This Practice Direction discourages unmeritorious challenges to the recognition and enforcement of arbitration awards. Award debtors challenging ratification and enforcement of an award before the DIFC Courts are subject to two possible measures.
Firstly, the Practice Direction provides that an award debtor, who wishes to challenge the enforcement of an arbitral award, may be ordered to pay the award debt (as ordered by the Tribunal in the underlying arbitration) into Court. The Practice Direction states that the presiding judge can take into account the merits of a challenge to an application for ratification of an arbitral award and require the award debtor to pay the amount of the award into Court first, as security. This is not a new power of the DIFC Court in determining challenges to the enforcement of arbitration awards, but has already been provided for in Article 44(2) of the DIFC Arbitration Law (DIFC Law No. 1 of 2008, as amended). Inspired by Article VI of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Article 44(2) of the DIFC Arbitration Law applies to domestic and foreign awards. It provides that, if an application for the setting aside or suspension of an award has been made, the DIFC Court may, if it considers it proper, adjourn its decision and may also, on the application of the party seeking recognition or enforcement of the award, order the other party to provide "appropriate security". The Practice Direction now provides guidance on the nature of that security and enables the judge to make such an order of his/her own volition (and not necessarily on application by the enforcing party).
Secondly, the Practice Direction provides that, when the Court is exercising its discretion as to costs, the principle of awarding indemnity costs may be invoked for unsuccessful applications relating to arbitrations, such as unsuccessful applications for setting aside of arbitral awards and unmeritorious challenges to remove arbitrators. Indemnity costs contrast with costs awarded on a "standard basis" in that the former allow the successful party to recover a higher percentage of its legal fees, in circumstances where it is forced to resist an application to set aside the recognition and enforcement of an award on unmeritorious grounds. There is no guidance from the Court as to what is unmeritorious, and we expect that the Court will use its broad discretion in determining whether to award costs on an indemnity basis in accordance with Part 38 of the Rules of the DIFC Courts (RDC).
Again this is not a new power of the Court and the Court has always had the authority to order costs on an indemnity basis under RDC 38.17. Guidance on indemnity costs have been provided in Practice Direction No. 5 of 2014 and been the subject of significant consideration in Rafed Al Khorafi v Bank Sarasin (28 October 2014) CFI 026/2009. Generally, if costs of are ordered on a standard basis, the Court will order that the unsuccessful party pay 50 – 65% of the successful party's costs while if the party is awarded indemnity costs, that percentage may be as high as 85%.
The Practice Direction furthers the DIFC Courts' reputation as the most arbitration friendly jurisdiction in the Middle East.
The DIFC Courts Address Unmeritorious Challenges To The Enforcement Of Arbitration AwardsThe content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.