English High Court provides clarity on how the Courts of England and Wales will interpret Article 121(b)
Decree Law No. 23 of 2022
The Judgment provides clarity on how the Courts of England and Wales will interpret Article 121(b) for financial institutions and confirms that AD judgments predating the enactment of Article 121(b) of the Decree may still be enforced.
Law Update: Issue 352 - Sports and Events Mangement
Rita JaballahPartner,Head of International Litigation
Naief YahiaPartner,Head of Litigation - Dubai
Charlotte SongwiqiAssociate,Dispute Resolution
The English High Court in Invest Bank PSC v Ahmad Mohammed El-Husseini & Others (the Judgment) has recently ruled that an Abu Dhabi (AD) judgment, issued prior to the enactment of Article 121(b) of the Decree (as defined below), is recognizable and enforceable before the Courts of England and Wales. The Judgment provides clarity on how the Courts of England and Wales will interpret Article 121(b) for financial institutions and confirms that AD judgments predating the enactment of Article 121(b) of the Decree may still be enforced in England and Wales.
The AD Monetary Judgments
On 9 February 2021 and 23 March 2021, the Abu Dhabi Courts issued two final judgments against Ahmad Mohammed El-Husseini (D1) (pursuant to two guarantees) and others (the AD Monetary Judgments). The AD Monetary Judgments followed various appeals before the Courts of Abu Dhabi. The total amount outstanding in respect of the two AD Monetary Judgments as of 1 July 2021 was AED 56,581,754.46 and AED 39,312,663.38 respectively.
The AD Monetary Judgments were awarded prior to the enactment of Article 121(b) of Federal Decree Law No. 23 of 2022 (the Decree), which came into effect on 2 January 2023 (the Effective Date), as detailed below.
Article 121(b) of the Decree
As set out in our previous update, Article 121(b) of the Decree amended the Banking Law and introduced the need for financial institutions to obtain ‘adequate securities’ when lending to natural persons and sole proprietorships. This provision was clarified in Circular No. 3 of 2023 (the Circular), where the Central Bank noted that personal guarantees were no longer enough for banks to provide banking facilities to customers and personal guarantees must be accompanied by other security. The purpose of the UAE Government introducing Article 121(b), as noted by Houseman KC in the Judgment, was to protect borrowers from recourse against their personal assets and other forms of personal execution measures, such as arrest warrants and travel bans.
In practice, it is arguable that the effect of Article 121(b) (as clarified by the Circular) prevents financial institutions in the UAE from enforcing credit facilities unless they are accompanied by ‘adequate security’, with a personal guarantee determined as inadequate security The applicability of Article 121(b) of the Decree has been clarified in recent cases before the Dubai and AD Courts, as set out below.
The AD Execution Judgments
In light of Article 121(b), D1 sought orders from the AD execution court prohibiting the bank from executing the AD Monetary Judgments against him or the corporate debtors. On 10 and 14 March 2023, the AD execution court acceded to D1’s requests and held that execution of the AD Monetary Judgments was prevented by Article 121(b) of the Decree, which was upheld despite various appeals brought by the bank (the AD Execution Judgments).
The English High Court Proceedings
Prior to the Effective Date, the bank had initiated legal proceedings before the Court of England and Wales pursuant to the AD Monetary Judgments. Pursuant to the bank’s application, on 13 January 2023, the High Court ordered default judgment against D1, due to D1’s failure to file a defence in the relevant period. D1 did not apply to set the default judgment aside.
On 3 April 2023, 74 days after becoming aware of the default judgment, D6 applied to set the judgment aside (the Set Aside Application).
The key issues
1. Whether the UAE Monetary Judgments were capable of recognition and enforcement in England and Wales
D6 argued the UAE Monetary Judgments were not recognizable before the Courts of England and Wales, because (1) they no longer had res judicata (i.e., final and binding) effect in AD considering Article 121(b) and/or the AD Execution Judgments; and (2) alternatively, they were not enforceable in AD and therefore could not be enforced before the Courts of England and Wales as a matter of private international law.
The Deputy Judge, Houseman KC, rejected both contentions. He concluded:
as a matter of UAE Law, the UAE Monetary Judgments have res judicata effect, notwithstanding Article 121(b) of the Decree and its subsequent applications to the Guarantees/ the AD Execution Judgments;
the raising of objections in an execution phase does not alter the final and binding status of the UAE Monetary Judgments; and
it is not contrary to public policy in the UAE to recognize or enforce final monetary judgments in England and Wales (as there is nothing in UAE law which would preclude this).
Secondly, D6 argued the UAE Monetary Judgments were not enforceable before the Courts of England and Wales, because as a matter of English private international law, a foreign judgment with res judicata effect should not be enforced in England and Wales, if unenforceable in the foreign jurisdiction itself.
Houseman KC considered the case law put before the Court and concluded that no such rule existed.
2. Whether the guarantees remain valid and enforceable as a matter of UAE law
The Court considered on the balance of probabilities, what the highest court in the UAE (not in a specific Emirate, such as AD), would declare Article 121(b) to mean.
The Court considered the plain language of the article and looked to a recent decision of the Dubai CoC, in Appeal No. 995/2023 (the Dubai Decision), which found that Article 121(b) does not provide protection to a limited liability company which borrows money. The Dubai CoC further stated that circulars of another Emirate, such as AD, have no legal force in Dubai [69].
The Court additionally considered two Abu Dhabi CoC decisions (Appeal No. 102/2023 and Appeal No. 111/2023) (the AD Decisions), which held that Article 121(b) did not apply to a credit facility entered into before the Effective Date [70]. Following the AD Decisions, the Abu Dhabi Courts subsequently issued the Circular which instructed all judges to (i) apply the instructions to limit enforcement to security accepted by the lender only in relation to all banking disputes, regardless of the dates of the facility agreements; and (ii) apply these instructions to all facility recipients regardless of their nature. The effect of this was that Article 121(b) is to be interpreted retrospectively in Abu Dhabi. However, Houseman KC did not consider the Circular in this regard and relied instead upon the AD Decisions.
Houseman KC concluded that Article 121(b) may prevent or limit enforcement steps before any UAE Court irrespective of when such facility was concluded [72], however in light of the Dubai Decision and AD Decisions, the Guarantees were valid and enforceable as a matter of UAE law. Houseman KC did not, therefore, consider the bank’s alternative position of public policy.
Finally, considering the above and other procedural reasons, Houseman KC declined the Set Aside Application.
The judgment provides clarity as to how the English Courts will interpret Article 121(b) of the Decree and determines that in England and Wales, the provision does not apply retrospectively to AD judgments issued before the Effective Date.
This is likely to be a welcomed development for financial institutions, who are continuing to assess the impact of the Decree, Circular and their lending practices, and should provide some comfort that pre–Effective Date AD judgments can still be enforced in England and Wales.
For further information, please contact Rita Jaballah, Naief Yahia and Charlotte Songwiqi.
Published in October 2023
