13 Oct 2013

NEW YORK CONVENTION: LACK OF JURISDICTION PREVENTS ENFORCEMENT IN UAE

Authored by: Omar Al Shaikh and Adrian Chadwick

NEW YORK CONVENTION: LACK OF JURISDICTION PREVENTS ENFORCEMENT IN UAE

The arbitration enforcement proceedings brought by Construction Company International (CCI) against the Ministry of Irrigation of the Government of Sudan (MOI), for whom our firm acted, has now passed through all three tiers of the Dubai Courts. The Dubai Court of Cassation (Case No. 156/2013 Civil Cassation) rejected CCI’s arguments and upheld the judgments of the lower Courts. This means that all three tiers of the Dubai Courts, having considered the applicability of the New York Convention, refused to recognise and enforce two ICC Paris arbitration awards on the ground that under the UAE’s procedural laws the Court had no jurisdiction. This result is likely to be viewed with concern by arbitration practitioners based in Dubai and worldwide.

Background

CCI together with another French company, Compagnie Francois d’Entreprises S.A (CFE) entered into an agreement with the MOI for the construction of the Jonglei Canal in Sudan. Construction had to be abandoned because of the Sudanese civil war. Arbitration proceedings were commenced by CCI and CFE in Paris under the rules of the International Chamber of Commerce (ICC). Arbitration Awards on the merits and as to costs were rendered in 1988 and 1989 in favour of CCI and CFE under which the MOI was ordered to pay substantial sums.

By an agreement made in 1992 the MOI agreed to pay by installments an amount lower than the amount awarded in the Tribunal’s Final Arbitration Award but the agreed payments were not made. A Supplementary Agreement was made in 2000 under which the MOI agreed to pay a substantially lower amount but again the payments were not made. Subsequently CFE assigned all its rights and obligations in respect of the Jonglei Canal Agreement to CCI including its right to claim the awarded amounts. CCI then sought to enforce the ICC Arbitration Awards in various jurisdictions, including France, but was unable to locate assets against which to enforce.
 
The Dubai Proceedings

In September 2012 CCI, for whom Al Tamimi acted, commenced proceedings before the Dubai Court of First Instance requesting the Court to recognise and enforce the ICC Arbitration Awards pursuant to the 1958 New York Convention on the Recognition and Enforcement of Arbitral Awards (New York Convention) and/or the 1992 Convention on Judicial Cooperation and the Recognition and Enforcement of Judgments in Civil and Commercial Matters between the UAE and France (Convention on Judicial Cooperation between UAE and France). CCI also issued virtually identical proceedings before the Abu Dhabi Court but subsequently discontinued those proceedings. In its claim CCI did not identify any assets in Dubai as belonging to the MOI.
 
A Memorandum was submitted to the Court on behalf of the MOI which raised various defences. The primary defence was that the Dubai Courts have no jurisdiction to hear the case brought by CCI - which is discussed below. Another defence raised was that liability in respect of the ICC Arbitration Awards was extinguished by virtue of the Agreement made in 1992 and the Supplementary Agreement made in 2000. However this defence was never determined by the Court.
 
As stated above the Dubai Court of First Instance held on 30 December 2012 that it did not have jurisdiction to hear the case. CCI, arguing that there had been a misinterpretation of the law and relying on Article 22 of the Law of Civil Transactions (Federal Law No. 5 of 1985 (as amended) (Civil Code)and Article 238 of the UAE Civil Procedure Code (Federal Law No. 11 of 1992 (as amended) (CPC), appealed to the Dubai Court of Appeal who by a ruling dated 31 March 2013 affirmed the lower Courts’ judgment. CCI then appealed to the Dubai Court of Cassation which rejected the appeal and upheld the decision of the lower Courts.
 
In order to understand the Dubai Court of Cassation’s decision that it does not have jurisdiction to hear the case it is helpful to first review the relevant provisions of UAE law and the Conventions.
 
Jurisdiction

Articles 19 to 24 of the CPC and Articles 21 and 22 of the Civil Code are the relevant provisions that the UAE Court applies when determining if it has international jurisdiction in respect of foreign entities.
 
Article 21 of the CPC sets out the situations when the UAE Courts shall have jurisdiction to hear actions against a foreign entity who does not have a domicile or a place of residence in the UAE. The two subsections (1) and (3) referred to in the Court judgments are:
 
1. If he has an elected address in the UAE

3. If the action relates to an obligation entered into or performed or that is stipulated to be performed in the UAE or to a contract intended to be authenticated therein or to an incident that occurred therein or to a bankruptcy declared in one of its courts.
 
Article 21 of the Civil Code sets out the UAE Courts’ right to rely upon the UAE’s own procedural laws in matters relating to jurisdiction. The James Whelan translation of the Ministry of Justice commentary on the Civil Code mentions that Article 21 is a general rule based on public policy.
 
