Dispute resolution hits trouble at DIFC

DIFC has emerged as a “conduit jurisdiction”. Sarah Dea / The National

The ability of creditors to enforce foreign arbitration awards against Dubai-based debtors has suffered a potential blow, following a decision by the Judicial Tribunal for the Dubai Courts and DIFC Courts that has given precedence to UAE-based courts.

The tribunal has blocked the DIFC’s courts from recognising and enforcing a London-based arbitration decision, giving precedence to an action being conducted in parallel in a dispute resolution centre of the Dubai Courts.

Following the country’s signature of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (also known as the New York Convention) in 2006, UAE courts are obliged to automatically recognise and enforce international arbitration awards without re-examining the merits of the individual awards.

The DIFC Courts has emerged in recent years as a favoured “conduit jurisdiction” for the enforcement of arbitral awards, the process seen as more efficient than going through onshore courts.

The Judicial Tribunal is understood to have effectively blocked the DIFC Courts from entertaining a case pertaining to a London-based arbitration award, because the debtor had filed a case with the Dubai Courts-affiliated Centre for Amicable Settlement of Disputes.

In a decision entitled Cassation No. 1 of 2017 handed down after a hearing on May 22, the tribunal ruled the centre is “an integrated part of the Dubai Courts”, and that the Dubai Courts are “therefore the competent courts to entertain this case”.

The names of the parties were not disclosed in the tribunal’s decision, nor was the size or date of the original arbitration award.

“Cassation No. 1 of 2017 (JT) … marks a significant watershed for the DIFC’s conduit jurisdiction, insofar as the Judicial Tribunal appears to have ruled against a party enforcing under the New York Convention,” said Craig Shepherd, a Dubai-based partner with Herbert Smith Freehills in a briefing note.

“In light of this decision, even where the award was issued overseas and enforced in the DIFC under the New York Convention, there appears to be a risk that the Judicial Tribunal will order the DIFC Courts to cease from entertaining the case.”

The Judicial Tribunal’s decision comes three months after it dismissed an attempt to stop the enforcement of a ­London-seated arbitration, namely Marine Logistics Solutions and other vs Wadi Woraya, in the DIFC Courts, noting at the time that there were no parallel proceedings in the Dubai Courts.

Earlier this year, the tribunal ordered that the DIFC Courts drop a case between Oger and Daman Real Estate Capital Partners, pertaining to recognition and enforcement of a Dh965 million arbitration award made by the onshore Dubai International Arbitration Centre in favour of Oger.

The tribunal insisted the case be remitted for trial in the Dubai Courts, and that the DIFC Courts should “cease from entertaining the case”.

The Judicial Tribunal was established a year ago by Decree 19 of 2016, to rule on conflicts of jurisdiction and conflicts of judgment between the two courts.

The seven-member tribunal consists of the head of the Dubai Court of Cassation, who sits as chairman, with three judges from each of the two courts.