REUTERS | Lucy Nicholson

Pearl-diving in the DIFC and the Riyadh Convention: The DIFC Court’s ruling in Lahela

In a recent ruling of the Dubai International Financial Centre (DIFC) Court of Appeal (CA) in Lahela v Lameez, the DIFCCA overturned the DIFC Court of First Instance (CFI)’s ruling in Pearl Petroleum Company Limited & Others v The Kurdistan Regional Government of Iraq. It found that Justice Sir Jeremy Cooke, rendering the ruling of the DIFCCFI, wrongly concluded in favour of the strict mandatory application of the service regime under article 6 of the Riyadh Convention. The DIFCCA also confirmed that obligations, whether of service or otherwise, under the Riyadh Convention and by extension under international agreements between the United Arab Emirates (UAE) and third-party countries more generally, did not form part of DIFC law to the extent that these dealt with civil and commercial matters and had not expressly been adopted into the domestic body of DIFC law (even despite their wholesale adoption into UAE law). As a result, in circumstances where the courts of a Riyadh Convention country (here the Erbil Court of Republic of Iraq, which like the UAE is a signatory of the Riyadh Convention) fail to effect service on an award debtor in that country in the terms prescribed under the Riyadh Convention, alternative and possibly more effective service options available under the DIFC Court Rules (RDC) (and possibly even dispensation with service altogether) are open to award creditors in order to secure enforcement of their ratified DIFC award.

More specifically, pursuant to article 6 of the Riyadh Convention, “legal and non-legal documents and papers relating to civil, commercial and administrative cases or personal status required to be served or notified to persons residing in one of the contracting states (for example a Riyadh Convention country) shall be sent directly by the authority of the competent legal office to the court of the jurisdiction area in which the person who is required to be served or notified resides.” According to Justice Cooke of the DIFCCFI in Pearl, pursuant to article 5 of UAE Federal Law Number 8 of 2004 Regarding The Financial Free Zones, which provides that “the Financial Free Zones shall not do anything which may lead to contravention of any international agreements to which the state is or shall be a party”, the provisions of the Riyadh Convention, including article 6, formed part of DIFC law.  Article 6, in turn, had to be strictly interpreted as a mandatory obligation (shall) imposing a limited and exclusive service regime under the Riyadh Convention, prohibiting alternative service or dispensation with service. In other words, on the basis of this interpretation, failure to serve under the Riyadh Convention would ultimately and permanently, deprive an underlying recognition and enforcement order (such as of a ratified DIFC award) of enforceability. Given the forces involved in Pearl, this was bound to have fateful consequences on Pearl’s ability to enforce, in its capacity as award creditor, an arbitral award against the Kurdistan Regional Government, which was highly unlikely to accept service of the award by the Erbil Court of Iraq at the time. For the avoidance of doubt, for better or worse, the proceedings in Pearl ultimately never reached the DIFCCA given an early settlement between the parties (with Justice Cooke’s findings on the Riyadh Convention service regime becoming final as a result).

By contrast, the DIFC courts took a markedly different approach in Lahela, finding that Pearl was distinguishable on the facts (no actual attempt of service having been made before the Iraqi courts) and in any event wrongly decided. By way of background, the claimant Lahela, a UAE-incorporated company, secured a DIFC Award (DIFC Award) in arbitral proceedings against the defendant Lameez, a company registered in Erbil, the Republic of Iraq, followed by a DIFC court order for the recognition and enforcement of the DIFC Award (DIFC court enforcement order). Pursuant to the RDC, to ensure successful enforcement, the DIFC court enforcement order required service upon Lameez. Attempting service under article 6 of the Riyadh Convention, Lahela applied to the Erbil Court of Iraq, which subsequently refused to serve the DIFC court enforcement order upon Lameez on the pretext that the Riyadh Convention did not apply in the circumstances. Lahela then secured an ex parte order for alternative service from the DIFC courts within the meaning of the RDC, which, upon service, Lameez sought to set aside by various applications all the way up to the DIFCCA.

