Update: ‘Converting’ DIFC Court judgments into arbitral awards

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Summary: The Dubai International Financial Centre (“DIFC”) Court recently consulted on an innovative proposal to allow for the ‘conversion’ of DIFC Court judgments into arbitral awards (see our full report on the consultation). The DIFC Courts' consultation closed on 6 August 2014 and BLP recently discussed with the DIFC Courts the feedback they received.

A version of this article was also published by Practical Law Construction as part of our regular construction blog series in which we share our practical experiences of working in construction and engineering and give our opinion on the current and future legal developments that shape and will shape the industry. To read more from the series, visit the Practical Law blog.

Introduction


The Dubai International Financial Centre (“DIFC”) Courts recently consulted on an innovative proposal to allow for the ‘conversion’ of DIFC Court judgments into arbitral awards. The DIFC Courts' consultation closed on 6 August 2014 and BLP recently discussed with the DIFC Courts the feedback they received.

Current enforcement regime


The English-speaking DIFC Courts have gained considerable traction in the UAE in recent years. Since 2011, any contracting parties can opt-in to its jurisdiction, even if they are not based in the DIFC and the dispute is not DIFC-related. The quality and consistency of the DIFC Courts’ judgments have been widely considered to be excellent and so DIFC Court dispute resolution clauses are becoming increasingly commonplace.

At present, it is relatively straightforward to enforce a judgment by the DIFC Courts in the UAE as, constitutionally, the DIFC Courts are a part of the Dubai judicial system and so its judgments have the same weight as Dubai Court judgments.

The same is true of enforcement in countries which are party to bilateral or multilateral treaties with the UAE for the recognition and enforcement of judgments. The DIFC Courts have also entered into a number of memoranda of guidance with other common law jurisdictions, setting out the procedure for mutual recognition and enforcement of each party’s money judgments in the other party’s courts.

Where there is no treaty in place between the UAE and the target jurisdiction, enforcement of a DIFC Court judgment against the other party’s assets will depend on the law of the state in which the judgment creditor is seeking to enforce.

Recap – the proposal


The DIFC Courts have proposed a method to enhance enforceability of its judgments outside the UAE by widening the ambit of its enforcement channels. The proposal is that the parties agree to refer any dispute about the enforcement of a DIFC Court judgment to be settled by arbitration under the rules of the DIFC-LCIA Arbitration Centre. If the arbitral tribunal rules in the judgment creditor’s favour, the judgment would thereby be ‘converted’ into an arbitral award.

The benefit for the judgment creditor is that arbitral awards can be enforced under the New York Convention, which provides for the recognition and enforcement of foreign arbitral awards within its contracting states. There are currently 152 contracting states, including the world’s major trading nations. The judgment creditor could therefore seek to have the converted judgment enforced in the courts of a New York Convention member state where the judgment debtor’s assets are located.

Responses to the consultation


According to Natasha Bakirci, Assistant Registrar at the DIFC Courts, the consultation prompted a considerable amount of feedback from across the legal community, including from UAE practitioners, international law firms and in-house counsel. The feedback was overwhelmingly positive, and the DIFC Courts were praised for what is seen as an innovative proposal to increase enforcement options for clients who choose the DIFC Courts to resolve their disputes. Respondents to the consultation raised three key issues:

  1. Compliance with the New York Convention

Article II(1) of the New York Convention requires contracting states to recognise “an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration”.

The Referral Criteria of the DIFC Courts' practice direction states that, for a DIFC Court judgment to be converted into an arbitral award, at least one of the remedies granted by the judgment must be the payment of money.

Respondents to the consultation raised the following important questions:

  • Where the judgment debtor either cannot or will not pay, but does not contest the judgment, are there really any “differences” between the parties for the purposes of the New York Convention?
  • Also, does the very fact that the judgment creditor is seeking to have the award enforced through the courts demonstrate that this matter is not “capable of settlement by arbitration”?

In response to the first question, where the judgment is not contested but the judgment debtor cannot or will not pay, the Chief Justice of the DIFC Courts has now widened the existing definition of ‘enforcement dispute’ provided in the DIFC Courts’ practice direction to include the ability or willingness of the judgement debtor to pay the judgment sum.

A national court can refuse to recognise an arbitral award if it decides that the subject matter is not capable of settlement by arbitration under the law of that country, so these questions are important for the viability of any ‘converted’ judgment.

  1. Concurrency

Where a judgment debtor has assets both inside and outside the UAE, the judgment creditor might wish to enforce against both. DIFC Court judgments can be enforced within the UAE via the Dubai Courts, using an established and reliable procedure. By contrast, domestic arbitral awards must be ratified by local courts in the UAE, and are frequently challenged on the basis of minor procedural technicalities.

One major theme raised by respondents to the consultation was that the DIFC Courts’ practice direction should make it clear that if parties opt for the conversion, it will not detract from the other enforcement options available to them, namely the enforcement of DIFC Court judgments within the UAE. The DIFC Courts are considering this suggestion.

  1. Delay

Some participants in the consultation suggested that the conversion process would delay enforcement, as parties would first have to go through the DIFC Courts, followed by an arbitration process, and, finally, by enforcement proceedings abroad.

The additional time might be seen as an acceptable sacrifice in order to obtain the benefits of enforcement under the New York Convention. However, the DIFC Courts are considering the introduction of an expedited arbitration process for the conversion of DIFC Court judgments. A factor which may assist with timing would be for any such ‘converting’ arbitrations to be dealt with by a sole arbitrator (instead of by a panel).

Enforcement of court judgments in an overseas jurisdiction is often very challenging, particularly if no applicable treaties are in place between the two jurisdictions. The DIFC Courts should therefore be praised for their proactive attempts to enhance international enforceability of DIFC Court judgments. The number of responses to the consultation indicate that practitioners are eager to expand the enforcement opportunities that are available to their clients. As this article shows, a number of issues still need to be addressed before parties become fully comfortable with the DIFC Courts’ latest proposal.

Next steps


The DIFC Courts are currently considering the responses to the consultation. They will continue to adopt and integrate suggestions which they consider meritorious and beneficial into the practice direction. The practice direction is likely to be launched by Chief Justice Michael Hwang SC (the President of the Law Society of Singapore) during Dubai Arbitration Week in late November 2014.

We will continue to follow the DIFC Courts’ reaction to the responses closely and provide further updates in due course.

Charles Lilley (Charles.Lilley@blplaw.com), Callum Johnson (Callum.Johnson@blplaw.com) and Ryan Harvey (Ryan.Harvey@blplaw.com)

BLP has offices in Dubai (the DIFC) and in Abu Dhabi. Our lawyers have experience of dealing with cases in the DIFC Courts and arbitrations under the DIFC-LCIA rules, and regularly provide advice relating to the enforcement of court judgments and arbitral awards, both in the UAE and world-wide. If you have any questions relating to this article, please contact the authors or your usual BLP contact.

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