Enforcement of foreign arbitral awards in Dubai

In September last year, the highest court in Dubai upheld two DIFC-LCIA awards under the New York Convention (Airmech v Macsteel International). While a decision to enforce foreign arbitral awards is not in itself newsworthy in a number of jurisdictions, enforcement of foreign awards has historically not been common place in the UAE, or the Middle East more generally. However, this decision is the latest of a number of decisions over the past two years enforcing foreign arbitral awards in Dubai and it would appear to be representative of a trend towards a more developed pro-arbitration culture.

Background

The UAE ratified the New York Convention on 13 June 2006 without any declarations and it entered into force on 19 November 2006. Accordingly, pursuant to Article 5 of the New York Convention, the UAE courts should enforce foreign arbitral awards unless the limited grounds to resist enforcement in the New York Convention are satisfied.

Before the UAE ratified the New York Convention, foreign arbitral awards were dealt with in the same manner as enforcing foreign courts’ judgments. In particular, the relevant rules of the Civil Procedure Code permit the courts to set aside arbitral awards/judgments on a number of grounds which are much broader than the permitted grounds in the New York Convention. In addition, the Arbitration Section in the UAE Civil Procedure Code provides that the court may invalidate the arbitration award on various grounds relating to the validity of the arbitration clause, the appointment of the tribunal, or the arbitration procedure.

Despite the fact that the UAE ratified the New York Convention in 2006, until recently it was not entirely clear whether or not local courts would refer to the Civil Procedure Code when considering whether to enforce a foreign arbitral award, particularly given that there are a greater number of reasons to resist enforcement in the Civil Procedure Code than set out in the New York Convention. Indeed, it was only in 2011 that a UAE court recognised and enforced a foreign award under the New York Convention (the decision was rendered by the Court of First Instance in Fujairah, one of the seven Emirates of the UAE). This was only a default judgment and many traditional non-recognition arguments were not raised. Nonetheless, the court confirmed the basic premise of the New York Convention, namely that local courts should not review the merits of the award.

Since the 2011 decision, there have been a number of other examples of the UAE courts enforcing foreign awards (including in circumstances where the awards and/or subsequent enforcement were contested) and the Airmech decision is yet another example. However, the Airmech decision is particularly noteworthy given the number of potential arguments to enforcement that were raised and the strength with which they were dismissed by the Court of Cassation.

Facts

A payment dispute arose under a contract between Airmech and Macsteel International (Macsteel). The contract was 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.

The tribunal rendered two related awards in favour of Macsteel in respect of liability (dated 17 November 2009) and legal costs (dated 22 December 2009). It is understood that Airmech did not make the required payments and Macsteel commenced proceedings in Dubai seeking enforcement of both awards in accordance with the terms of the New York Convention.

Notwithstanding the London seat, Airmech relied (among other things) on the procedural grounds in the UAE Civil Procedure Code pursuant to which the UAE courts may nullify arbitral awards rendered in arbitrations seated in the UAE. Airmech's arguments included:

• 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 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.

Decisions of the Dubai Courts

The Court of First Instance and the Court of Appeal both 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. Airmech appealed to the Court of Cassation.

The Court of Cassation delivered an unequivocal ruling that foreign arbitral awards will be enforced in Dubai in accordance with the UAE’s international treaty obligations under the New York Convention. In support of its views, the court noted that the Articles of the Civil Procedure Code upon which Airmech relied were not relevant in the context of the enforcement of a foreign arbitral award and that such provisions should only be applied to awards rendered in the UAE. Indeed, the court referred to Airmech's reliance on the UAE Civil Procedure Code as "legally invalid and groundless".

Comment

Given the historic background of problems enforcing arbitration awards in the UAE, such a strong pro-enforcement judgment from the Court of Cassation is very welcome. The Airmech judgment makes it clear that the provisions of the Civil Procedure Code are 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.

However, the UAE is a civil law jurisdiction and, therefore, Court of Cassation judgments are only of persuasive value. Nonetheless, the decision demonstrates that the Dubai courts are becoming more comfortable with the concept of arbitration and, in particular, with the need to uphold the UAE's international treaty obligations and its reputation as a financial and dispute resolution hub. It is also encouraging that this is only one of a number of such recent enforcement decisions and it would appear to be representative of a trend towards a more developed pro-arbitration culture in the Dubai courts.

In addition, the UAE legislature is in the process of considering a new Federal Arbitration Law. The most recent draft was released on 16 February 2012, although the law has been in draft for a number of years now and there appear to be no immediate plans to implement it. The draft law is based loosely on the UNCIRAL Model Law, but it also takes guidance from a number of principles from the Egyptian arbitration law. It will be interesting to see whether this law is ever implemented and, if so, the final form that it takes, but it is positive that the UAE is considering such a law to formalise its overall arbitration regime.