This article was first published in the In House Lawyer
It is commonplace in international arbitration theory that an arbitral award is not worth the paper it is written on unless it is easily enforceable. Unfortunately, enforceability is not always a given in international arbitration practice. Enforcement of foreign awards in the UAE may serve as an instructive example.
The old approach
Prior to accession of the United Arab Emirates ("UAE") to the 1958 New York Convention on the Recognition and Enforcement of Foreign Awards ("New York Convention") in 20061, the enforcement of foreign awards before the UAE Courts was - save the application of relevant bi- or other multi-lateral conventions2 - subject to the application of Article 235 of Federal Law No. 11 of 1992 (the UAE Civil Procedures Code), which governs the enforcement of foreign judgments in the UAE3. Pursuant to Article 235, UAE Courts were empowered to and did in fact refuse enforcement of foreign awards on grounds such as:
- the lack of proper jurisdiction of the tribunal at the place of arbitration;
- the deficient issuance of the arbitral award at the place of arbitration;
- the improper summoning or representation of one of the parties in the foreign arbitration proceedings; or
- the contradiction of the foreign award with a previous UAE judgment or its violation of public policy or bonos mores as understood in the UAE.
Importantly, recognition and enforcement in the terms of Article 235 are based on a principle of mutual recognition, whereby the UAE Courts will only apply the provisions of that Article in relation to judgments and awards issued in countries, which, in turn, recognize and enforce UAE judgments and awards4. By contrast, it is now accepted that the UAE did not make any reservation to this or any other effect on entry into the New York Convention5. As a result, the UAE Courts are obliged to enforce any foreign award and not just those rendered in another New York Convention country in compliance with the strict terms of the Convention.
Despite the UAE's accession and its wide obligations under the New York Convention, the UAE Courts were initially reticent to apply the terms of the Convention to the enforcement of foreign awards.6 To the contrary, they persevered in the obsolete application of the requirements set out in Article 235 of the UAE Civil Procedures Code and used these as a pretext for a quasi review on the merits of foreign awards in order to refuse their enforcement. On repeated occasions, the UAE Courts even proved susceptible to formalistic procedural grounds, which are commonly invoked in the ratification process of domestic awards under the applicable provisions of the UAE Civil Procedures Code, for setting aside foreign awards. A flagrant example of the formalism applied to domestic awards is the infamous Bechtel case7, in which a Dubai award involving a foreign party was set aside by the Dubai Court of Cassation for failure by the arbitrators properly to follow the oath-taking procedure which is mandatory for the hearing of witnesses under the UAE Civil Procedures Code8.
This approach was clearly symptomatic of the UAE Courts' distrust of arbitration as a dispute resolution mechanism and more specifically of their discomfort to cede jurisdiction to foreign arbitrators. This old approach was further motivated by the absence of a specific procedure for the enforcement of foreign awards from the Civil Procedures Code, which in turn incentivized the UAE Courts to rely upon the ratification process put in place for domestic awards instead. This lacuna is expected to be remedied by the adoption of a new Federal Arbitration Law, which is currently being debated by the UAE legislature.
The new approach
In a surprising volte face, a number of UAE Courts have most recently taken a more arbitration-friendly approach to the enforcement of foreign awards. In sum, being faced with one or the other of the traditional grounds for setting aside foreign awards, the UAE Courts - in reliance on the express terms of the New York Convention - have dispensed with any procedural matters of form and/or the requirements set out in Article 235 of the UAE Civil Procedures Code as valid grounds for non-recognition and/or nullification.
The New York Convention
By way of reminder, the New York Convention applies to all "foreign" awards, i.e. all awards made in a country other than that where enforcement is sought. The New York Convention provides in its Article III that "each Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon" provided that such awards satisfy the conditions set forth in the Convention. The Convention prohibits States from imposing "substantially more onerous conditions or higher fees or charges on the Recognition or Enforcement of arbitral awards to which this Convention applies than are imposed on the recognition or enforcement of domestic arbitral awards"9. Under the Convention, to obtain the recognition and enforcement of a foreign award in another Convention country, the award creditor is required to supply a duly authenticated original award or a duly certified copy thereof and the original arbitration agreement and/or a duly certified copy thereof10.
The grounds for refusing recognition or enforcement are set forth in Article V of the New York Convention. These grounds are:
- the existence of an invalid arbitration agreement under the parties' agreed governing law or (if this cannot be established) under the law of the country where the award was made;
- a breach of due process;
- an award which fails to comply with the terms of the arbitration agreement;
- and irregularities affecting the composition of the arbitral tribunal or the arbitral proceedings.
The Convention provides that recognition and enforcement of the award may also be refused if the party resisting recognition or enforcement proves that "the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made".
Recognition and enforcement of an award may be refused by the competent authority of its own accord in the country where enforcement is sought if it decides that:
- The subject-matter of the dispute is not capable of settlement by arbitration under the law of that country or;
- The recognition and enforcement would be against public policy.
In their most recent rulings, UAE Courts of First Instance have based themselves on the above provisions of the New York Convention for enforcement purposes of foreign awards.
The ruling of the Fujairah Federal Court of First Instance
More specifically, in a ruling dated 27 April 201011, the Fujairah Federal Court of First Instance, enforced two awards, one on the merits and the other one on costs, issued by a Sole Arbitrator in London under the Rules of the London Maritime Arbitration Association (LMAA) following an application for enforcement by the award creditor in terms of the New York Convention.
