Last year we reported that the DIFC had successfully established itself as a so called 'conduit' jurisdiction for the enforcement of foreign and domestic arbitral awards as well as foreign money judgements.
This status could now be in jeopardy after the newly established Dubai Judicial Tribunal has issued its first decisions, which significantly curtail the DIFC's jurisdiction.
What has happened so far...
In recent years the DIFC Courts have established a good track-record of enforcing arbitral awards (foreign and domestic) and foreign money judgments even when the relevant assets against which the award or judgment was to be enforced were located outside the DIFC and within the jurisdiction of Dubai's 'onshore' courts. On the back of those decisions, the DIFC has become popular as a so-called 'conduit' jurisdiction.
- Meydan Group LLC v. Banyan Tree Corporate Pte Ltd [CA-005-2014] – concerning a domestic arbitration award
- (1) Egan, (2) Eggert v. (1) Eava, (2) EFA1 [ARB 002/2013] – concerning a foreign arbitral award
- DNB Bank ASA v. Gulf Eyadah and Gulf Navigation Holdings PJSC [CA-007-2015] – concerning a foreign money judgment
Reasons why parties prefer to take this additional step through the DIFC Courts rather than the direct route through the Dubai Courts include the ease of doing so and the prospects for enforcement, which are considerably greater in the DIFC Courts than in the Dubai Courts. Once the DIFC Courts have issued the enforcement order, the order (as a final judgment of the DIFC Courts) is then referred to the Dubai Courts for execution outside the DIFC under Article 7(2) of Dubai's Judicial Authority Law (Law No. 12 of 2004).
The legitimacy of this conduit route has now been thrown into question by recent decisions issued by the newly established Judicial Body of the Dubai Courts and DIFC Courts (the Judicial Tribunal). As a consequence of those decisions, it is at least questionable whether the DIFC will remain as a viable conduit route in the future, at least in so far as the enforcement of domestic arbitral awards is concerned.
The Judicial Tribunal
The Judicial Tribunal was established by Dubai Decree No. 19 of 2016 (the Decree). The Decree was issued in June 2016, but was only published much later in the year, when it came as a surprise to many in the business and legal community. In summary, the Judicial Tribunal is authorised to:
- determine conflicts of jurisdiction between the Dubai Courts and the DIFC Courts;
- determine which judgment should be enforced in case of the conflicting judgments of the Dubai Courts and the DIFC Courts; and
- propose rules and regulations necessary to avoid conflicts on jurisdiction between the Dubai Courts and the DIFC Courts.
The Judicial Tribunal is made up of three judges each appointed from the Dubai Courts and the DIFC Courts, together with the Secretary General of the Judicial Council. The President of the Dubai Court of Cassation is the chairman of the Judicial Tribunal and holds the casting vote in the event of any hung decisions.
In mid-December 2016 the Judicial Tribunal handed down its first decision, in Case No. 1/2016 (JT), Daman Real Estate Capital Partners Company LLC v. Oger Dubai LLC (the Daman Case). In summary, Oger had been successful against Daman (a DIFC-based company) in a domestic arbitration in Dubai and proceeded to the DIFC Courts for the enforcement of the award against Daman. In turn, Daman commenced proceedings in the Dubai Court of First Instance for the annulment of the arbitration award and requested the DIFC Courts to stay the enforcement proceedings pending the outcome of the annulment proceedings in the Dubai Courts. The DIFC Courts agreed and ordered a stay of the proceedings on the condition that Daman pay sufficient security into the court, which Daman failed to do. As a consequence, the DIFC Courts proceeded to recognise and enforce the award and actions were brought for the winding-up of Daman. In the meantime, the Dubai Court of First Instance and, subsequently, the Dubai Court of Appeal both determined that they had no jurisdiction because the award had already been enforced by the DIFC Courts.
The Judicial Tribunal's decision in the Daman Case
Having been unsuccessful in resisting the enforcement of the award, Daman decided to refer the matter to the Judicial Tribunal under Article 4 of the Decree.
