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(1) Egan (2) Eggert v (1) Eava (2) Efa [2013] DIFC ARB 002

(1) Egan (2) Eggert v (1) Eava (2) Efa [2013] DIFC ARB 002

July 29, 2015

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Claim No: XX

THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS

In the name of His Highness Sheikh Mohammad Bin Rashid Al Maktoum, Ruler of Dubai

 

IN THE COURT OF FIRST INSTANCE

BEFORE JUSTICE SIR ANTHONY COLMAN

BETWEEN

 

(1) EGAN

(2) EGGERT

Claimants

and

 

(1) EAVA

(2) EFA

Defendants

Hearing: 19 – 20 May 2015

Counsel: Tom Montagu Smith assisted by Luke Hacker and Meike Ziegler instructed by                             Holman Fenwick Willan Middle East LLP for the Claimants

Steven Thompson QC assisted by Irvine Marr and Nicholas Braganza instructed by Clyde & Co LLP for the Defendants

Judgment: 29 July 2015


JUDGMENT OF JUSTICE SIR ANTHONY COLMAN


Summary of Judgment

The First and Second Claimants to this arbitration claim are owners of five tugs and five barges incorporated outside UAE. The First Defendant and Second Defendants are incorporated in non-DIFC Dubai. The underlying claim that brought rise to the arbitration claim involves the purchase of ten vessels by the Claimants from the Defendants. A guarantee (“Efa Guarantee”) was issued by the Second Defendant whereby they guaranteed performance by the First Defendant of its obligations to the Claimants. On 21 February 2008, the Claimants entered into a deed of assignment whereby the Claimants assigned their rights, title and interest in and to their future rights under the sale of the vessels and the Efa guarantee to a third party, who also financed the purchase of the ten vessels. In February 2010 the First Defendant ceased to pay charter hire to the Claimants and on 25 May 2011 the Claimant’s solicitors served on the First Defendant notices of termination of each of the ten charters, including the re delivery of the vessels and payment of all outstanding charter hire. At an arbitration hearing held on 31 July 2012, the tribunal considered what termination sums were due from the Defendants to the Claimants and issued its award on 12 October 2012 ordering the Defendants to pay the Claimants a total of approximately USD $26.5 million plus interest.

The claim before the Court is an order pursuant to Articles 42(1) and Article 43 of the Arbitration Law, DIFC Law No. 1 of 2008 and Rule 43.61 of the Rules of the DIFC Courts for an order recognising and granting leave to enforce the arbitral award. The Defendants challenge the claim on four grounds, namely that; 1) the arbitrators had no jurisdiction because the effect of the assignment to the third party was to deprive the Claimants, as assignors, of the right to refer to arbitration termination; 2) the Claimants were estopped from denying that there was a legal assignment of all the Claimants’ rights under the charters to the third party and therefore from submitting that the arbitrator did have jurisdiction; 3) if there were jurisdiction, this Court should refuse recognition and enforcement on the grounds that it would be contrary to the public policy of the UAE, pursuant to Article 44(1)(b)(vii) of the Arbitration Law; and 4) the court should exercise its residual discretion to refuse recognition and enforcement under Articles 42 and 44 of the Arbitration Law.

As to the jurisdiction issue, Justice Sir Anthony Colman ruled that the arbitrator did have jurisdiction to determine whether the Claimants had retained title to sue and that the conclusion at which he arrived cannot be reopened before this court upon an enforcement application. As for the estoppel argument, the Court ruled that the Defendants would have to establish by words or conduct that the Claimants had represented that the assignment was absolute and secondly that the Defendants had acted in reliance on that representation so as to make it unconscionable for the Claimants now to assert that the assignment was not absolute. This was not established.

As to the public policy issue, Justice Colman ruled that the challenge to recognition based on public policy was founded on an untenable basis, namely that such an order would be contrary to the very public policy which it was intended to enact. The locale of assets or domicile in the DIFC is not mandatory under the Arbitration Law or the Judicial Authority Law and the unavailability of the Civil Procedure Code of the UAE is a necessary consequence of the operation of the Judicial Authority Law.