Article 22 of the Civil Code exempts the UAE Courts from applying Article 21 of the Civil Code in cases when there is a conflict with the terms of an international convention which is in force in the UAE.
 
Enforcement of Foreign Awards in the UAE

Article 235 of the CPC provides the conditions which the UAE Courts must consider when enforcement of a foreign judgment is sought in the UAE.
 
Article 238 of the CPC exempts the UAE Courts from applying the provisions set out in Articles 235 of the CPC when these conflict with the terms of an international convention to which the UAE is a party.

New York Convention

The New York Convention (brought into force into the UAE by Federal Decree No. 43 of 2006) seeks to provide common standards for the court recognition and enforcement of foreign arbitral awards. The Convention's primary concern is for signatories to ensure foreign awards are recognised and generally capable of enforcement in the signatories’ national courts in the same way as domestic arbitration awards.
Article III states:
 
“Each Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon, under the conditions laid down in the following articles. There shall not be imposed substantially more onerous conditions or higher fees or charges on the recognition or enforcement of arbitral awards to which this Convention applies than are imposed on the recognition or enforcement of domestic arbitral awards.”(emphasis added)
 
Article V sets out the grounds when the recognition and enforcement of a foreign award can be refused by a Court in a contracting state. Under Article V.2 (b) enforcement may be refused if the Court finds that the recognition or enforcement of the award would be contrary to the public policy of that country.
 
Convention on Judicial Cooperation between UAE and France

Article 15 of the Convention on Judicial Cooperation between UAE and France (brought into force in the UAE by Federal Decree No 31 of 1992) provides, inter alia:
 
“The procedure for obtaining enforcement of a decision shall be governed by the law of the State of which the request is made.” 
 
The Courts’ Reasoning

The Dubai Court of First Instance held that the international jurisdiction of the Court over foreign parties is a matter of public policy. The Court then applied Article 21 of the CPC and determined that it had no jurisdiction as MOI, which is foreign entity with no domicile or place or residence in the UAE has no elected address within the UAE and as the case did not relate to an obligation that had been concluded or carried out in the UAE. In finding that the court’s international jurisdiction is a matter of public policy the Court relied upon various Articles of the CPC and what it stated was the practice of the Dubai Court of Cassation.
 
The Dubai Court of Appeal upheld the lower court’s decision.

The Dubai Court of Cassation in its judgment relied upon its interpretation of the wording of Article III of the New York Convention and the wording of Article 15 of the Convention on Judicial Cooperation between UAE and France. The Court determined that under both Conventions foreign judgments and arbitral awards are enforced in accordance with the procedural rules applicable in the state where the same is to be enforced. The Court then applied Article 21 of the CPC in the same way as the Dubai Court of First Instance including holding that the Court’s international jurisdiction over foreign parties is a matter of public policy.
 
Some comments on the Judgment of the Dubai Court of Cassation

The Dubai Court of Cassation relies upon the words in Article III of the New York Convention which state that the UAE shall recognise and enforce foreign arbitral awards “in accordance with the rules of procedure of the territory where the award is relied upon”. The Judgment does not indicate whether or not the Court considered if the rest of the sentence “under the conditions laid down in the following articles” restricted the applicability of the UAE procedural rules.
 
Article 22 of the Civil Code and Article 238 of the CPC were expressly relied upon by CCI in its appeal application, as acknowledged in the Court of Cassation’s judgment.  The Court appears to have taken the view these Articles 21 do not conflict with the terms of New York Convention or the Judicial Cooperation Convention between the UAE and France as both Conventions, in the Court’s view, provide that the UAE’s procedural rules are to apply.
 
Although the Court in its judgment declared that its international jurisdiction over foreign entities is a matter of public policy, the Court did not expressly state that it was refusing enforcement pursuant to Article V.2 (b) of the New York Convention under which enforcement may be refused if the Court finds that the recognition or enforcement of the award would be contrary to the public policy of that country.
 
Is enforcement of arbitral awards in the UAE under the New York Convention now more difficult?

As a result of the Court of Cassation’s judgment, which will no doubt be persuasive for other UAE Courts, parties may need in future to consider whether the UAE Courts have jurisdiction, under Article 21 of the CPC, to hear the claim for recognition and enforcement of a foreign arbitral award. Our view is that there may be a way, if circumstances permit, to avoid a UAE Court applying Article 21 of the CPC but it has yet to be tested.

This article, including any advice, commentary or recommendation herein, is provided on a complimentary basis without consideration of any specific objectives, circumstances or facts. It reflects the views of the writer which may, in some cases, differ from those of the firm, especially in the develop jurisdiction of the UAE.