The UAE enforcement saga: A new dawn

Keith Hutchison, Senior Associate (Clyde & Co.)

Dubai’s highest court recently delivered an unequivocal ruling that foreign arbitration awards will be enforced in Dubai in accordance with the UAE’s international treaty obligations under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("NYC"). This is welcome news for users of international arbitration and for Dubai’s position generally as an international arbitration hub. It is especially welcome in the wake of recent commentary from some observers painting a negative picture of the treatment of arbitration by the Dubai Courts.

In view of obstacles that remain in relation to domestic award enforcement in the UAE, it is reasonable to suggest that more local users of arbitration may favour a choice of a foreign seat or DIFC seat for their arbitration for the advantages that this will bring over domestic awards at the enforcement stage.

In this article we comment on some recent cases in the Dubai Courts where arbitration or the enforcement of awards, both foreign and domestic, has been considered. Some of the cases show a distinctly pro-arbitration stance from the courts, while others provide examples that difficulties still exist for domestic award enforcement. On balance there has been significant progress in the Dubai legal system with the courts working to find their feet in supporting the increasing popularity of arbitration in the region. In doing so the courts are enhancing confidence in Dubai as a centre for international arbitration.

A huge boost for foreign award enforcement
In an October judgment in the case of Macsteel International v Airmech (Dubai) LLC the Dubai Court of Cassation upheld the enforcement of two related foreign arbitration awards against a Dubai company under the NYC. Affirming the judgment of the lower courts to enforce the awards, the Court held that the NYC is the relevant law that applies to the enforcement of foreign awards in the UAE. Significantly, the Court rejected the resisting party’s reliance on the arbitration provisions in the UAE Civil Procedure Code (CPC) that apply to domestic award enforcement. The Cassation judgment in Airmech leaves no doubt that the CPC provisions should have no place in the enforcement of foreign awards in the UAE (although it remains to be seen what the approach of the UAE courts will be to an award annulled or one arguably requiring ratification at its foreign seat).
Set against an historic background of problematic award enforcements in the UAE, a strong pro-enforcement judgment from the Court of Cassation is precisely what arbitration practitioners and arbitration users have been waiting for. The Cassation judgment in Airmech is an important milestone for Dubai as an international arbitration hub . As the legal representative for the successful enforcing party, Clyde & Co is delighted to be at the forefront of this positive development in Dubai’s arbitration landscape.

Other recent foreign award enforcement cases
The Dubai Court of First Instance has also recently ruled in a separate case endorsing the application of the NYC to foreign award enforcement in the UAE, to the exclusion of potentially conflicting provisions of the CPC. The judgment is particularly refreshing for the Court’s application of the NYC in circumstances where neither party advanced arguments based upon it; the pleadings focused exclusively on the arbitration provisions of the CPC. While not cited in argument before the Court, it is to be hoped that the well-publicised rulings in the Airmech case imparted some influence on the Court in making this pro-arbitration ruling.

It cannot be expected for every enforcement case to be smooth sailing. Another recent Dubai Court of First Instance ruling saw the Court confuse domestic and foreign enforcement terms. The Court rejected an application made under the NYC (in the correct terms) for “recognition and enforcement” of a London award on grounds that the Court could not "ratify" a foreign award. Ratification is a necessary step in the enforcement of a domestic award under the CPC but has no place in the enforcement of foreign awards, unless, possibly, that is a requirement at the seat of the arbitration.

This judgment appears to be a result of the Court being confused as to the nature of the legal device for enforcement provided by the NYC. There is nothing in the judgment to suggest the Court was resiling from the application of the NYC to foreign award enforcement. Indeed, the Court rejected the resisting party’s counterclaim for annulment of the award on the ground (correct in our view) that the CPC arbitration provisions apply only to domestic arbitration and should not be a consideration for foreign award enforcement. The case is currently under appeal by both parties in the Court of Appeal.

Domestic award enforcement cases
There remain difficulties with enforcement of domestic awards under the CPC that do not arise for foreign award enforcement under the NYC. A couple of recent Dubai Court cases are worthy of mention inasmuch as they illustrate where things can and do still go wrong, and that domestic award enforcement in the UAE can still be a frustrating undertaking for an award creditor. Set against the bigger picture, each of these cases should be viewed on their own merits and they do not in our view detract from Dubai's increasingly prominent position in international arbitration.

