12 Mar 2012

ENFORCEMENT OF FOREIGN ARBITRAL AWARDS AGAINST UAE COUNTERPARTIES: DIFC-LCIA AWARDS VERSUS NEW YORK CONVENTION AWARDS

Authored by: Jonathan Brown and Valeria Lysenko

ENFORCEMENT OF FOREIGN ARBITRAL AWARDS AGAINST UAE COUNTERPARTIES: DIFC-LCIA AWARDS VERSUS NEW YORK CONVENTION AWARDS

The merits and de-merits for seating arbitration in the DIFC using the DIFC-LCIA Arbitration Rules for contracts with UAE counterparties are explored by Jonathan Brown and Valeria Lysenko.
 
In brief

  • Arbitration in the countries which are party to the New York Convention, seated overseas, can be used for UAE counterparties, as enforcement will be based on the reciprocity offered by the New York Convention.
  • DIFC-LCIA Arbitration, seated in the DIFC could be a better alternative to consider for contracts with Dubai counterparties.

In UAE project financings, lenders and UAE counterparties would often agree to resolve disputes by arbitration in the countries which are party to the 1958 New York Convention on Reciprocity and Enforcement of Arbitral Awards (New York Convention), say, under the London Court of International Arbitration (LCIA) Arbitration Rules with the seat of arbitration in London.
 
Seating arbitration in the Dubai International Financial Centre (DIFC) and using the DIFC-LCIA Arbitration Rules may be an alternative to explore where the counterparties are resident in Dubai.
 
New York Convention
Broadly speaking, the intention of the New York Convention is to ensure that an arbitral award obtained in one of the New York Convention countries can be enforced in another New York Convention country as easily as if it were a domestic arbitral award in the country in which it is being enforced.
 
In the UAE a domestic arbitral award must first be ratified by local courts. The ratification process must go through the same steps as any claim that is filed in the court. This means that it must be filed in the Court of First Instance and that there are two possible stages of appeal. It is only when the arbitral award has been ratified in this way that it can be enforced.
 
Whilst local courts are not supposed to re-examine the merits of the underlying dispute, this may occur in practice. The losing party may sometimes seek to challenge the validity of the award under the requirements of the UAE Civil Procedure Code (CPC).
 
One might conceivably end up with a New York Convention foreign arbitral award the enforcement of which is time-consuming and relatively expensive in the UAE, and which could ultimately be rejected by local courts as unenforceable because of non-conformity with one of the requirements for enforcement under the CPC.
 
Nevertheless, we are aware of two instances where a foreign arbitral award was ratified in the UAE in accordance with the New York Convention, without re-examination of the merits of the award. In April 2010, the Federal Court of First Instance in the Emirate of Fujairah ratified two arbitral awards made by a sole arbitrator in London in relation to a dispute under the London Maritime Association Arbitration Rules. Ratification by the Dubai courts of another foreign arbitral made in London has recently passed the Court of Appeal stage.
 
While these cases are positive examples, local courts are not required to follow these decisions in future cases. It is unlikely that these precedents would have persuasive force in court proceedings in other emirates.
 
DIFC-LCIA
A DIFC-LCIA arbitral award that has been recognised and ratified by the DIFC Courts may be enforced in Dubai based on the Protocol of Jurisdiction between Dubai courts and DIFC Courts and relevant corresponding Dubai Law on the Judicial Authority of the DIFC (Dubai Law No. 12 of 2004 (as amended by Dubai Law No 16 of 2011). The DIFC Courts judgments can be enforced through the execution department of the Dubai courts, provided that a number of procedural requirements are met.
 
To enforce a DIFC-LCIA arbitral award onshore, the award is first converted into a DIFC Courts judgment and then presented to the execution judge at the Dubai courts for enforcement. There is no need for ratification of a DIFC-LCIA arbitral award by Dubai courts. The execution judge at the Dubai courts has no jurisdiction to review the merits of a judgment, award or order of the DIFC Courts and should, without interference, convert the DIFC Courts judgment into a judgment of the Dubai courts. The so “converted” DIFC-LCIA arbitral award should then be enforceable not only in Dubai, but throughout the rest of the UAE, without the need to go through the ratification procedure under the CPC.
 
In Dubai, therefore, a DIFC-LCIA award should be enforced directly through the Dubai courts, without going through the ratification process. In March 2011, the Dubai courts approved the execution of a DIFC-LCIA arbitral award ratified by the DIFC Courts without re-examination of the merits of the award.
 
Prospects of direct enforcement of DIFC-LCIA awards in other Emirates through local courts are unfortunately uncertain because there is as far as we are aware no similar protocol or law to underpin the relationship with the DIFC Courts and courts in other Emirates.
 
Issues arising on enforcement against UAE counterparties entitled to sovereign immunity under the applicable local laws would continue to apply, whether in the context of enforcement of New York Convention arbitral awards or DIFC-LCIA arbitral awards.