The Judicial Tribunal decided that:
- the case be remitted for trial by the Dubai Courts; and
- the DIFC Courts should "cease from entertaining" the case.
There has been much debate about what the wording of the Judicial Tribunal's order to the DIFC Courts to "cease from entertaining" means and what consequences it has. This is particularly so as the recognition and enforcement proceedings in the DIFC Courts had already been concluded. One interpretation is that parties (at least in Dubai-seated arbitrations) will not be able to enforce awards before the DIFC Courts until annulment proceedings have been concluded in the Dubai Courts. This could add several months of delay to the enforcement process and would effectively curtail the DIFC Courts' jurisdiction under their own laws to recognise and enforce awards within the DIFC. The decision is remarkable as the Daman Case is not a typical conduit-jurisdiction case. In fact, the Daman entity against which enforcement was sought was an entity established in the DIFC.
Unfortunately, the Judicial Tribunal's decision contains very little reasoning from which one could extrapolate its general approach on this topic. Importantly, not every member of the Judicial Tribunal agreed with the decision, and all three DIFC Court judges expressly dissented on the issue of the DIFC Courts ceasing from entertaining the case, though the reasons for the dissent are yet unknown.
Nevertheless, the Judicial Tribunal deemed it important to point out that there was no similarity between this case and the case where the enforcement of a foreign arbitral award is concerned.
The Judicial Tribunal's subsequent decisions
It recently transpired that during the Judicial Tribunal's session on 19 December 2016, it also decided on at least four other cases which had been brought before it:
- Case No. 2/2016 (JT) – Dubai Water Front LLC v. Chenshan Liu
- Case No. 3/2016 (JT) – Marin Logistics Solutions LLC & others v. Wadi Woraya LLC & others
- Case No. 4/2016 (JT) – [no information is available]
- Case No. 5/2016 (JT) – Gulf Navigation Holding PJSC v. DNB Bank ASA
Case No. 2/2016 is similar to the Daman Case in that it concerns parallel proceedings for the enforcement of a domestic arbitral award before the DIFC Courts, while annulment proceedings were pending before the Dubai Courts. The Judicial Tribunal ordered the case to be remitted to the Dubai Courts and the DIFC Courts to cease entertaining the case, echoing its decision in the Daman Case.
Case No. 3/2016 concerns an action brought before the DIFC Courts for the recognition and enforcement of a foreign arbitral award where the arbitration was seated in London. However, as proceedings were only pending before the DIFC Courts but not before the Dubai Courts, the Judicial Tribunal decided that there was no conflict or dispute as to the jurisdiction between the two courts and, therefore, dismissed the case.
Case No. 5/2016 concerns proceedings brought before the DIFC Courts for the enforcement of a foreign money judgment rendered by the Commercial Court in London. Similar to its decision in Case No. 3/2016, the Judicial Tribunal ruled that the issue was not one of conflicting jurisdiction, as no case has been brought before the Dubai Courts, and dismissed the case accordingly.
Unfortunately, there is only anecdotal information available about Case No. 4/2016 as the Judicial Tribunal's decisions are (rather unhelpfully) not published. However, it appears that in that case the Judicial Tribunal upheld the jurisdiction of the DIFC Courts. It is unclear whether such decision came about as a result of a dismissal of the case for reasons similar to those in Case Nos. 3 and 5 or whether there was a positive endorsement of the relevant DIFC Court's jurisdiction in circumstances where proceedings were pending before both the DIFC courts and a Dubai courts and a conflict of jurisdiction had therefore arisen between these two courts.
What are the consequences?
There have been strong reactions and responses from both the business and legal communities since information about the Judicial Tribunal's decisions became public. Many were quick to announce the end of the DIFC as a conduit jurisdiction and that parties would no longer be able to enforce arbitral awards and foreign money judgments in the DIFC Courts only to then seek execution of the award (as a DIFC judgment) outside the DIFC by the Dubai Courts under the Judicial Authority Law (Law No. 12 of 2004).
There is no doubt that the Judicial Tribunal's decisions (and the Decree itself) will have an impact on the way the DIFC Courts are used to side-step the Dubai Courts in certain circumstances. However, at least for the moment, there is no evidence that the Judicial Tribunal plans to end the DIFC conduit route generally and in all scenarios.