In September 2012 the Dubai Court of Cassation upheld an appealed judgment refusing to ratify and enforce a Dubai ad hoc award on the basis of the CPC requirement that, in the case of an award of a three-member tribunal, a dissenting opinion must be referred to in the majority award. The Court also held it was essential that an award is signed by all of the arbitrators for it to be valid. The facts of this case were that the dissenting opinion of one arbitrator was not directly referred to in the majority award of the tribunal. The award was also not signed by the dissenting arbitrator, whose dissenting opinion (which was signed by him) was enclosed with and referred to in the tribunal's letter to the Dubai Courts enclosing the majority award. The enforcing party had argued that the award was valid as it was iissued by majority vote (which is permissible) and it was not correct that the disagreeing arbitrator had refused to sign the award; he had just written his dissenting opinion separately.

The Court rejected the appellant's argument and refused to enforce the award on a literal application of the relevant CPC provision. It is difficult to see what reasonable objection there could be to the validity of the majority award which was in all substantive respects valid and beyond challenge and ought to have been enforced. This case is a frustrating example of a very narrow interpretation of the domestic arbitration provisions in the CPC and a focus on the form of awards over their substance.

A judgment of the Dubai Court of Cassation in another domestic award enforcement case has sparked a legal debate surrounding the Court's refusal to enforce awards on 'public policy' grounds under the CPC. That case involved a claim to enforce three related DIAC awards in relation to a private real estate-related dispute, including consideration of the application of a Dubai law regulating the registration of off-plan property sales. The Court nullified the awards on grounds that the application of the relevant property law is a matter of public policy which cannot be resolved through arbitration. Our commentary on this ruling, including our views on comments made by some legal practitioners on the negative impact of the ruling for Dubai's arbitration credentials, can be read on the following link to our website http://clydeco.com/insight/updates/nullification-of-another-diac-arbitration-award-is-it-time-to-panic-no-says. In short, we consider that some commentators have exaggerated the significance of a judgment that is actually very narrow in its scope.

The approach of the DIFC Courts to arbitration
Dubai's civil law system courts are not alone in taking a stance in support of international arbitration. The DIFC Courts (which are based on common law principles and operate in English) are also playing their part , though not without a blip. In a judgment delivered in October in International Electromechanical Services v Al Fattan, the DIFC Courts have acted to redress an inconsistency between DIFC law and the UAE’s treaty obligations, which was recognised in an earlier recent DIFC Court judgment, Injazat v Denton Wilde Sapte & Co. In Al Fattan the DIFC Court of First Instance ordered a stay of DIFC proceedings for a foreign (non-DIFC seated) arbitration to proceed between the parties in accordance with the arbitration agreement in their contract. The Court declined to follow its earlier ruling in Injazat where it had held that it was not bound by the DIFC Arbitration Law (or other DIFC statute) to stay proceedings brought in breach of an arbitration agreement for foreign arbitration, nor did it have an inherent jurisdiction to order a stay of proceedings in favour of foreign arbitration. The Court in Al Fattan agreed with Injazat that that there was no statutory obligation on the Court to stay proceedings for foreign arbitration, but it did not accept that there was no inherent jurisdiction for the Court to order a stay where that jurisdiction was not expressly excluded by statute.

The Court in Injazat expressed reluctance in ruling as it did, particularly as to the inherent jurisdiction point. It also recognised that its ruling on the interpretation of the DIFC Arbitration Law put the UAE in breach of its treaty obligations under the NYC, but considered that it was bound to that interpretation of the relevant provisions. Injazat stands awkwardly opposed with one of the DIFC’s stated primary objectives of promoting Dubai as an international arbitration centre. If the judgment was not remedied quickly it had the potential to harm Dubai’s position as an international arbitration hub.

Unsurprisingly, Injazat was received with concern and disappointment by local practitioners and arbitration users. It was generally hoped that either through legislative amendment and/or subsequent judicial consideration there would be the opportunity to realign DIFC law with the DIFC’s pro-arbitration function. The Al Fattan judgment is a timely one differing from the unsatisfactory position created by the DIFC Arbitration Law which the court felt bound to apply in Injazat. We expect to see legislative revision to remove the problem in the DIFC Arbitration Law, and therefore to settle the position more satisfactorily than reliance by the judiciary on inherent jurisdiction.
For arbitration and more generally for the reputation of Dubai’s legal system and its status as a key global commercial centre, these recent judgments of Dubai’s civil and common law courts overall show that things are moving in the right direction.