REUTERS | Dominic Ebenbichler

Dubai courts v DIFC courts: just a jurisdictional stand-off or an outright declaration of war?

In light of the most recent case law precedent, the development of the relationship between the onshore Dubai and the offshore Dubai International Financial Centre (DIFC) courts has taken a very unfortunate turn. Since 2004, the DIFC courts have been evolving into a common law forum of choice as an alternative to the onshore civil law Dubai courts. Part of this evolution meant that the DIFC courts gradually acquired – through their own judge-made law – the status of a conduit jurisdiction that was competent to hear applications for the recognition and enforcement of domestic non-DIFC awards for onward execution in onshore Dubai (that is, outside the DIFC, and the wider United Arab Emirates (UAE)). The status of the DIFC as a conduit jurisdiction within this domestic context was championed by the DIFC courts’ rulings in the landmark Banyan Tree line of cases and has since been extended to the recognition and enforcement of foreign awards.

To promote the equal status of the onshore Dubai and offshore DIFC courts within the family of the Dubai courts, Article 7 of the Judicial Authority Law as amended established a regime of mutual recognition of judgments, orders and ratified awards between the two courts. This has given rise to the creation of an onshore-offshore area of free movement of those legal instruments, founded on a relationship of mutual trust between the onshore Dubai and offshore DIFC courts. Neither has been empowered to review the merits of the legal instruments issued by the other respective court for onward execution in the former court’s jurisdiction, nor to examine their compliance with prevailing public policy.

For the avoidance of doubt, the operation of Article 7 of the Judicial Authority Law as amended has for now survived any constitutional and public policy challenges. That said, Article 7 does not currently provide any guidance on how to deal with jurisdictional conflicts that may arise in the event that both the onshore and offshore courts are seized of the same or related matters at the same time. This typically causes procedural concerns; for example, in a domestic context, where a non-DIFC award rendered in onshore Dubai is challenged under Article 216 of the UAE Arbitration Chapter, pending an application for or following recognition and enforcement before the DIFC courts. This is precisely the scenario that emerged in Banyan Tree.

Faced with the question of such a jurisdictional conflict recently, the Dubai Court of First Instance annulled the DIFC courts’ rulings in the Banyan Tree line of cases that recognised and ordered the enforcement of a Dubai International Arbitration Centre (DIAC) arbitration award for onward execution against Meydan Group LLC, the award debtor, in onshore Dubai (Commercial Case No. 1619/2016, ruling of the Dubai Court of First Instance of 15 February 2017).

The nullification of these awards at first instance calls into question the DIFC’s acquired status as a conduit jurisdiction, at least within the context of domestic non-DIFC awards. The basis of the Dubai Court of First Instance’s decision is a finding that the DIFC courts did not have proper jurisdiction over the recognition and enforcement of the subject DIAC award, essentially on the basis that there was no nexus between the DIFC and the subject arbitral award (including its prospective place of enforcement, the award debtor’s assets being located in mainland Dubai).

The Dubai Court of First Instance’s conclusion denying the DIFC court’s proper jurisdiction ignores the true ambit of the jurisdictional gateway under Article 5(A) of the Judicial Authority Law as amended, upon which H.E. Justice Al Muhairi correctly relied in Banyan Tree when confirming the power of the DIFC courts to serve as a conduit jurisdiction for domestic non-DIFC awards. Article 5(A)(1)(d) clearly confers upon the DIFC courts exclusive jurisdiction over any application over which the DIFC courts have jurisdiction in accordance with the DIFC’s Laws and Regulations, including the DIFC Arbitration Law. In turn, Article 42(1) of the DIFC Arbitration Law empowers the DIFC courts to hear actions for enforcement of domestic and foreign awards, including any non-DIFC awards (irrespective of whether these are of onshore UAE or proper foreign origin).