The Court does not wish to exercise its residual discretion to refuse recognition and enforcement under Articles 42 and 44 of the Arbitration Law since no ground listed in Article 44(1)(a) and (b) under the DIFC Arbitration Law is met and no ground relied upon by the Defendants can be characterised as contrary to the public policy of the UAE within the meaning of Article 44(1)(b)(vii) of the DIFC Arbitration Law. As such, the application for recognition and enforcement of the arbitral award succeeds, with the Defendants bearing the Claimant’s costs of the application.

This summary is not part of the Judgment and should not be cited as such 

JUDGMENT

Introduction

1.This arbitration claim raises issues of some importance in relation to the ability of the DIFC Court to recognise and enforce foreign arbitration awards. Those issues extend also to the enforcement of foreign judgments.

2. The First and Second Claimants are between them the owners of five tugs and five barges. They are incorporated outside of the UAE.

3. The First Defendant is a company incorporated in non-DIFC Dubai. Its business is to operate a fleet of barges and tugs providing services to the oil and gas industry.  I refer to it as “Eava”

4. The Second Defendant is also incorporated in non-DIFC Dubai. I refer to it as “Efa.”

5. On 25 February 2008 Fanny purchased the ten vessels from a third party and sold them immediately to the respective Claimants. The purchase by the Claimants was financed by a third party, to which I refer as “the third party.”

6. Also on 25 February 2008 the Claimants entered into nine bareboat charterparties on the BIMCO Standard Bareboat Charter form (BARECON 2001) terms together with additional clauses in identical terms whereby the Claimants let on hire to Fanny nine of the vessels for 10 years. On 31 March 2008 the Claimants entered into a tenth charter on identical terms under which they let on hire a tenth vessel for 10 years.

7. Also on 25 February 2008 Efa issued a guarantee (“the Efa guarantee”) to the Claimants whereby they guaranteed performance by Fanny of its obligations to the Claimants under each charter.

8. The charters each contained an arbitration agreement in the following terms:

“30. Dispute Resolution

(a) This Contract shall be governed by and construed in accordance with English law and any dispute arising out of or in connection with this Contract shall be referred to arbitration in London in accordance with the Arbitration Acts 1996 or any statutory modification or re-enactment thereof save to the extent necessary to give effect to the provisions of this Clause. The arbitration shall be conducted in accordance with the London Maritime Arbitrators Association (LMAA) Terms current at the time when the arbitration proceedings are commenced.  The reference shall be to three arbitrators.  A party wishing to refer a dispute to arbitration shall appoint its arbitrator requiring the other party to appoint its arbitrator within 14 calendar days of that notice and stating that it will appoint its arbitrator as sole arbitrator unless the other party appoints its own arbitrator and gives notice that it has done so within the 14 days specified if the other party does not appoint its arbitrator and give notice that it has done so within the 14 days specified, the party referring a dispute to arbitration may, without the requirement of any further prior notice to the other party, appoint its own arbitrator as sole arbitrator and shall advise the other party accordingly.  The award of a sole arbitrator shall be binding on both parties as if he had been appointed by agreement…”

The Efa guarantee also contained an arbitration agreement in similar terms.

9. On 21 February 2008, prior to entering into the purchase agreement, the charters and the Efa guarantee referred to above, the Claimants entered into a deed of assignment whereby the Claimants assigned to the third party their rights, title and interest in and to their future rights under the charters and the Efa guarantee. On the same day notices of assignment were served on Efa and eava and on 22 February 2008 Efa and Eava signed confirmations of acknowledgment of such notices.

10. On or about February 2010 Eava ceased to pay charter hire to the Claimants and on 25 May 2011 the Claimants’ solicitors served on Eava notices of termination of each of the charters, claiming the redelivery of the vessels and payment of all outstanding charter hire.

11.By letters dated 5 January, 19 February and 24 May 2011 the Claimant’s solicitors made demand on Efa for payment of the amounts due under the charters. On 27 May 2011 those solicitors made demand under the Efa guarantee in respect of the amounts due from Eava upon termination.

