DIFC court moves on foreign judgments

In one of its most important decisions of the year, the Dubai International Financial Centre (DIFC) Court of Appeal has held that parties may enforce foreign judgments in the DIFC Courts and then take the resulting order for execution in the Dubai courts outside of the DIFC. The DIFC Court of Appeal’s decision paves the way for the enforcement of foreign judgments throughout the UAE.

Previously, the enforcement of foreign judgments in the UAE (non-DIFC) courts was notoriously difficult. This difficulty arose from the high threshold set on the enforcement of foreign judgments under article 235 of the UAE Civil Procedures Law (Federal Law No. 11 of 1992 as amended).

As a prerequisite for enforcement of a foreign judgment, article 235(2)(a) requires that the UAE courts have no jurisdiction to try the dispute in respect of which the judgment has been issued by the foreign court. This precludes a large number of foreign judgments from enforcement. The UAE courts, like many others, are quick to assume jurisdiction over a dispute. Under the Civil Procedures Law, the UAE courts will assume jurisdiction over disputes in which, inter alia, the defendants are domiciled or incorporated in the UAE, or which arise out of a contract entered into or performed in the UAE. The effect of this expansive jurisdiction of the UAE courts is that parties would fall foul of the requirement under article 235(2)(a) for the enforcement of foreign judgments.

Less problematic, although sometimes still of concern is the requirement of reciprocity set out in article 235(1) of the Civil Procedures Law.

In the absence of a relevant international agreement, the UAE courts will only enforce foreign judgments emanating from states which enforce UAE judgments. This presented an obvious problem for judgments emanating from countries which did not have a track record for enforcing UAE judgments.

The DIFC is a financial free zone serving as a regional commercial hub. It has almost 1,400 registered companies and a combined workforce of almost 20,000 people. The DIFC courts are common-law courts with a number of renowned judges from common-law jurisdictions. UAE civil and commercial laws, including the above-mentioned Civil Procedures Law, do not apply in the DIFC. Instead, DIFC law, based very much on English common law, is in force. Broadly speaking, the DIFC courts have jurisdiction to hear cases with a factual nexus to the DIFC, or involving DIFC entities, as well as disputes relating to contracts in which the parties have clearly conferred jurisdiction on the DIFC courts.

NEW POSITION

DNB obtained a judgment against the defendants in the English Commercial Court for about US$8.7 million. It then brought proceedings before the DIFC courts seeking recognition and enforcement of the English judgment on the basis of a Memorandum of Guidance as to enforcement between the DIFC courts and the English Commercial Court.

The defendants contested the proceedings on two principal grounds. First, they argued that the DIFC courts did not have jurisdiction since there were no assets within the DIFC, and that they were in Dubai outside of the DIFC. Second, they argued that the proceedings were an abuse of process since they were an attempt to bypass the restrictive approach applied by the Dubai (non-DIFC) courts under article 235 of the Civil Procedures Law for the enforcement of foreign judgments.

At first instance, Justice Ali Al Madhani dismissed both of the defendants’ complaints. However, in his reasoning on the abuse of process issue he made the assertion that such abuse of process was not possible since the resulting DIFC court judgment recognizing the English judgment could not be taken to the Dubai courts for enforcement. Although it was successful in the jurisdiction proceedings, DNB appealed the decision on the grounds that the judge’s decision on this point might give rise to an issue estoppel in the defendants’ favour and prevent DNB taking the DIFC order to the Dubai courts for execution.

The Court of Appeal – comprised of Chief Justice Hwang, Justice Sir David Steel and Justice Omar Al Muhairi – confirmed the court of first instance’s decision that the DIFC courts had jurisdiction, despite the absence of assets in the DIFC. However, they stated that the DIFC order recognizing the English judgment could indeed be taken to the Dubai courts for execution, disagreeing with the first-instance judge.

The result of the DIFC Court of Appeal’s decision is that foreign judgments may now be recognized and enforced in the DIFC courts and the resulting DIFC court order may be taken for execution in Dubai, although how the Dubai courts respond to such an order is yet untested.

ENFORCE CHINESE JUDGMENTS

Parties seeking enforcement of Chinese judgments in the UAE may rely on The Convention on Judicial Assistance in Civil and Commercial Matters between the United Arab Emirates and the Republic of China (2004), which provides for the mutual enforcement of judgments in both countries without a review of the merits. Defences to recognition and enforcement are limited under the convention.

It may be thought that the DNB decision has no impact on the enforceability of Chinese judgments, since the latter were enforceable anyway under the convention. However, the jurisdiction finding in the DNB decision does affirm a party’s right to seek recognition and enforcement of Chinese judgments in the English speaking DIFC courts, rather than directly through the Arabic-speaking onshore courts, even where there are no assets within the DIFC. This may be a welcome choice for English-speaking litigants.

Muhammad Mahmood is an associate at Al Tamimi & Company