The Dubai Court of First Instance’s ruling also disregards the role given to the regime of mutual recognition under Article 7 of the Judicial Authority Law as amended. For the purposes of the operation of Article 7, the Dubai and the DIFC courts both qualify as UAE courts of equal status. This is a fundamental pre-condition for the regime of mutual recognition, which is based on a presumption of mutual trust; each court defers to the other on the proper determination of its competence within its own jurisdiction. Neither court has the power to review the orders, judgments or ratified awards that the other respective court has found and declared fit for execution under Article 7 (by affixing an execution formula). Furthermore, to the extent that there was a conflict of jurisdiction between the Dubai and DIFC courts in Banyan Tree, reference should have been made to the Dubai-DIFC Judicial Tribunal (JT), which has recently been established as a catalyst for the resolution of any jurisdictional conflicts that may arise between the onshore Dubai and the offshore DIFC courts (see Article 2(2), Decree No. (19) of 2016 establishing the Dubai-DIFC Judicial Tribunal).

The Dubai Court of First Instance’s ruling also arguably runs counter to the position taken by the UAE Federal Supreme Court when seized by Meydan of the purported jurisdictional conflict between the onshore Dubai and the offshore DIFC courts in the same matter prior to the establishment of the JT (see Petition No. 2 of 2015, ruling of the UAE Federal Supreme Court of 23rd December 2015 (Jurisdictional Challenge)).

By virtue of its powers under Articles 33(9) and (10) and 60 of UAE Federal Law No. (10) of 1973 concerning the Federal Supreme Court, the Federal Supreme Court denied that there was a positive conflict of jurisdiction between the offshore DIFC and the onshore Dubai courts. Its conclusion was based on the fact that the proceedings before the DIFC courts had already ended, and the DIFC courts had issued an order for recognition and enforcement before the commencement of the challenge proceedings in the onshore Dubai courts. In a sense, the Federal Supreme Court’s approach confirms a first-seized rule as a conceptual basis for a principled solution to the present jurisdictional stand-off between the onshore Dubai and offshore DIFC courts.

The operation of a “first-seized” rule would be an easy way to manage two potentially competing courts of competent jurisdiction for related actions that may produce conflicting outcomes where they are seized in parallel. Naturally, here, given that the DIFC courts were seized first for an action for recognition and enforcement, the Dubai courts would have had to desist.

That being said, there is an argument for saying that the award debtor would have been deprived of its statutory right to challenge the award pursuant to Article 216 of the UAE Arbitration Chapter, onshore Dubai being the seat of the arbitration and hence the natural place for challenging the award. The obvious counterargument is that, in response to an application for enforcement, an award debtor will be able to mount a defense of nullification under Article 44 of the DIFC Arbitration Law. Nevertheless, it would be prudent to introduce amendments to the UAE Arbitration Chapter prescribing a time-limit of, for example, three months for challenging an arbitral award after issuance, failing which the award would be considered good for enforcement by the competent courts, including the DIFC courts. This would allow an award debtor of a domestic award rendered in mainland Dubai sufficient time to apply for nullification before the onshore Dubai courts, in satisfaction of its rights of defense under Article 216. Further, in order to deal with the wider problem of conflicts of jurisdiction, it may be advisable to amend Article 7 of the Judicial Authority Law as amended to include a first-seized rule in the terms contemplated above.

In a similar context, the JT’s first decision in Daman v Oger confirmed the application of the first-seized rule in a context where the application for enforcement and recognition of a domestic non-DIFC award before the DIFC courts was brought after commencement of challenge proceedings under Article 216 of the UAE Arbitration Chapter before the onshore Dubai courts. However, another recent ruling, Dubai Water Front LLC v Chenshan Liu, reached the opposite conclusion.

In light of these recent developments, there can be little doubt that the question of the proper allocation of jurisdiction between the onshore Dubai and offshore DIFC courts has come to a head, provoking a number of jurisdictional stand-offs. In particular, the recent ruling of the Dubai Court of First Instance raises concerns that the jurisdictional skirmishes between the two courts may turn into an outright declaration of war on the jurisdiction of the DIFC courts and end the DIFC’s status as a conduit jurisdiction (at least in a domestic context). Hopefully the Dubai Court of Appeal and the Dubai Court of Cassation will fend off the Dubai Court of First Instance, overturn its recent ruling and rebalance the relationship between the onshore Dubai and the offshore DIFC courts.

DWF LLP Dr Gordon Blanke

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