Against this background, the DIFCCA did not hesitate to find that article 5 of UAE Federal Law Number 8 of 2004 did not impose any obligations on the DIFC Courts, the DIFC Courts not falling within the definition of “Financial Free Zones” within the meaning of article 1 of that law. In addition, the DIFCCA found that article 3(2) of UAE Federal Law Number 8 of 2004, pursuant to which the Financial Free Zones “shall […] be subject to all Federal laws, with the exception of the Federal civil and commercial laws”, had the effect of excepting the provisions of the Riyadh Convention, from the operation of that article and hence from being applied in the DIFC. This included article 6 more specifically, which according to the DIFCCA, being a matter of civil procedure, qualified as civil and commercial law in IGPL v Standard Chartered Bank. IGPL in turn held that the UAE Civil Procedures Code qualifies as a Federal civil and commercial law, which does not apply in the DIFC. The DIFCCA explained the proper application of article 5 of the UAE Federal Law Number 8 of 2004 as follows:

“It is necessary to address the proper construction and effect of article 5 of Federal Law Number 8 of 2004 in this context. It is also contextually relevant to note that the international agreements (or treaties) to which article 5 refers, are agreements between states. Such agreements (or treaties) create obligations as between the contracting states. Those obligations might include an obligation to implement the provisions of the agreement into the domestic law of the contracting parties. However, unless and until the contracting parties take steps to implement the provisions of the relevant international agreement or treaty into domestic law [in accordance with article 7(3) of UAE Federal Law Number 8 of 2004], they do not form part of the domestic law of the States which are parties to a treaty. “(Lahela at paragraph 83).

Article 7(3) of UAE Federal Law Number 8 of 2004, in turn, provides that “[s]ubject to the provisions of article 3, the concerned Emirate may, within the limits of the goals of establishing the Financial Free Zone, issue legislation necessary for the conduct of its activities.”

That said, the DIFCCA was keen to emphasise that even though the Riyadh Convention did not find direct application within the DIFC, qualifying as a UAE court, the DIFC courts remained at liberty to rely on the provisions of the Riyadh Convention to assist in service in a Riyadh Convention country. Conversely, interpreted in the light of article 31 of the Vienna Convention on the Law of Treaties, article 6 of the Riyadh Convention did not provide an exclusive service regime as confirmed by the main Convention objective, which was the attainment of justice by co-operation between state judicial authorities, an objective that would be undermined by having in place an exclusive service regime. Equally, article 6 did not prevent the DIFC courts from dispensing with service of a document to the extent permitted by the RDC. These considerations the DIFCCA correctly caveated by stating as follows:

“Of course this is not to exclude the proposition that if a treaty was to be construed as providing the exclusive means of service, and if such a treaty had been implemented as part of the domestic law of the relevant jurisdiction, a decision of a court to dispense with service for the dominant purpose of avoiding the application of the treaty might be inconsistent with the law of the jurisdiction. However, none of those circumstances apply in this case, and of course no order dispensing with service has been made.” (Lahela, at paragraph 137)

The DIFCCA’s ruling in Lahela is, no doubt, to be welcomed by award creditors that seek enforcement of ratified DIFC awards in a Riyadh Convention country. They will be spared the uncertainty, or even impossibility, of service in circumstances in which the local courts of the enforcement country fail to lend the assistance required to ensure service in that country. If a criticism can be made of the DIFCCA’s ruling, it is that it fails to consider the role of article 24(2) of the DIFC Court Law (see DIFC Law number 10 of 2004, and the corresponding wording of 42(1) of the DIFC Arbitration Law), according to which “[w]here the UAE has entered into an applicable treaty for the mutual enforcement of judgments, orders or awards, the Court of First Instance shall comply with the terms of such treaty.” The Riyadh Convention arguably qualifies precisely as such an instrument of mutual recognition and enforcement. On that basis, article 24(2) requires compliance by the DIFC courts with the provisions of the Riyadh Convention without those provisions having been adopted into DIFC domestic law.


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