United Arab Emirates: Mutual Recognition Of Judgments Between The UAE Courts And Those Of England And Wales: A Fragile Framework

Introduction

On 13 September 2022, Judge Abdul Rahman Murad Al-Blooshi of the UAE Ministry of Justice issued a circular in which attention was drawn to the decision of the Commercial Court of England and Wales in Lenkor Energy Trading DMCC v Puri [2022] EWHC 75 (QB). The circular, whilst only persuasive and without formal legal status, encourages the UAE Courts to find that the requirement for reciprocity in the enforcement of English and Welsh Judgments in the UAE has been met.

No doubt, the circular will be welcomed by parties seeking to enforce English Judgments in the UAE onshore courts. The circular, certainly marks a shift towards the mutual enforcement and recognition of judgments between the UAE and the English and Welsh Courts. However, there is still a need to consider the detail.

Background

There is no treaty governing the mutual recognition and enforcement of judgments between the UAE and the UK. The Treaty between the United Kingdom of Great Britain and Northern Ireland and the United Arab Emirates on Judicial Assistance in Civil and Commercial Matters (7 December 2006) contains no agreement on mutual recognition and enforcement of judgments.

In the absence of a bilateral treaty governing recognition and enforcement of Judgments, there are Memoranda of Guidance published by the ADGM, DIFC and English Commercial Court which set out, by way of guidance only, the approach taken by the Courts in recognising and enforcing judgments. Both Memoranda are explicit that they are not binding and without legal effect.

The result has been that the enforceability of English and Welsh Judgments in the UAE onshore courts has been determined in accordance with the criteria set out in Article 85 of the Implementing Regulations of the UAE Civil Procedure Code (Cabinet Resolution No. 57 of 2018 on the Implementing Regulation of Federal Law No. 11 of 1992 (as amended)). Article 85(1) crucially provides for the requirement of mutual recognition and enforcement:

Article 85 (2), however, establishes further criteria which must be satisfied before a UAE Court is able to enforce an English judgment:

1. The UAE Court must not have exclusive jurisdiction over the dispute in which the judgment or order was rendered by the foreign Court and the foreign Court must have jurisdiction according to its own rules of international jurisdiction (Article 85(2)(a));
2. The Judgment or Order is delivered by a Court in accordance with the law of the country in which it was issued and duly ratified (Article 85(2)(b));
3. The parties in the dispute in which the foreign judgment was delivered were summoned and duly represented (Article 85(2)(c));
4. The judgment or order has the force of res judicata (Article 85(2)(d));
5. The judgment or order must not conflict with a judgment or order rendered by a UAE Court and must not contain anything contrary to public order or morals (Article 85(2)(e)).

It is important to emphasise, that the Ministry of Justice's circular addresses only the mutual enforceability requirement for the enforcement of English and Welsh Judgments in the UAE. Other barriers to enforcement remain and it is likely that parties seeking to avoid enforcement of an award will, where appropriate, rely on the criteria set out in Article 85(2)(a) to (e).

Mutual Reciprocity and Lenkor Energy Trading DMCC v Puri [2022] EWHC 75 (QB)

Self-evidently, the requirement for mutual reciprocity in recognition and enforcement ties the ability to enforce a foreign judgment in the UAE to the ability to do the inverse. It follows that the ability to enforce a foreign judgment will be, partially, dependent on the decisions of the Courts of the foreign jurisdiction. This requirement, whilst reflecting a justified public policy emphasis on reciprocity, entails a significant degree of uncertainty for parties concerned about the enforceability of foreign judgments.

In essence, the ability of the UAE Courts to recognise and enforce foreign judgments is predicated on the likelihood that the foreign court would do the same. Where, as in England and Wales, fact-specific public policy considerations are liable to bar recognition and enforcement of a foreign judgment, any single decision of the English and Welsh Courts must be treated with care.

The decision of the High Court in Lenkor forms the basis of the Ministry of Justice's circular. At its core, the Court in Lenkor, applying the English common law rules on enforcement (Rules 42 and 51 of Dicey, Morris and Collins on the Conflict of Laws, 15^th Ed.), found that there were no issues of public policy which would render a judgment of the Dubai First Instance Court unenforceable in England and Wales.

However, the Court did not go so far as to state that the decisions of the UAE Courts would be enforceable in all circumstances. In fact, the Court, made reference to the fact that there may be circumstances in which it would (a) enquire into the underlying transactions which formed the basis of the foreign Judgment (see, Omnium de Traitement et de Valorisation SA v Hilmarton Ltd [1999] 2 All E.R. (Comm) 146), and (b) that there may well be circumstances where enforcement of the judgment would be contrary to public policy in England and Wales. Fundamentally, the decision does not preclude future findings that decisions of the UAE Courts are unenforceable in England and Wales.

