign judgment”. Indeed that is not a term reflected in the legislation. It is in fact a domestic judgment and accordingly falls within the scope of Article 7(2) of the Judicial Authority Law.”
The distinction that existed following the first instance decision therefore no longer exists. A party with no assets in or connection with the DIFC but with a valid foreign court judgment can use the DIFC as a route for enforcement against assets that exist in onshore Dubai.
This use of the DIFC courts as a conduit jurisdiction was expressly supported by the Court of Appeal, with Chief Justice Michael Hwang stating at paragraph 129:
“From the perspective of the DIFC Courts, it is not wrong to use the DIFC Courts as a conduit jurisdiction to enforce a foreign judgment and then use reciprocal mechanisms to execute against assets in another jurisdiction. The DIFC Courts are not concerned with what happens in the Dubai Courts in which the Claimant seeks to enforce its judgment as it does not have the jurisdiction to dictate what they should do.”
Following the money
This ruling will have significant implications for enforcement against parties with assets located within Dubai (and not just within the DIFC). As a result of the DIFC Court of Appeal’s decision, the enforcement of foreign court judgments in Dubai has become more certain and straightforward, providing further comfort for those undertaking business in or with parties based in Dubai.
We shall wait and see if there is a reaction from the Dubai onshore courts to this judgment, or indeed to similar requests from other judgment creditors. One thing for sure is that there will be additional litigation on this point, so those undertaking business in Dubai should keep a close eye on the situation.