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Dubai court signals intent on enforcement of foreign arbitral awards
Practical Law UK Legal Update 7-523-2195 (Approx. 4 pages)
Dubai court signals intent on enforcement of foreign arbitral awards
by Henry Quinlan (Partner) and Sam Stevens (Legal Consultant), DLA Piper Middle East LLP
| Published on 20 Dec 2012 • United Arab Emirates |
Dubai's highest court has delivered a powerful message to arbitration users and practitioners across the world that it will enforce foreign arbitral awards in accordance with the UAE's treaty obligations under the New York Convention. Although there is no system of binding precedent in Dubai, the Dubai Court of Cassation's recent decision, in which it enforced a DIFC-LCIA award rendered by a tribunal seated in London, is being hailed as a watershed moment in its development as a major regional and global centre for international arbitration.
Background
Article 212(4) of the UAE Federal Law No. 11 of 1992 (Civil Procedure Code) states that the Civil Procedure Code applies to awards issued in the UAE, failing which they shall be subject to the "rules applicable to arbitral awards passed in a foreign country".
Article 238 of the Civil Procedure Code states that the rules relating to the ratification of arbitral awards "shall be without prejudice to the provisions of conventions between the UAE and other countries in this regard".
Article V of the New York Convention provides the grounds on which the recognition and enforcement of a New York Convention arbitral award may be refused.
Facts
Dubai-based contractor, Airmech (Dubai) LLC (Airmech), entered into a contract with international steel trader, Macsteel International (Macsteel), under which Airmech agreed to purchase a specific quantity of steel sheeting from Macsteel. The contract was stated to be governed by the law of the Dubai International Finance Centre (DIFC) and contained an arbitration clause providing for all disputes to be resolved by way of DIFC-LCIA arbitration seated in London.
A payment dispute arose between the parties, which was referred to arbitration. The tribunal subsequently rendered two related awards in favour of Macsteel: the first (dated 17 November 2009) concerned liability and damages under the contract and the second (dated 22 December 2009) was in relation to legal costs.
Under the first award, Airmech was ordered to pay Macsteel US$411,905 (plus interest), while the second award required Airmech to pay approximately US$90,000 (plus interest) in legal costs. Airmech subsequently failed to make the required payments and Macsteel proceeded to file a claim in the Dubai Court of First Instance, requesting that the court enforce both awards in accordance with the terms of the New York Convention.
Airmech's case
In resisting the enforcement action, Airmech relied (among other things) on the procedural grounds on which the UAE courts may nullify arbitral awards rendered in arbitrations seated in the UAE. These are set out in Article 216 of the Civil Procedure Code.
Some of the more notable arguments (among many others) made by Airmech were as follows:
- The individual who signed the contract on behalf of Airmech was not the company's general manager and did not have the special authority required under UAE law to bind the company to an arbitration agreement (which therefore rendered the arbitration agreement invalid).
- The arbitrator erroneously applied English law to the contract, rather than DIFC law.
- The arbitrator failed to administer the prescribed form of oath to a witness, in breach of the requirement to do so contained in Article 211 of the Civil Procedure Code.
- A copy of the arbitration agreement was not included in, or appended to, either of the two awards, in breach of Article 212(5) of the Civil Procedure Code.
- The awards were rendered in excess of six months after the date of the first hearing in the arbitration, in breach of Article 210(1) of the Civil Procedure Code.
In addition, Airmech ran further arguments concerning the jurisdiction of the DIFC courts to hear the enforcement action, including that:
- Since the awards in question were DIFC-LCIA awards, the DIFC courts were the courts with jurisdiction to decide whether to enforce them, not the onshore Dubai courts.
- The DIFC courts would refuse to enforce the awards on the grounds for non-enforcement set out in Clause 44 of the DIFC Arbitration Law (including invalidity of the arbitration clause).
Decisions of the Court of First Instance and Court of Appeal
In a judgment of January 2011, the Court of First Instance held that the awards in question were foreign arbitral awards and, as such, the court's jurisdiction was limited to ensuring that the awards did not breach Federal Decree No 43 of 2006 (Federal Decree), through which the UAE ratified the New York Convention. This decision was upheld in the Court of Appeal. Airmech appealed to the Court of Cassation.
Decision
The Dubai Court of Cassation upheld the lower courts' decisions.
In its judgment of 18 September 2012, the court provided a wholehearted endorsement of the conclusions of the lower courts, branding Airmech's entire pleading "legally invalid and groundless".
In support of its views, the court pointed to several Articles of the Civil Procedure Code, including Articles 212(4) and 238. In citing these provisions, the court held that the Civil Procedure Code should only be applied to awards rendered in the UAE, not foreign awards. Moreover, it concluded that under Article 238 of the Civil Procedure Code, the courts must apply the provisions of international conventions that have been incorporated into UAE law and that concern the execution of foreign judgments and foreign arbitral awards.
The court held that Airmech's reliance on the Civil Procedure Code was therefore entirely incorrect, while it also rejected its submission that the DIFC Courts had jurisdiction to hear the claim. In addition, the court ruled that Airmech had failed to prove that any of the more limited grounds for nullification set out in Article V of the New York Convention applied to either of the awards being considered.
Comment
The Airmech judgment makes it clear that the provisions of the Civil Procedure Code are completely irrelevant and inapplicable when it comes to enforcing foreign arbitral awards in Dubai and that the courts should have regard only to the grounds for resisting enforcement set out in the New York Convention when considering such applications. This is an encouraging conclusion in a jurisdiction where the enforcement of foreign awards has generally been perceived as problematic.
The decision demonstrates that the Dubai courts are becoming more comfortable with the concept of arbitration in general and, in particular, with the need to uphold the UAE's international treaty obligations.
A further encouraging sign is that this decision is not an entirely isolated one. In a separate enforcement action earlier this year, the Dubai Court of First Instance took a similar approach by applying the New York Convention, rather than the Civil Procedure Code, to a foreign award. This was despite the fact that neither party cited the New York Convention in their pleadings.
Being a civil law jurisdiction, Cassation judgments are only of persuasive application in the UAE, and the lower courts are not bound to follow them. As a result, and in what is a relatively young and developing jurisdiction, there will almost certainly be some bumps in the road.
However, the Airmech case undoubtedly represents a positive shift in the mindset of the Dubai judiciary and is part of a developing trend towards a more developed pro-arbitration culture in the Dubai courts. Arbitration users and practitioners across the region are hoping it is a trend which endures.