DIFC Courts are not a gateway to enforce foreign judgments in the UAE

The recent Dubai International Financial Centre (“DIFC”) Court decision in DNB Bank ASA v Gulf Eyadah Corporation and Gulf Navigation Holdings PJSC clarifies that DIFC Courts do not have power to refer foreign court judgments to the Dubai Courts for execution in onshore Dubai or the wider United Arab Emirates. While the DIFC Courts are able to recognise and enforce foreign judgments within the DIFC, this will not help creditors whose judgment debtors have assets in onshore Dubai and wish to use the DIFC Courts as a ‘conduit jurisdiction Court’.

This judgment follows several instances where DIFC have accepted jurisdiction to recognise, enforce and refer to the Dubai Courts for execution domestic and foreign arbitral awards (rather than foreign court judgments), and sheds further light on how the laws of the DIFC distinguish between arbitral awards and foreign court judgments.

Enforcement between Dubai Courts and DIFC Courts

The DIFC is a financial free zone in the Emirate of Dubai. It has its own, independent legal system with a common law court system. The DIFC Courts form part of the UAE’s Federal courts system and there are systems in place with, inter alia, the Dubai Courts for the mutual enforcement of each other’s judgments. This is reflected in Article 7(2) of DIFC Law No. 12 of 2004, as amended by DIFC Law No. 16 of 2011 (“Judicial Authority Law”), which concerns a situation where a judgment, award, or order rendered by the DIFC Courts (or an arbitral award ratified by the DIFC Courts) falls for enforcement in Dubai outside the DIFC Courts’ jurisdiction. In such case, an application for execution can be made before an execution judge of the Dubai Courts, who has no jurisdiction to review the merits of that judgment, award or order.

As a consequence, in two relatively recent decisions (X1 & X2 v Y1 & Y2 and Banyan Tree), parties without any assets in the DIFC successfully applied to have their arbitral awards ratified by the DIFC Courts.[1] Although the true impact of these decisions is not yet known, it is possible that having an award ratified in the DIFC in this way will allow parties to sidestep the potentially lengthier process of applying to the Dubai Courts for ratification.

The DNB Bank Case

Effectively, the present case might be seen as an attempt to apply the principles in the decisions above, which concerned arbitral awards, to the ratification of a foreign judgment. DNB Bank obtained an English Court Order requiring Gulf Navigation to pay it USD 8.7m plus costs under various finance documents. On 3 December 2014, DNB Bank then lodged a claim with the DIFC Courts seeking recognition and enforcement of that order. Gulf Navigation contested the claim, arguing that DNB Bank has no connection with the DIFC: it is not incorporated in and does not conduct business in the DIFC, nor does it hold any assets there. Further, Gulf Navigation argued that DNB Bank was only bringing its claim before the DIFC Courts to avoid filing an application for recognition and enforcement before the Dubai Courts, which it argued was a breach of process.

Decision

The Court found in favour of DNB Bank and held that not only it had jurisdiction to enforce the English Court Order within the DIFC but that such enforcement is mandatory (in accordance with the rules of the Court) “irrespective of whether there are assets or not within the DIFC.”

Importantly, however, the Court confirmed that their enforcement powers “cannot be transferred to refer recognised foreign judgments to the Dubai Courts for execution.”

The Court therefore distinguished the recognition and enforcement of arbitral awards on the one hand, and the recognition and enforcement of foreign judgments on the other. Key to this distinction was the fact that Article 7(2) of the Judicial Authority Law on enforcement in Dubai explicitly provides for to the ability to refer arbitral awards ratified by the DIFC Courts to the Dubai Courts, but does not mention recognised foreign judgments. The Court concluded that “[u]nlike the situation in cases where an Arbitral Award is brought for recognition and then for enforcement, Recognised Foreign Judgments … cannot be said to be referred to the Dubai Courts for execution beyond the DIFC jurisdiction.”

Comment

While parties, even those with no connection to the DIFC, may apply to the DIFC Courts to enforce domestic and foreign arbitral awards with the purpose of referring it onwards to the Dubai Courts for execution, the rules are not the same with regards to foreign court judgments. Thus, where a debtor’s assets are located in onshore Dubai or the wider UAE, but outside the DIFC, this decision would appear to confirm that parties are unable to circumvent the onshore Dubai Court processes for ratifying foreign judgments by using the DIFC as a conduit jurisdiction.

It remains to be seen if this decision will be appealed. In the meantime, however, the decision serves as a reminder to drafters of dispute resolution clauses that arbitral awards are generally more widely enforced in foreign jurisdictions than local court judgments. Therefore, parties might wish to consider the location of a counter-party’s assets when deciding on the appropriate dispute resolution forum, and whether resolving disputes through international arbitration might be more beneficial than seeking recourse through the local (including English) courts.

Please click here for a copy of the judgment. The authors wish to thank Leontine Christophersen for her assistance with the drafting of this article.