DIFC Court rejects public policy defence to enforcement of foreign arbitral awards

20 August 2015

DIFC Court rejects public policy defence to enforcement of foreign arbitral awards where a claimant intends to execute in Dubai outside the DIFC

In X1 X2 v Y1 Y2 (29 July 2015), the Claimants brought proceedings for the recognition and enforcement of 22 arbitration awards issued in London under LMAA Rules.

The underlying dispute arose in respect of 10 charterparties and a guarantee. In the arbitrations, the Defendants did not deny that they owed the sums claimed, but asserted that they owed them to a third party, to whom the Claimants’ rights had been assigned.

In total, the Claimants obtained awards in the sum of US$26.5m plus interest.

The Claimants then sought an order from the DIFC Courts recognising and enforcing the awards. The Defendants resisted enforcement.

The Defendants argued that they had no assets in the DIFC and that the Claimants’ sole intention was therefore to seek execution in Dubai outside the DIFC. Article 7 of the Judicial Authority Law requires the Dubai Courts to execute foreign arbitral awards which have been recognised by the DIFC Courts. In doing so, they are not permitted to reconsider the DIFC Courts’ decision.

The Defendants’ position was that it would be contrary to UAE public policy to recognise and enforce the awards in those circumstances. The Claimants would be using the DIFC Courts as a device to obtain an order which could be executed in the Dubai Courts. The Claimants were therefore seeking to bypass the enforcement procedures in the Dubai Courts. The Defendants relied on expert evidence of UAE law in support of their position that this would be contrary to UAE public policy.

Justice Sir Anthony Colman dismissed this defence.

The reciprocal enforcement mechanism provided by Article 7 of the Judicial Authority Law expressly permits the execution in Dubai of foreign arbitration awards which have been recognised by the DIFC Courts. The mechanism was established by legislation, which is the primary source of public policy. The Claimants were seeking to use that mechanism for precisely the purpose for which it was intended. Its use could not be contrary to public policy.

In any event, the Dubai Courts would apply the same test for enforcement – they would examine whether any of the New York Convention defences to enforcement was made out. The public policy defence under the Convention, and therefore under the DIFC Arbitration Law, was engaged by complaints about the award itself or the procedure by which it was obtained. It was not concerned with the procedural mechanism for enforcement in the enforcing state.

The Judge also dismissed the Defendants’ argument that, even if no Convention defence was made out, the Court had a residual discretion to refuse enforcement of the awards. Unless one of the specific defences to recognition and enforcement is established, the Court is obliged to recognise and enforce foreign awards.

The Defendants raised a further argument that, under English law, the Claimants’ rights under the charterparties and the guarantee had been assigned to a third party. Their position was that the Claimants therefore had no right to claim under the applicable arbitration agreements and so the tribunals had lacked jurisdiction.

The Judge dismissed this argument. There was no novation of the arbitration agreements. The arbitrators therefore had jurisdiction to decide the point and their decision could not be challenged on enforcement. The assignment was equitable and not legal in any event and so the Claimants had retained their legal rights under the agreements.

This is an important decision, being the first full examination of the public policy defence under the New York Convention and Article 44 of the DIFC Arbitration Law*.

Parties have become increasingly interested in the possibility of seeking recognition and enforcement of foreign awards in the DIFC Courts and then taking the resulting DIFC Court order to the Dubai Courts for execution. This approach has previously be challenged, unsuccessfully, on grounds of jurisdiction (X1 X2 v Y1 Y2 [ARB-002-2013] (28 Nov 2014)) and Meydan v Banyan Tree [CA-005-2014] (3 Nov 2014)), abuse of process (Meydan v Banyan Tree) and constitutionality (X1 X2 v Y [ARB-001-2014] (5 Jan 2015)).

By this judgment, the DIFC Courts have confirmed that this approach is not contrary to public policy. It is part of the purpose for which the relevant legislation was enacted. It is not therefore necessary to show that there is some other use for a DIFC Court order, aside from execution in the Dubai Courts.

* The public policy defence was considered and dismissed in Banyan Tree v Meydan [ARB-003-2013] (2 April 2015). However, the defendant was unrepresented and the point was not fully argued. It is unclear why the parties or the Court felt it necessary to raise any defences to the claim.

Tom Montagu-Smith of XXIV Old Buildings appeared for the Claimants.

Tom also appeared for the Claimants in X1 X2 v Y1 Y2 [ARB-002-2013] (28 Nov 2014) and X1 X2 v Y [ARB-001-2014] (5 Jan 2015).

For further information, please contact Tom at tms@xxiv.co.uk