Gulf Navigation case may cast UAE into unchartered legal waters

The country's legal eagles are on tenterhooks to hear the reaction of a local judge about an English ruling. DIFC Courts might have agreed to be a conduit jurisdiction for that judgement - but the Dubai Courts have the final say.

The dispute Gulf Eyadah, above, is involved in as the potential to redefine case jurisdiction in the country's court systems. The vessel was renamed the Gulf Eyadah when it was sold to Gulf Navigation in 2011. Bloomberg News
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The enforcement of foreign court judgments in the local courts of the UAE may well be about to become a lot easier, thanks to a landmark appeal in the DIFC Courts last month.
Lawyers have described the case, which centres on a humble oil tanker, as opening a new gateway for the enforcement of overseas rulings here.
And while the case has yet to be referred to the Dubai Courts for enforcement, the UAE's legal community is on tenterhooks to hear the reaction of a local judge to the case.
The oil tanker in question is the Gulf Eyadah, a 333-metre-long, very large crude carrier (VLCC), at the centre of a loan dispute between the ship's former owner, Gulf Navigation, and Norway's DNB Bank.
Our story begins in 2013, after Gulf Navigation defaulted on a series of loans on the Eyadah and a second VLCC, the Gulf Sheba, thanks to plummeting global tanker rates.
These loan defaults led to the high-profile "arrest" of the two vessels under the orders of the company's creditors, the Gulf Sheba being detained in Rotterdam in September 2013, with the Gulf Eyadah arrested the following month in the Bahamas.
DNB followed up the seizure of the Gulf Eyadah (eventually sold to Bermuda's DHT Holdings and renamed as DHT Falcon) with a judgement in the high court of England in September 2014, which ordered Gulf Navigation and Gulf Eyadah Corporation (the vessel's holding company) to pay the bank US$8.7 million plus costs.
The English judgement in and of itself would not have caused Gulf Navigation to lose too much sleep. No reciprocal treaty exists between the UAE and the United Kingdom for the automatic recognition and enforcement of each other's commercial court judgments, meaning that DNB was unable to present its judgement to the Dubai Courts for direct enforcement.
Crucially, however, DNB and its legal team referred the English judgement to the DIFC Courts in Dubai, based on the same common law system as used in jurisdictions including England and Wales, Canada and Singapore.
Under the terms of the DIFC Court Law of 2004, the free zone's courts have jurisdiction to ratify any judgement of a recognised foreign court, which includes the English commercial court.
Not only that, the DIFC Courts entered into an agreement in 2011 with the local Dubai Courts, allowing for the mutual enforcement of each other's judgments.
The logic being that if you get your UK judgement recognised by the DIFC Courts, the free zone's court would then issue a judgement of its own, which can be taken directly to the Dubai Courts for enforcement.
DNB's attempts to tread this path, using the DIFC Courts as what is known as a "conduit jurisdiction", were initially rebuffed. Justice Al Madhani ruled in July last year that the DIFC Courts only had jurisdiction to recognise and enforce the bank's high court judgement within the DIFC itself, stating that the DIFC Court could not refer its judgement to the local Dubai Courts for enforcement.
Last month, however, Justice Al Madhani's decision was overturned on appeal. The court ruled that parties could enforce foreign judgments in the DIFC Courts, and then take the resulting DIFC Court judgement to the onshore Dubai Courts for enforcement. This was judged to be permissible even when the judgement debtor, in this case Gulf Navigation, had no presence or assets in, or connection with, the DIFC itself.
The language of the judgement pulled no punches.
"It is not wrong to use the DIFC Courts as a conduit jurisdiction to enforce a foreign judgement and then use reciprocal mechanisms to execute against assets in another jurisdiction," said the DIFC Chief Justice Michael Hwang in his judgement. "The DIFC Courts are not concerned with what happens in the Dubai Courts in which the Claimant seeks to enforce its judgement as it does not have the jurisdiction to dictate what they should do."
Such a statement gives the greenlight, from the DIFC Courts side at least, for the free zone's courts to be used as a gateway for foreign judgments to be brought into the country's onshore legal system, with potentially seismic results.
"Until now, it has generally been accepted that foreign court judgments are difficult if not impossible to enforce in the UAE, particularly in the absence of a treaty obligation," said Tarek Shrayh, a senior counsel at Al Tamimi, who has advised DNB during the proceedings.
"This decision challenges that assumption and opens the door to the use of the DIFC Courts as a conduit jurisdiction for the enforcement of foreign court judgments throughout the country."
Despite the importance of such a decision, it is a little early to say that the path is now clear for foreign judgments to brought directly to the local courts for enforcement. A party close to the process highlighted that the case has not yet been referred to the local courts, with little indication as to how the Dubai Courts will react.
Mr Shrayh noted that despite the legal obligation of other courts of the UAE to enforce such judgments, the response from local authorities will determine whether the gateway remains open or not.
Lawyers have said that, in the past, local courts have been slow to enforce international arbitration awards locally, despite their obligations to do so under the terms of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
In his judgement last month, Justice Hwang was careful to not pre-judge the reaction of the Dubai Courts to the Gulf Eyadah ruling.
"The holder of a DIFC Courts judgement recognising a foreign judgement will seek enforcement of the DIFC Courts judgement at its own risk," he said.
The ball currently remains firmly in the court of the Dubai Courts. For now, however, as far as the DIFC Courts are concerned, a gateway has been quite deliberately opened.
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