United Arab Emirates: DIFC Courts: Still A Conduit Jurisdiction?

A recent decision by the Judicial Tribunal casts doubt on the DIFC Courts' ability to act as a conduit jurisdiction.  A summary of that decision is set out in this article.

On 9 June 2016,  H.H. The Ruler of Dubai issued Decree 19/2016 (Decree). The Decree provided for the establishment of a "Judicial Tribunal for the Dubai Courts and the DIFC Courts" to rule on conflicts of jurisdiction between the DIFC Courts and the Dubai Courts. Previously such a conflict was referable to the Union Supreme Court.

The likelihood of such a conflict arising has increased, for example, because of the increasing use of the DIFC Courts as a "conduit jurisdiction" for the enforcement of arbitral awards and court judgments. The recognition and enforcement of an onshore, Dubai seat (as opposed to DIFC seat) arbitral award is an example of the type of conflict that could arise.

Previous jurisdictional landscape

Article 42 of the DIFC Arbitration Law requires the DIFC Courts to recognise and enforce an arbitral award "irrespective of the State or jurisdiction in which it was made". This seemingly requires the DIFC Courts to recognise and enforce onshore, Dubai seat arbitral awards in the DIFC irrespective of (i) the presence of any assets in the DIFC; (ii) the terms of Article 215 of the UAE Civil Procedure Code (which contemplates the ratification of an onshore, Dubai seat arbitral award in the Courts of the seat (being the onshore Courts)); and (iii) where the intention is to enforce the resulting DIFC Court judgment onshore in Dubai under the reciprocal arrangements that exist between the DIFC Courts and the Dubai Courts. This is the essence of the DIFC being used as a conduit jurisdiction that allows parties to bypass the onshore Dubai Courts when it comes to the recognition and enforcement of onshore, Dubai seat arbitral awards.

The DIFC Courts appeared to have settled jurisprudence that it could be used as a conduit jurisdiction in this way. This was established across a number of cases [see, for example, Meydan Group LLC v. Banyan Tree Corporate Pte ARB 003/2013].

However, in what is understood to be its first decision, the Judicial Tribunal in Daman Real Capital Partners LLC v. Oger Dubai LLC appears to have called into question whether the DIFC Courts can be used as a conduit jurisdiction in these circumstances.

Background facts

The claimant and the defendant were parties to an arbitration seated in onshore Dubai, pursuant to the rules of the Dubai International Arbitration Centre.  An arbitral award (Award) was issued in favour of the claimant, which then commenced proceedings before the DIFC Courts to recognise and enforce the Award. Ultimately, the DIFC Courts granted the claimant's application. 

However, at the same time, the defendant had commenced proceedings before the onshore Dubai Courts to annul the Award.  The defendant's attempts to annul the Award proved unsuccessful before the Dubai Court of First Instance and the Court of Appeal (with both Courts holding that they did not have jurisdiction to annul the Award).

Notwithstanding this, the defendant also lodged an application before the Judicial Tribunal on the grounds that a jurisdictional dispute would arise between the DIFC Courts and the Dubai Courts on the basis that (i) it had filed an annulment application to the Dubai Courts and would be appealing to the Dubai Court of Cassation; but (ii) the DIFC Courts had already granted recognition and enforcement of the Award.

Judicial Tribunal

In its ruling, the Judicial Tribunal held that, because the case was "doubtless" awaiting the Court of Cassation's decision, there was a conflict of jurisdiction between the Dubai Courts and the DIFC Courts, which the Judicial Tribunal was required to resolve under the Decree.

The Judicial Tribunal resolved this conflict by ruling that the "Dubai Courts are the competent courts to entertain this case". The Judicial Tribunal ruled that (i) the case should be remitted to the Dubai Courts; (ii) the DIFC Courts were to cease exercising jurisdiction in respect of this case; and (iii) the claimant was to pay the Judicial Tribunal's fees and AED2,000 in legal costs.

The Judicial Tribunal's reasoning is unclear and it is hoped that future decisions will clarify the Judicial Tribunal's approach to determining jurisdictional disputes of the kind raised in this instance.

Potential impact

The ruling of the Judicial Tribunal has severely undermined the use of the DIFC Courts as a conduit jurisdiction for the recognition and enforcement of onshore, Dubai seat arbitral awards.

In all likelihood, once the Judicial Tribunal's reasoning becomes clear; this ruling will prove to be fatal to the use of the DIFC Courts as a conduit jurisdiction for the recognition and enforcement of onshore, Dubai seat arbitral awards.

It remains to be seen what impact the Judicial Tribunal will have on the recognition and enforcement of overseas and DIFC arbitral awards and court judgments and its use as a conduit jurisdiction in that respect. Naturally it is to be hoped that these avenues of recognition and enforcement will remain open.

However, while these jurisdictional questions remain open (and perhaps even after their resolution), the possibility of an appeal to the Judicial Tribunal will provide a further mechanism by which a rogue award or judgment debtor can seek to delay or frustrate the payment of sums owed by it.

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