Enforcement of foreign arbitral awards in Dubai: a set back?

The Dubai Court of Cassation has refused to enforce a foreign arbitral award on the basis that it did not have jurisdiction under the UAE’s Civil Procedure Code. In doing so, the court upheld earlier rulings from two lower courts that the UAE Courts’ international jurisdiction over foreign parties is a matter of public policy. It also determined that under the New York Convention foreign arbitral awards were to be governed in accordance with the UAE’s Civil Procedure Code. This decision is likely to be viewed with concern by arbitration practitioners based in Dubai and worldwide.

Background

The UAE has been a party to the New York Convention on Recognition and Enforcement of Arbitral Awards (the NY Convention) since 2006. Pursuant to Article 5 of the NY Convention, the UAE courts should enforce foreign arbitral awards unless one of the limited grounds to resist enforcement in the NY Convention is satisfied.

Before the UAE ratified the NY Convention, foreign arbitral awards were dealt with in the same manner as enforcing the judgments of foreign courts, via the relevant provision in the UAE Civil Procedure Code (CPC). Indeed, despite the fact that the UAE ratified the NY Convention in 2006, initially it was not entirely clear whether or not local courts would refer to the CPC when considering whether to enforce a foreign arbitral award. A particular reason for this view was that there are a greater number of reasons to resist enforcement in the CPC than set out in the NY Convention.

It was only in 2011 that a UAE court first recognised and enforced a foreign award under the NY 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 NY 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). The pro-enforcement approach of the UAE courts culminated in a decision in September 2012 in the case of Airmech v Macsteel. This decision was particularly welcomed by the arbitration community as the Court of Cassation (the highest court in Dubai) gave an unequivocal ruling that foreign arbitral awards will be enforced in Dubai in accordance with the UAE’s international treaty obligations under the NY Convention and noted that the CPC was not relevant in the context of the enforcement of foreign arbitral awards (a link to the HSF blog post discussing the decision is here).

However, on 18 August 2013 in the case of Construction Company International v Ministry of Irrigation of the Government of Sudan, the Dubai Court of Cassation refused to enforce a foreign arbitral award against Sudan's Ministry of Irrigation on the basis that the court did not have jurisdiction under the CPC.

Facts

Construction Company International (CCI) together with another French company, Compagnie Francois d’Entreprises S.A (CFE) entered into an agreement with the Sudanese Ministry of Irrigation (MOI) for the construction of the Jonglei Canal in Sudan. Construction of the canal ceased in 1984 during the second Sudanese civil war. CCI and CFE commenced ICC arbitration proceedings in Paris and between 1988 and 1989 received three awards in their favour. 

However, in the intervening 24 years the Government of Sudan has failed to comply with the awards and, in 2012, CCI (who had been assigned the right to enforce the awards by CFE) made an application for enforcement before the Dubai Courts. This followed failed attempts to enforce the award in a number of other jurisdictions, including France.

Decisions of the Dubai Courts

Article 21 of the CPC provides (amongst other things) that the UAE courts shall have jurisdiction to hear actions against a foreign entity who does not have a domicile or a place of residence in the UAE if: (a) he has an elected address in the UAE; or (b) the action relates to an obligation entered into or performed or that is stipulated to be performed in the UAE or to a contract intended to be authenticated therein. Article 22 further provides that the UAE courts are exempted from applying Article 21 of the CPC where it conflicts with the terms of an international convention which is in force in the UAE.

In September 2012, the Dubai Court of First Instance declined to enforce CCI's arbitral awards. The First Instance Court did not refer to the NY Convention and simply concluded that the UAE courts did not have jurisdiction to hear the dispute pursuant to Article 21 of the CPC because the parties were not domiciled in the UAE and the subject matter of the dispute had been performed outside the UAE. With reference to what it stated as the practice of the Court of Cassation, the First Instance Court concluded that a court's international jurisdiction is a matter of public policy. The decision was subsequently upheld by the Dubai Court of Appeal (in a decision dated 31 March 2013) and most recently by the Dubai Court of Cassation (Case No. 156/2013).

The Dubai Court of Cassation relied upon Article 3 of the NY Convention which provides that signatory states should enforce awards in accordance with the procedural rules of the territory where the award is being relied upon. The court consequently concluded that it did not have jurisdiction under Article 21 of the UAE Civil Procedure Code, upholding the reasoning of the earlier courts. Interestingly the court also declined jurisdiction on public policy grounds, although it made no reference to Article 5(2) of the NY Convention which allows enforcement to be refused where the Court finds that enforcement will be contrary to public policy. The Court of Cassation's decision was also based on the wording of Article 15 of the Convention on Judicial Cooperation between UAE and France which provides that "The procedure for obtaining enforcement of a decision shall be governed by the law of the State of which the request is made".

Comment

While there is no formal system of precedent in the UAE, the Court of Cassation's decision in CCI v Sudan appears contrary to the decision in Airmech which had made clear that the provisions of the UAE Civil Procedure Code are irrelevant and inapplicable when it comes to enforcing foreign arbitral awards in Dubai (the Court of Cassation in CCI did not refer to Airmech).

Moreover, the rationale of the decision is particularly surprising given that: (a) under the NY Convention, enforcement does not depend on the award debtor having a geographical nexus to the country where enforcement is sought; and (b) the CPC provisions upon which the court relied to conclude that it did not have jurisdiction specifically provide that the courts are exempted from applying them where there is a conflict with the terms of an international convention.

It should be noted, however, that the facts of CCI v Sudan were unusual given that it involved a foreign award creditor attempting to enforce against an award debtor that was not resident in the UAE in respect of a contract that was entered into and performed outside of the UAE. It is also possible that the Court of Cassation was reluctant to be the court to finally enforce an award that has failed to be enforced in several jurisdictions over the last two decades. Nonetheless, the decision appears to be a step back from the generally pro-enforcement approach that the UAE courts had demonstrated over the past few years.

For more information, please contact Stuart Paterson, Partner, or Mike McClure, Senior Associate, or your usual Herbert Smith Freehills contact.