REUTERS | Jumana El Heloueh

The DIFC Courts’ conduit jurisdiction: time for a post mortem?

This year so far has dealt a severe (some may say mortal) blow to the Dubai International Financial Centre (DIFC) Courts’ status as a conduit jurisdiction. The case law of the Joint Judicial Tribunal (the JT) – a judicial body composed of both onshore Dubai and offshore DIFC Court judges and formed by the Ruler of Dubai to oversee conflicts of jurisdiction between the onshore Dubai and offshore DIFC Courts (see Decree No. (19) of 2016 establishing the Dubai-DIFC Judicial Tribunal) – has been unashamedly critical of the DIFC Courts’ creeping expansion of their own jurisdiction to encompass actions without a tangible link (whether geographic or otherwise) to the DIFC. The example par excellence of such actions have been the ratification and enforcement of both domestic (non-DIFC) and foreign arbitral awards for onward execution against assets of an award debtor in onshore Dubai (absent assets offshore). The case in favour of service as a conduit has been compelling, allowing international award creditors to circumvent the often erratic application by the onshore United Arab Emirates (UAE) courts of Article 216 of the UAE Civil Procedure Code, which accords comparatively wide discretion for the challenge of awards in the enforcement process. Regular readers of this blog will recall the recent ruling of the Dubai Court of First Instance that has essentially called for an end to the DIFC Courts’ role as a conduit, setting aside the Banyan Tree line of cases, which are routinely cited as the locus classicus of the DIFC Courts’ conduit jurisdiction (see Commercial Case No. 1619/2016, ruling of the Dubai Court of First Instance of 15 February 2017, reported in G. Blanke, Dubai courts v DIFC courts: just a jurisdictional stand-off or an outright declaration of war?).

Taking a closer look at the JT’s decisions of earlier this year (see Cassation No. 1/2017 – Gulf Navigation Holding PJSC v Jinhai Heavy Industry Co Ltd and Cassation No. 3/2017 – Ramadan Mousa Mishmish v Sweet Homes Real Estate), jurisdiction in favour of the onshore Dubai courts has been founded on a common theme:

The “general jurisdiction […] [of the] Dubai courts […] [in] accord[ance] [with] the general principles of laws embodied in the procedural laws”.

Importantly, whereas Gulf Navigation dealt with the recognition and enforcement of a New York Convention award rendered in London under the London Maritime Arbitration Association (LMAA) Rules through the DIFC Courts, Mishmish concerned the recognition and enforcement of a domestic award rendered under the Dubai International Arbitration Centre (DIAC) Rules in Dubai, both for onward execution against the award debtor’s assets in onshore Dubai. In both instances, the DIFC Courts found themselves competent to hear the enforcement actions despite the absence of any geographic link to the DIFC (other than the application for ratification and enforcement itself). In Gulf Navigation, the JT also disavowed the importance of the application of the New York Convention to the question of the conflict of jurisdiction between the onshore and offshore courts.

The dissenting minority, led by Michael Hwang SC, the Chief Justice of the DIFC Courts, correctly countered that there was no principle of general jurisdiction according precedence to the onshore Dubai courts in the event of a jurisdictional conflict between the onshore and offshore courts in matters of enforcement of arbitration awards, nor was it correct to disregard the importance of the New York Convention: to the contrary, a combined reading of Articles 5(A)(1) and 5(A)(1)(e) of the Judicial Authority Law (see Dubai Law No. (12) of 2004 as amended), which defines areas of exclusive jurisdiction of the DIFC Courts, including in particular the recognition and enforcement of arbitral awards in the terms of Article 42(1) of the DIFC Arbitration Law, militate in favour of the DIFC Courts’ exclusive jurisdiction in the present circumstances. Further, disregarding the New York Convention would place the DIFC Courts in their capacity as UAE courts in violation of their enforcement obligations under an international enforcement instrument to which the UAE are a party and which is consequently binding upon them as an emanation of the (UAE) state. Similar conclusions must be drawn with respect to analogical cases rehearsed before the JT in 2016, dealing with related issues of recognition and enforcement of domestic and foreign awards in onshore Dubai through the offshore conduit (see Cassation No. 1/2016 (JT) – Daman Real Capital Partners Company LLC v Oger Dubai LLC and Cassation No. 2/2016 (JT) – Dubai Water Front LLC v Chenshan Liu).

This body of JT case law precedent appears to ring the death knell for the DIFC Courts’ acquired status as a conduit jurisdiction for the recognition and enforcement of domestic (non-DIFC) and foreign arbitral awards by the DIFC Courts for onward execution in onshore Dubai. That said, there is still some hope for the JT’s approach to change for the better. To start, the decisions of the JT are not binding upon future JT, there being no principle of stare decisis in the Dubai court system (of which the JT forms an integral part): future JTs are, therefore, at liberty to review, modify and even change the reasoning of past JTs in an attempt to rectify errors in reasoning committed by past JTs. No doubt, the JT’s reliance on the general jurisdiction of the Dubai courts taking precedence over the DIFC Courts challenges a natural reading of the distribution of competence between the onshore Dubai and offshore DIFC Courts pursuant to the existing laws and regulations. The Dubai courts are simply not hierarchically superior in jurisdiction to the DIFC Courts; both courts qualify, constitutionally speaking, as UAE courts with their respective jurisdictional limits defined in the prevailing legislation. Pursuant to that legislation, the DIFC Courts are clearly competent to hear applications for ratification and enforcement of both domestic and foreign arbitral awards, even absent any assets of the award debtor in the DIFC. The onward execution of DIFC Court orders for the ratification and enforcement of those awards in onshore Dubai, in turn, is sanctioned and facilitated by the regime of mutual recognition in place between the Dubai and DIFC Courts by virtue of Article 7 of the Judicial Authority Law, which establishes an area of free movement of judgments, orders and ratified awards between onshore Dubai and the offshore DIFC. In relation to foreign awards, the enforcement obligations under the New York Convention add further weight to this position, requiring the DIFC Courts to comply with the terms of the Convention in their capacity as a UAE court.

Further, one common streak of the majority of JT decisions to date is that jurisdiction has invariably been accorded to the court seized first. A first-seized rule does not presently form part of the regime of mutual recognition or free movement under Article 7 of the Judicial Authority Law as amended, but could easily be incorporated into it. In addition, any criticism that the DIFC Courts are seized of an action for recognition and enforcement of a domestic award first, thereby depriving an award debtor of its entitlement to have the award scrutinised in a nullification action before the local, onshore Dubai Courts, could be met by requiring the expiry of a fixed period of, for example, 30 days, to allow an action of nullification to be brought at the seat. During this time no action for enforcement should be brought before any other court, whether onshore or offshore. In this way, any award debtor would have sufficient time to explore local nullification opportunities without running the risk of being outpaced by an award creditor that succeeds in filing an action for recognition and enforcement before the DIFC Courts first.

Taking the above developments in the round, the time for a post mortem has not quite yet arrived, but it may do… sooner than you think! That said, there is a chance that, going forward, the general jurisdiction assumption which presently forms the basis of the JT’s support for the attribution of preferential jurisdiction onshore may be substituted with a first-seized rule. Such a rule could accord jurisdictional precedence to the court first seized, whether onshore or offshore. Such an approach would be compatible with the existing regime of mutual recognition in place between the Dubai and DIFC Courts under Article 7 of the Judicial Authority Law and mark a promising way forward in the cooperation between the onshore and offshore Dubai courts.

DWF LLP Dr Gordon Blanke

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