In the earlier case of Barclays Bank v Shetty [2022] EWHC 19 (Comm), the Court (of equal competence to the Court in Lenkor) considered the enforceability of a DIFC Judgment in an application for summary judgment. The Court (at [88]) gave non-exhaustive examples of when a foreign judgment may be impeached on public policy grounds. It did not consider whether a difference in the laws of England and Wales and the applicable UAE Law would lead to a conclusion that the latter was unenforceable on public policy grounds.

This was addressed in Omnium, where Timoth Walker J held, that "the fact that English law would or might have arrived at a different result is nothing to the point". A difference in the laws, by itself, is evidently insufficient to hold that enforcement of a foreign award in England and Wales is contrary to public policy.

The Court in Lenkor (at [30]) was at pains to emphasise that the absence of an equivalent law in England and Wales did not automatically mean that enforcement of Article 599/2 of the Dubai Commercial Transactions Law was contrary to public policy (as emphasised in Omnium). The Court based its reasoning on the fact that the applicable English rules of company and commercial law were not principles of public policy. With respect, this conclusion is questionable. There will likely be cases in which a Court will conclude that the applicable equivalent English law in a dispute is an expression of a wider public policy. It is not the difference per se which renders the judgment unenforceable, but the nature of the difference.

Since the approach of the English and Welsh Courts to enforcement of judgments and orders of the UAE Courts is subject to the requirement that they do not offend public policy considerations, enforceability is tied to a fundamentally relative, volatile and, in some cases, arguably nebulous concept. It is difficult to predict with any certainty precisely which UAE Judgments will be found to be unenforceable.

By way of example, in Lenkor, the Court found that the requirements of Article 599/2 which impose personal liability on the drawer of a cheque who is unable to prove that there are sufficient funds in the account, had no equivalent in England and Wales. The Court found that an absence of an equivalent rule of law did not automatically render the enforcement of the law as contrary to public policy. Crucially, it found that the liability imposed by Article 599/2 did not involve piercing the corporate veil (something, which, it may be assumed, would fall foul of public policy).

However, there are other significant differences in English and Welsh law and the laws of the UAE. Thus, under Articles 36(1)(a) and (b) of DIFC Law No. 6 of 2005, the provisions regulating unfair terms in contracts do not apply to contracts of insurance or concerning real estate. In contrast, the equivalent legislation in England and Wales (the Unfair Contract Terms Act 1977) is of a much broader application, allowing terms in insurance policies as well as for the sale and disposition of real estate to be challenged as unfair. An English Court asked to enforce a judgment, the reasoning behind which is based, whether in whole or in part, on terms which may be considered clearly unfair under English law, may well conclude that to enforce the judgment would be contrary to public policy; not by virtue of the incongruent legal frameworks but by virtue of the fact that the English legal framework is an expression of a wider public policy. Should this occur, the UAE Courts will again find themselves faced with determining whether the criteria of mutual reciprocity in Article 85(1) can be said to be satisfied.

By way of further example, the English Courts have consistently refused to award damages on the basis of a liquidated damage clause which is considered to amount to a penalty. Yet the doctrine against penalty clauses does not, for example, form part of DIFC law (Roberto's Club LLC v Paolo Roberto Rella [2013] DIFC CFI-19 (29 October 2014) at [105] and Article 21 of Law No. 7 of 2005). Again, it is unclear whether an English and Welsh Court would determine that a DIFC judgment enforcing a penalty provision in a contract would fall not to be enforced as contrary to public policy in the English and Welsh Courts. In this respect, it is noteworthy that the Court in Lenkor did not consider that it was dealing with a penalty provision.

Conclusion

It is clear that, absent a bilateral treaty on recognition and enforcement of judgments between the UAE and the UK, there remains a substantial degree of uncertainty for litigants seeking to enforce judgments or orders across the jurisdictions. Many of our colleagues and clients have described this step as a "quantum leap", which provides for increased confidence for UK-based investors who are seeking to enforce judgments from English Courts or Arbitral awards.

Litigants will still be required to satisfy the criteria set out in Articles 85(2)(a) to (c). Moreover, the UAE Courts may be cautious to conclude, on the basis of the judgment in Lenkor that they are entitled to assume that the English and Welsh Courts would invariably enforce decisions of the UAE Courts. The UAE Courts may now find themselves facing arguments that, on a particular set of facts, an English or Welsh Judgment would not be mutually enforced if it had been decided by the UAE Courts in accordance with UAE law. In other words, that the requirement for reciprocity cannot be satisfied by reliance on one judgment on a particular set of facts (i.e. Lenkor).

In practical terms, parties may well continue to opt for arbitration agreements within their contractual arrangements with the relative certainty of means of enforcement under the New York Convention (ratified through Federal Decree No. 43 of 2006).

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