12. In the meantime, on 9 January 2011 the Claimants commenced arbitrations against Eava and separately against Efa claiming under the Efa guarantee.

13. In August 2011 the third party commenced a further arbitration, claiming as assignees of sums due under the charters.

14. Those arbitrations were then effectively consolidated and in January 2013 there took place a hearing in the course of which one of the issues to be determined was whether, as asserted by Eava and Efa, by reason of the assignment to the third party the Claimants having lost the legal right to claim outstanding charter hire from Eava or to serve termination notices in respect of the charters, the tribunal had no jurisdiction to hear the Claimants’ claims.

15. By awards dated 28 March 2012 and additional memoranda issued on 14 June 2012 the arbitrators determined that the Claimants had not assigned their legal rights under the charters and the Efa guarantee because the assignment was not an absolute assignment within Section 136 of the Law of Property Act 1925. There were also findings as to the amount of outstanding hire due to the Claimants under the charters and the amount due from Efa under the Efa guarantee.

16. At a further hearing of the arbitration held on 31 July 2012, which Eava and Efa did not attend and at which they were not represented, although adequately forewarned of the hearing, the tribunal considered what termination sums were due from Eava to the Claimants under the charters and consequently due from Efa under the Efa guarantee. The Tribunal issued its award on 12 October 2012 and that award was corrected and amended by further documents on 30 November 2012 and 20 December 2012.  The awards ordered Eava and Efa to pay the Claimants a total of approximately US $26.5 million plus interest.

17. The claim now before this court is for an order pursuant to Articles 42(1) and Article 43 of the Arbitration Law, DIFC Law No. 1 of 2008 and Rule 43.61 of the Rules of the DIFC Courts (“RDC”) for an order recognising and granting leave to enforce the arbitral awards dated 28 March 2012, as subsequently amended and clarified, and the arbitral awards dated 12 October 2012, as subsequently amended.

18. The Defendants challenge the claim on the following grounds:

(a) The arbitrators had no jurisdiction because the effect of the assignment to the third party was to deprive the Claimants, as assignors, of the right to refer to arbitration disputes as to the assigned contractual rights to charter hire and payments due on termination of the charters. This court, as the enforcement court, was obliged to refuse recognition and enforcement if the arbitration debtor (the Defendants) proved that the award sought to be enforced dealt with a “dispute not contemplated by or not falling within the terms of the Submission to Arbitration or contained decisions on matters beyond the scope of the Submission to Arbitration” as per Article 44(a)(iii) of the Arbitration Law.

(b) The Claimants were estopped from denying that here was a legal assignment of all the Claimants’ rights under the charters to the third party and therefore from submitting that the arbitrator did have jurisdiction.

(c) If there were jurisdiction, this court should refuse recognition and enforcement on the grounds that enforcement would be contrary to the public policy of the UAE, pursuant to Article 44(1)(b)(vii) of the Arbitration Law. The substance of this submission is that because there are no assets of the Defendants in the DIFC but both Defendants are located in non-DIFC Dubai, the proceedings brought by the Claimant for recognition and enforcement of the awards in this court were a device to obtain, by means of Article 7 of the Judicial Authority Law (“JAL”), enforcement in non-DIFC Dubai without a substantive hearing in the courts of non-DIFC Dubai, thereby depriving the Defendants of the judicial procedure otherwise available to them had the recognition and enforcement proceedings been brought in the non-DIFC Dubai Courts and these proceedings were consequently contrary to Sharia Law.

(d) The court should exercise its residual discretion to refuse recognition and enforcement under Articles 42 and 44 of the Arbitration Law.

The Jurisdiction Issue

19. The sole arbitrator, Mr Ian Gaunt, decided that he had jurisdiction. In so doing he rejected the Defendants’ submission that there had been a legal assignment whereby the Claimants were divested of their entitlement to enforce the arbitration agreements in the charters.  He concluded that the assignment was not absolute but was an equitable assignment leaving the Claimants entitled to enforce both the Defendant charterers’ obligation to pay charter hire and also to pay termination payments and consequently to recover under the Efa guarantee.