The two cases which the Judicial Tribunal ordered be remitted back to the Dubai Courts and the DIFC Courts to cease from entertaining concern the enforcement of domestic arbitral awards issued in (onshore) Dubai. In those cases the Dubai Courts have exclusive jurisdiction to decide on the annulment of the award. Such jurisdiction is separate from that of the DIFC Courts (or, in fact, any other court) to enforce the award within the DIFC. It is therefore not an issue of the Dubai Courts and the DIFC Courts having competing or conflicting jurisdictions as they are concerned with different issues, i.e., annulment v. enforcement. It is likely that this was the reason why the DIFC Court judges who are members of the Judicial Tribunal (partially) dissented with the rest of the Judicial Tribunal.
The important question which remains unanswered is whether the Judicial Tribunal's order to the DIFC Courts to cease entertaining the case is meant as an order to stay the proceedings pending a final decision from the Dubai Courts in the annulment proceedings, or as an order to relinquish its jurisdiction of the case generally. In other words, does the Judicial Tribunal's decision spell the end of the enforcement of the domestic arbitral awards through the DIFC in the absence of any enforceable assets in the DIFC, or is it simply a 'traffic-light' like measure by which the DIFC Courts have to delay enforcement proceedings until a final decision on the validity of the arbitral award has been made by the Dubai Courts?
Providing a conclusive answer to this question is akin to reading tea leaves. It does not help that the Judicial Tribunal's decisions contain hardly any reasoning at all from which one could extract a general direction as to how the Judicial Tribunal intends to deal with such situations in the future. This is further amplified by the general cloak of secrecy which the Judicial Tribunal applies to its activities and decisions. All of this causes uncertainty and insecurity as to whether the conduit route through the DIFC Courts is still available for the enforcement of arbitral awards and foreign money judgments.
In so far as the Daman Case is concerned, the Judicial Tribunal's order to the DIFC Courts to cease from entertaining the case can only be interpreted to mean a temporary stay of proceedings pending the outcome of the decision in the Dubai Courts, as the enforceable assets are located in the DIFC and only the DIFC Courts have jurisdiction to enforce and execute judgments against assets located within their jurisdiction.2 As such, the Daman Case is not a conduit-jurisdiction case and therefore is of limited relevance.
In Case No. 2/2016 on the other hand, which presents a true conduit scenario, the Judicial Tribunal adopted the exact same language as in the Daman Case. One could therefore draw the conclusion that the Judicial Tribunal wanted to treat this case in a similar way by ordering the DIFC Courts to only temporarily stay proceedings rather than to fully relinquish their jurisdiction for the enforcement of the domestic award. However, the limited number of cases decided so far, the very limited reasoning provided by the Judicial Tribunal and the fact that the decisions have been translated from Arabic (as the official language) into English, all taken together, prevent any reliable prediction as to the future of the DIFC as a conduit jurisdiction.
In so far as the conduit route for the enforcement of foreign arbitral awards is concerned, at least the Judicial Tribunal found it necessary to point out that the cases at hand (Case Nos. 1/2016 and 2/2016) are different from those concerning the enforcement of foreign arbitral awards. This could be interpreted to mean that the Judicial Tribunal will continue to allow the enforcement of foreign arbitral awards through the DIFC Courts as a conduit jurisdiction, but only curtail the DIFC Courts' jurisdiction in respect of domestic awards. But again, this uncertainty will remain until the Judicial Tribunal addresses this issue in clear and certain terms, ideally by way of rules or guidelines, which it is authorised to do under Article 2(3) of the Decree.
- Prior to the new convention adopted by the DIFC Courts for anonymised case reverences, this case was also referred to as (1) X1, (2) X2 v. (1) Y1, (2) Y2.
- This also appears to be the interpretation adopted by the Chief Justice of the DIFC in its administrative ruling in the Daman Case to "put on hold" all further proceedings until further notice.
This article is presented for informational purposes only and is not intended to constitute legal advice.