After noting that (i) the awards were duly certified and issued in the United Kingdom, (ii) that the UAE have ratified the New York Convention with effect from 19 November 2006, and (iii) that the awards were issued pursuant to English Law in the United Kingdom, which is a signatory to the New York Convention, the Fujairah Court held:
"Upon review of the arbitration clause pursuant to which reference was made to arbitration agreed on by the parties and the two awards the subject of the ratification claim, we found that there is no impediment for execution of the judgment."
It is notable that the Court's conclusions were further prefaced by an express reference to the prohibition to review the merits of awards and the obligation to comply with international treaties and conventions, which under UAE law come to form part of the domestic law, in the enforcement of foreign award.
By way of conclusion, the Fujairah Court clearly abandoned any reference to procedural formalities that would have debilitated the enforcement of foreign awards in the past, including most notably the rendition in absentia of the underlying awards, and instead paid deference to the criteria of enforcement of the New York Convention. To note that this ruling has not been subject to appeal and therefore remains unchallenged.
The ruling in Maxtel International FZE v. Airmec Dubai LLC
In a ruling dated 12 January 201112, the Dubai Court of First Instance enforced two awards, one on the merits and one on costs, issued by a Sole Arbitrator in London under the DIFC-LCIA Arbitration Rules involving two Dubai-based companies, one free zone one limited liability, following an application for enforcement by the award creditor under the New York Convention.
The award debtor objected to the enforcement of the awards, seeking nullification on a number of procedural grounds, including:
- lack of capacity of the signatory of the arbitration clause to sign on behalf of the defendant;
- invalidity of the formation/composition of the arbitral tribunal;
- lack of terms of reference/submission to arbitration in violation of the provisions of Article 216 (a) of the UAE Civil Procedures Code and Article 5 (c) of the New York Convention;
- failure of the arbitral tribunal to apply the mandatory provisions of UAE law on oath-taking for witnesses; and
- failure to render the awards within the prescribed time-limit of 6 months in violation of the provisions of the UAE Civil Procedures Code.
After stating that (i) both awards are "undoubtedly foreign awards, were both issued outside the UAE in London in accordance with New York Convention" that (ii) it was well established that the UAE have ratified the New York Convention by Federal Decree No. 43/2006, and having set out in full Articles 1, 3, 4 and 5 of the Decree13, the Dubai Court of First Instance held:
"The Court's supervisory role when looking to recognize and enforce a foreign arbitral award is strictly to ensure that it does not conflict with the Federal Decree under which the UAE acceded to the New York Convention on the recognition and enforcement of foreign arbitral awards and satisfied the requirements of Articles IV and V of the Decree in terms of being duly authenticated".
Importantly, the Dubai Court of First Instance expressly discarded the application of Articles 235 and 236 of the UAE Civil Code to the enforcement of foreign awards in the UAE. To note that this ruling is currently under appeal to the Dubai Court of Appeal14.
A U-turn ahead?
In light of the foregoing, one may wonder whether the UAE Courts have been heading for a U-turn in the enforcement of foreign awards to bring themselves into compliance with the strict terms of the New York Convention and with more streamlined arbitration-friendly jurisdictions or whether the cases discussed are no more than a temporary diversion from a less arbitration-friendly approach. Continued skepticism may be justified on the basis of (i) the absence of binding precedent from the UAE court system and (ii) the independent existence of different Emirates within the UAE with their own separate jurisdictions, whose rulings may have no more than persuasive force cross-border. Also, in a most recent ruling the Dubai Court of First Instance refused recognition and enforcement of an award issued by the Singapore International Arbitration Centre on the basis that the award concerned was not ratified in the country of origin and could therefore not be executed under Articles 235 and 236 of the UAE Civil Procedures Code even though clearly stating that the ratification process provided for under the UAE Civil Procedures Code applied only to UAE domestic – with the exclusion of foreign – awards, the Court only made fleeting reference to the existence and the UAE's membership to the New York Convention15.
It is to be hoped that what may seem to be a temporary diversion will develop into a U-turn in UAE supervisory court enforcement practice of foreign arbitration awards.
1. Federal Decree No. 43 of 13 June 2006.
2. Article 238 of the UAE Civil Procedures Code.
3. Article 236 of the UAE Civil Procedures Code.
4. Article 235 (1) of the UAE Civil Procedures Code.
5. Note that the reference on the official website of the New York Convention to the UAE's accession to the New York Convention as subject to the mutual recognition reservation has now been rectified by the removal of that reservation from the official website of UNCITRAL.
6. Dubai Court of Cassation, case No. 258/1999, judgment dated 2/10/1999; Dubai Court of Cassation, case No. 267/1999, judgment dated 27/11/1999; Dubai Court of Cassation, case No. 17/2001, judgment dated 10/03/2001.
7. International Bechtel v Department of Civil Aviation of the Government of Dubai, Dubai Court of Cassation, petition No. 503/2003, judgment dated 15 May 2005.
8. Article 211 of the UAE Civil Procedures Code.
9. Article III of the New York Convention.
10. Article IV. 1 of the New York Convention.
11. Case No. 35/2010.
12. Maxtel International FZE v Airmec Dubai LLC, Court of First Instance Commercial Action No. 268, dated 12 January 2011.
13. The provisions of the Decree being identical in content and numbering with those of the New York Convention.
14. With a ruling expected on 30 November 2011.
15. Dubai Court of First Instance, case No. 531/2011, judgment dated 18 May 2011.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.