Pearl Petroleum overturned on Riyadh Convention service

7 June 2021

In Lahela v Lameez [2020] DIFC CA 007 (9 May 2021), the DIFC Court of Appeal has overturned a long-standing rule that parties resident in Riyadh Convention states may only be served using the process set out in the Riyadh Convention. The Court of Appeal found that the Convention provides an additional mechanism for service and does not prohibit other means of service being used. In doing so, the Court of Appeal has clarified that treaties do not automatically form part of DIFC law.

The Riyadh and GCC Conventions had laudable aims, to enhance judicial cooperation between their member states. Amongst other matters, they make provision for member states to enforce one another’s judgments, to assist one another in taking evidence and for extradition between member states.

Importantly, they also provide a mechanism for the service of legal process between member states. According to that mechanism, documents are sent to the DIFC Court, which transmits them onwards to the defendant’s local court, which then serves them.

In competing translations, Article 6 states:

Legal and non-legal [Judicial and non-judicial] documents and papers relating [pertaining] to civil, commercial and administrative cases and cases of personal status required to be served or notified to [which are to be published or which are to be transmitted to] persons residing in one of the contracting States shall be sent [dispatched] directly by the authority of the competent legal office [from the judicial body or office concerned] to the court which the person who is required to be served or notified resides in its jurisdiction area [to the court of the district in which the person to be notified resides]…

In Pearl Petroleum and Ors v The Kurdistan Regional Government of Iraq [2017] DIFC ARB 003 (20 August 2017), Justice Sir Jeremy Cooke concluded that the terms of Article 6 of the Riyadh were “mandatory” in the sense that they required that court documents be served only in accordance with the Convention mechanism. The Judge considered that, unlike in England, international treaties formed part of the law of the DIFC directly, whether or not implemented by local legislation. As a result, the effect of the treaty could not be evaded by permitting alternative service or by dispensing with service. He acknowledged that, in Pearl, the result was likely to be fatal to Pearl’s attempts to enforce an arbitration award in the DIFC, as the evidence demonstrated that it was extremely unlikely that the Kurdistan Regional Government would be served by its local courts in Erbil.

These conclusions came as some surprise to many practitioners in the DIFC and led to significant practical difficulties. Even where Article 6 service operates efficiently, the time taken to serve will be measured in months. A party might spend years obtaining an award in DIFC arbitration and yet be unable to serve enforcement proceedings on their opponent’s lawyers, as would otherwise be the normal practice.

Pearl settled before an appeal could be heard. The requirement to use Article 6 service has remained ever since.

In Lahela v Lameez [2020] DIFC CA 007 (9 May 2021), the Court of Appeal comprehensively overturned the conclusion in Pearl. The decision has important and wide-ranging consequences for the jurisdiction, which extend beyond matters of service.

The claim brought into sharp relief the potential injustice which could be visited by the approach set down in Pearl. The Claimant had obtained a DIFC arbitration award, following a fully contested arbitration in the DIFC. The Defendant did not pay and the Claimant commenced enforcement proceedings in the DIFC. In the usual way, it obtained an order ex parte enforcing the award, which it then sought to serve.

The usual practice would be to permit service on the Defendant’s solicitors, who acted in the DIFC arbitration. However, the Defendant was a company incorporated in Iraq. Adopting the approach mandated in Pearl, the Claimant attempted service by the Article 6 method. The DIFC Court duly sent the documents to the Erbil Court in Iraq, the Defendant’s home Court and the same Court which would have been engaged in Pearl. The President of the Erbil Court of Appeal initially indicated that the Court would serve the documents, but subsequently changed his mind and the documents were returned to the DIFC Court. The DIFC Court was asked to challenge the decision, but declined to do so.

The Claimant therefore delivered the documents to various people by email, including the Defendant’s solicitors in the arbitration. They declined to accept service. The Claimant then applied to the DIFC Court for an Order for alternative service, alternatively dispensing with service, arguing that Pearl should be distinguished or not followed. The Court granted an Order for alternative service and rejected the Defendant’s application to set the Order aside, finding that, contrary to Pearl, treaties are not automatically incorporated into DIFC law. In any event, attempts at Article 6 service had been exhausted and so the treaty service obligations had been discharged and did not prevent a subsequent order for alternative service.

The Defendant appealed. The issues on the appeal were:

  1. Whether the terms of the Riyadh Convention formed part of DIFC law;
  2. Whether those terms precluded service by other means in any circumstances or, alternatively, where Convention service had been attempted but had failed; and
  3. Whether the terms of the Convention conflicted with those of the New York Convention (requiring recognition and enforcement of arbitration awards) and, if so, which should prevail.

In Pearl, Justice Sir Jeremy Cooke had based his conclusion that treaties form part of DIFC law on Federal Law 8 of 2004 (“the Free Zone Law”), which permits and governs the creation of free zones in the UAE. Article 5 of Free Zone Law provides:

“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.”

Sir Jeremy had construed this provision as requiring the DIFC Courts to comply with and apply the terms of treaties to which the UAE was a party.

The Court of Appeal rejected this construction. The DIFC Courts did not fall within the definition of a “Financial Free Zone” in Article 5. The obligation on the Courts was to apply DIFC law. Unless and until implemented by DIFC legislation, treaties did not form part of DIFC law.

The Court also rejected a further argument based on Article 3 of the Free Zone Law. Article 3(2) provides:

These Zones and Financial activities shall … be subject to all Federal laws with the exception of Federal civil and commercial laws.

The Defendant’s position was that the Riyadh Convention as a whole was not concerned with “civil and commercial laws” because, amongst other matters, it dealt with certain criminal matters.

The Court of Appeal rejected this submission. The correct approach was to identify and characterise the relevant legal rule which it is said should be applied, not the instrument in which it is contained. Provisions relating to service of DIFC Court proceedings were necessarily civil and commercial, being the only kind of proceeding the Court could hear. As a result, Article 3(2) could not import Article 6 of the Riyadh Convention as being part of UAE law.

The DIFC Court is not therefore obliged to apply the terms of Article 6 of the Convention. It is however entitled to invoke them, should it choose to do so. The result is that [122]:

the effect of this decision is not to preclude parties to proceedings in this Court from requesting the Court to utilize the facilities for service which are available under the Convention. Rather, the effect of this decision is that parties are not limited to that means of service in the case of service upon parties resident in a State which is a party to the Convention

Although unnecessary to do so, the Court of Appeal went on to consider the second issue, which is whether the terms of the Riyadh Convention, even if applied, purported to prevent service by any other method.

The Court concluded that they did not. The treaty words “shall be sent” are mandatory only in the sense that they impose service obligations on the Courts where the treaty terms apply. The fact that those Courts were obliged to serve when asked to do so did not mean that other means of service could not be used.

The purpose of the Convention was to provide an additional means of service, rather than an exclusive means of service. The Convention does not provide the only means by which service may validly be effected.

As a result, orders for alternative service and dispensing with service may be made in cases where the party to be served is resident in a Riyadh Convention state.

In light of these decisions, there was no basis for finding any conflict with the New York Convention and so no need to address the third issue.

The Court of Appeal’s decision will be welcome news for DIFC practitioners. It removes a layer of complexity in advancing regional litigation, but preserves an important service facility, should it be required. The decision will, it is hoped, provide valuable certainty and be of particular assistance where urgent proceedings are required.

Tom Montagu-Smith QC acted for the Claimant at first instance and on appeal, instructed by Graham Lovett, Shane Jury, Michael Stewart and Sofia Cafoor-Camps of Gibson Dunn (Dubai).