Judgment
John GaffneySenior Counsel, Dispute Resolution
Malak NasreddineAssociate,Dispute Resolution
In a recent application to the Dubai Courts for execution of a foreign arbitral award issued by an arbitral tribunal under the rules of arbitration of the London Court of International Arbitration (“LCIA”) against a Qatari award debtor, the courts rejected the application for execution on the basis that the award debtor was not domiciled in the United Arab Emirates (“UAE”). This article reviews the courts’ approach and reasoning in rejecting the application.
The applicant obtained an LCIA arbitral award against a company based in Qatar, which owned shares in two companies incorporated in Dubai. The applicant initiated court proceedings before the Dubai Court of First Instance to request the court to recognise the foreign arbitral award in the UAE and allow the applicant to submit an application to open the execution file before the Dubai courts. The court dismissed the case and rejected the application on the basis that the respondent (i.e., the award debtor) was not domiciled in Dubai.
The award creditor appealed the court’s decision to the Dubai Court of Appeal. The award creditor argued that it ought to be permitted to commence the execution action because the Respondent owned shares in two companies domiciled in Dubai.
The Court of Appeal rejected this argument, holding that:
“…it is established that the criteria applicable for the competence of the Execution Judge of the Dubai Courts to recognize (apply exequatur) and enforce a foreign award, is that the domicile of the award debtor against whom enforcement is requested must be within the State jurisdiction of the Dubai Courts”.
The Court of Appeal explained that the fact that the Respondent owned shares in two companies domiciled in Dubai was immaterial, since the foreign arbitral award did not include an order against those two companies domiciled in Dubai. In these circumstances, the Court of Appeal confirmed that the two companies in Dubai were not considered as a party to the writ of execution, which the award creditor sought to enforce.
The Court of Appeal upheld the lower court’s decision and confirmed that the Dubai courts did not have jurisdiction to enforce the award against the Qatari award debtor.
The award debtor endeavoured to appeal the Court of Appeal’s decision to the Dubai Court of Cassation. Notably, the award debtor also requested that the matter be referred to the General Assembly of the Court of Cassation (pursuant to Article 20 of Law No. 13 of 2016 concerning the Judicial Authorities in the Emirate of Dubai) to address the principle at the heart of the case, before deciding on the merits of the dispute.
Is it open to an unsuccessful applicant to appeal the lower courts’ decision before the Court of Cassation?
The Court of Cassation considered whether the award creditor could appeal the lower courts’ decision. The Court referred to Article 173(3) of the Civil Procedure Law No 11 of 1992 (“CPL”), as amended by Decree No. (18) of 2018, which provides that “judgments issued by the courts of appeal in the execution procedures shall not be appealed by cassation”.
On the one hand, the court noted that Articles 85 and 87 of the Executive Regulations of the CPL issued by Cabinet Resolution No. 57 of 2018, as amended by Resolution No. 75 of 2021 confirms that decisions issued in enforcement proceedings by the Execution Judge for the enforcement of judgments and writs of execution, including judgments and orders issued in a foreign state, fall within the meaning of Article 173(3) of the Civil Procedure Law.
On the other hand, the court noted that the decisions of the Execution Judge on disputes involving a legal issue that must be resolved (before any proceedings can be initiated) are not decisions that fall within the scope of Article 173(3). The court held that those decisions are not decisions relating to the enforcement proceedings per se, but instead are decisions to settle a dispute over a preliminary issue whose outcome will determine whether the Execution Judge grants or denies the request to initiate enforcement proceedings.
The court held that the subject matter of the lower court’s decision, which the award creditor was challenging, involved a legal issue that must first be resolved before any enforcement proceedings could be taken. The legal issues in this case were (a) whether the conditions of Article 85 of the Executive Regulations of the CPL were met in respect to the enforcement of the foreign award, and (b) whether the foreign award qualified as a writ of execution.
As a result, the court held that the appealed decision does not fall within the scope of Article 173(3) of the CPL and may, therefore, be appealed at cassation.
Did the approach of the Court of Appeal contradict UAE and international law?
The award creditor challenged the Court of Appeal’s decision on the basis that it contradicted the laws and the rules of international and sovereign jurisdiction by holding that the Execution Judge of the Dubai Courts has no jurisdiction to enforce the foreign arbitral award.
First, the award creditor argued that its application for enforcement of the foreign arbitral award complied with the requirements of the New York Convention, which the UAE ratified by Federal Decree No. 43 of 2006.
Second, the award creditor argued that the Court of Appeal overlooked the fact that UAE Courts have jurisdiction over disputes against companies that have no domicile or place of residence in the UAE in circumstances (a) that give rise to the scenarios under Article 21 of the CPL (such as, for example, if the foreign company had an elected domicile), or (b) where compulsory enforcement applies.
The award creditor argued in this regard that the agreements between the parties to the arbitration and the arbitral award recognized that the award debtor was the owner of shares of two UAE companies. The parties to the arbitration agreed to the sale and purchase of the shares owned by the award debtor in those two companies. It submitted that the UAE legislator deviated from the general principle (of domicile jurisdiction) by allowing the creditors of a shareholder in a limited liability company to execute against the shares of the debtor shareholder by selling them and collecting the debts from the proceeds of the sale, whether the sale is conducted pursuant to an agreement with the shareholder and company or forcibly, through public auction. This applies in equal measure whether the company is a limited liability company or a company whose shares are subscribed for where a shareholder’s interest is represented by shares that are taken in enforcement and sold in accordance with Article 20 of the Federal Commercial Companies Law.
The Court of Cassation rejected the Appellant’s arguments, holding that:
“…the text of Article III of the New York Convention 1958 indicates that enforcement takes place in accordance with the rules of procedures followed in the territory of enforcement, with the adoption of the easiest procedures and the exclusion of the more onerous procedures.
This matter is not limited to the general procedural law, which is the Federal Civil Procedures Law and its executive regulations, as amended, but, rather, includes any procedural rules for litigation and the implementation of its provisions contained in any other law that regulates these procedures, and to say otherwise is allocation without provision.”
The Court of Cassation further held that:
“…a company of any kind – with the exception of a joint venture company – has a legal personality and a financial liability independent of the liabilities of its shareholders, and it has the capacity to sue as a plaintiff or defendant, independently of its shareholders.”
The Court of Cassation concluded that the Court of Appeal rightly dismissed the appeal. The Court held that the appeal to cassation was baseless and there was no justification for a referral to the General Assembly of the Court of Cassation under Article 20 of Law No. 13 of 2016 because the lower courts’ approach was consistent with a correct application of law and interpretation of agreement.
The Court of Cassation decision is notable for two reasons.
First, the court held that in order to enforce a foreign arbitral award against the award debtor, the award debtor must be domiciled in the UAE, even if the debtor has assets in the UAE against which enforcement is sought.
Second, the court confirmed that decisions involving a legal issue, which must be resolved before any proceedings may be initiated, are not decisions that fall within the scope of Article 173(3) of the CPL (which normally excludes the appeal of enforcement decisions to cassation level). This is because those decisions are intended to settle a dispute over a preliminary issue, the outcome of which will determine whether the court initiates enforcement proceedings. The court thus confirmed that it is open to an unsuccessful applicant to appeal such decisions of the lower courts’ decision before the Court of Cassation (i.e., irrespective of the restriction under Article 173(3) of the CPL).
For further information,please contact John Gaffney and Malak Nasreddine
Published in February 2023
