Enforcement in the UAE by the back door: the DIFC courts are not to be used to enforce foreign judgments in the UAE

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

The decision in DNB Bank ASA v Gulf Eyadah Corporation and another (DIFC CFI 043-2014) concerns the hotly debated topic of parties using the DIFC courts as part of their enforcement strategies to enforce foreign judgments and arbitration awards in onshore Dubai and the wider United Arab Emirates.

What is the DIFC?

The Dubai International Financial Centre ("DIFC") is a financial free zone located near Dubai's central business district. The DIFC has developed its own laws (based on common law) which govern commerce within the DIFC. Where DIFC law is silent on an issue, it provides that the DIFC courts should apply English law. The DIFC is often referred to as a “common law island floating in a civil law sea”. The DIFC courts have developed their own court procedure rules based on the Civil Procedure Rules of the courts of England and Wales.

In 2011, the DIFC courts and the local onshore Dubai courts entered into a memorandum of understanding allowing for the mutual enforcement of each other's judgments. The DIFC courts enshrined this agreement in DIFC Law No 16. of 2011.

Since then a number of parties have attempted to use the DIFC courts to recognise arbitral awards rendered outside of the DIFC with the aim of then taking the DIFC courts' ratification to the onshore Dubai courts to enforce against the award debtor (see XX v YY (ARB 002-2013) and Banyan Tree Corporate PTE Ltd v Meydan Group LLC (ARB 003-2013)).

The DNB Bank case

In DNB Bank, the claimants applied to the DIFC courts to recognise and enforce a judgment of Mr Justice Cooke in the English Commercial Court requiring the defendants to pay US$8.7 million (the "English Judgment"). The defendants were based in the UAE but, like the claimant, had no connection with the DIFC. HE Justice Ali Al Madhani (in the DIFC Court of First Instance) stated that "none of the parties are incorporated, licenced or registered to transact business in the DIFC, nor do any of them have a physical office or other registered office in the DIFC. The matter does not concern a contract concluded or executed in the DIFC nor does it involve a transaction or incident otherwise occurring within the DIFC in relation to its activities".

The defendants argued that the DIFC courts did not have jurisdiction to recognise and enforce the English Judgment and that the claimant's attempts to do so were an abuse of process.

On the jurisdiction point, the defendants argued that the claimant's claim did not fall within any of the jurisdictional gateways set out in Article 5(A) of Dubai Law No. 12 of 2004. HE Justice Ali Al Madhani rejected this assertion and held that the English Judgment was an order of a "foreign" court within the meaning of Article 7(6) of the Judicial Authority Law No. 12 of 2004 (as amended by Law No. 16 of 2011) and Article 24(1) of the DIFC Court Law No. 10 of 2004 and that therefore the English Judgment fell within the jurisdictional gateway set out in Article 5(A)(1)(e). As a result of this, the judge determined that the DIFC courts were required to recognise and execute the English Judgment.

On the second point, the defendants argued that the claimant's claim was an abuse of process because the claimant could not show any "real prospect of a legitimate benefit" for enforcing the judgment in the DIFC. This was because the defendants had no assets located within the jurisdiction of the DIFC. They relied on two English Court of Appeal authorities:

• Demirel v Tasaruff [2007] EWCA Civ 799, where a claimant had to establish that there was a real prospect of obtaining a legitimate benefit from recognising and enforcing a judgment in the UK before the courts would grant the claimant permission to serve a claim form out of the jurisdiction; and
• Linsen International Ltd v Humpuss Sea Transport Pte Ltd [2011] EWCA Civ 1024, in which it was held that a claimant is required to show that assets are within the jurisdiction before the English courts will permit an action on a judgment.

The defendants also argued that it was an abuse of process because the claimants were attempting to use the DIFC courts on the basis that the DIFC is an accepted "conduit jurisdiction" and "route into the Emirate of Dubai (and the wider UAE) for the enforcement of international arbitration awards where the awards have no jurisdictional nexus to the DIFC" and that the enforcement of arbitration awards is different from enforcing foreign court judgments.

HE Justice Ali Al Madhani dismissed this argument and stated that he was required to recognise and enforce the English Judgment. However, he determined that, unlike international arbitral awards, foreign judgments recognised by the DIFC courts could not be referred to the onshore Dubai courts for execution outside of the DIFC.

He relied on the fact that the provision of the Judicial Authority Law (No. 12 of 2004) (as amended) dealing with the recognition and enforcement of international arbitration awards provided that such awards ratified by the DIFC courts could be executed by any courts with which the DIFC had an agreement or memorandum (such as the agreement between the DIFC courts and the onshore Dubai courts to enforce each other's judgments). However, the provision of the Judicial Authority Law dealing with the recognition and enforcement of foreign court judgments did not provide for how such orders made by the DIFC courts could be recognised and executed outside of the DIFC.

HE Justice Ali Al Madhani held that, because of this, although the DIFC courts:

"may execute judgments, decisions and orders rendered by any [foreign courts] ... the execution shall not go beyond the jurisdiction of this [DIFC] Court which requires this [DIFC] Court not to refer Recognised Foreign Judgments to the [onshore] Dubai Court for execution".

He concluded that:

"although this [DIFC] Court has jurisdiction to recognise and enforce Foreign Judgments and that power shall be within the DIFC and cannot extend beyond the DIFC, this [DIFC] Court has no power to to refer Recognised Foreign Judgments to the [onshore] Dubai Courts for execution."

Comment

Whilst the claimant was successful in getting the DIFC Courts to recognise the English Judgment, its victory was a pyrrhic one given that the defendants had no assets in the DIFC and the court ruled that the claimant could not apply to the DIFC courts to enforce the DIFC judgment in the onshore Dubai courts. Unless the judgment of HE Justice Ali Al Madhani is overturned on appeal, the claimant will be left with no choice but to start enforcement proceedings in the local Dubai Courts, which may take years to enforce and in the course of which they may face many pitfalls.

Whilst it appears accepted that parties can use the DIFC courts as a conduit jurisdiction to enforce foreign arbitral awards in onshore Dubai and the wider UAE, parties cannot use the DIFC courts in the same manner to enforce foreign judgments.

The case acts as a poignant reminder for parties to consider, at the outset of negotiating a contract, how they will enforce any judgment. Parties who do not can find themselves in a situation where it is too little, too late.