20. The Defendants submit that an enforcement court such as this is obliged to determine whether the award in question was made within the jurisdiction of the arbitral tribunal. In support of that proposition Mr Steven Thompson QC relied on the decision of Devlin J in Christopher Brown v Genossenschaft Oesterreichischer [1954] 1 QB 8 and a decision of the English Supreme Court in Dallah Real Estate & Tourist Holding v Ministry of Religious Affairs, Government of Pakistan [2011] 1 AC 763.  Thus, if the jurisdiction of the tribunal is challenged, it is entitled to consider at the outset whether that issue has any substance and, if not persuaded that it has, to continue to hear the arbitration or, if of the opposite view, to leave the question of jurisdiction to be decided by the court.  Where the tribunal is of the view that it does have jurisdiction and makes an award to that effect, the arbitration debtor may challenge enforcement of the award by raising again the same issue as to jurisdiction.  In that event the enforcement court must re-try the issue before making an order for enforcement.

21. Application of the principle enunciated in Dallah clearly requires that when the enforcement court is an English Court, an arbitral tribunal’s substantive jurisdiction can be challenged at the point of the application for enforcement notwithstanding that the arbitral tribunal may have determined that it does have jurisdiction. Kompetenz-kompetenz does not apply.  Where the DIFC Court is the enforcement court, Article 44 of the Arbitration Law prescribes the only circumstances in which recognition or enforcement may be refused.  It provides to the extent relevant as follows:

“44. Grounds for refusing recognition or enforcement

(1)  recognition or enforcement of an arbitral award, irrespective of the State or jurisdiction in which it was made, may be refused by the DIFC Court, only:

(a)  at the request of the party against whom it is invoked, if that party furnishes to the DIFC Court proof that:

(iii)  the award deals with a dispute not contemplated by or not falling within the terms of the submission to Arbitration, or it contains decisions on matters beyond the scope of the submission to Arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to Arbitration may be recognised and enforced.”

The words of Article 44(1)(a)(iii) – “the award deals with a dispute not contemplated by or not falling within the terms of the Submission to Arbitration or it contains decisions on matters beyond the scope of the Submission” do not refer in express terms to want of jurisdiction, but it is reasonably clear that the words used are intended to cover all such cases of the tribunal acting outside the terms of its mandate and therefore without substantive jurisdiction.  The wording is identical to that of Section 103(2)(d) of the English Arbitration Act of 1996 which replicates Article V.1.(c) of the New York Convention.  Accordingly, Article 44(1)(a)(iii) should therefore be construed as relating to all aspects of the substantive jurisdiction of the tribunal.  Thus in order for the court to refuse recognition or enforcement, the arbitration debtor must prove that the tribunal lacked substantive jurisdiction to determine the material issue.

22. The Defendants submit that the arbitral tribunal did not have jurisdiction to determine the claims advanced by the Claimant because the effect of the assignment was to divest the Claimants as assignors of title to sue for the outstanding charter hire and termination payments under the charter. This submission therefore gives rise to two distinct issues:

(a) If there were a legal assignment of the charter hire and other contractual payments, would that cause the Claimants to lose the right to invoke arbitration and the tribunal to be deprived of jurisdiction in respect of such claims under the arbitration agreement in the charters and the Efa guarantee?

(b) If the answer to (1) is yes, was there, as the Defendants argue, a legal assignment or, as the Claimants argue, an equitable assignment whereby the Claimants retained the right to invoke arbitration to determine their claims?

23. The assignment in question was in the following terms in so far as relevant to the issues now before the court.

“1.1 Definitions

In this Deed, unless the context otherwise requires;

“Assigned Documents” means, collectively:

(a) Bareboat Charters;

(b) The Bareboat Charter Guarantee;

(c) The Bareboat Charterer’s Accounts Agreement; and

(d) The Bareboat Charterer’s Assignment;

“Assigned Property” means all of the receptive rights, title, interest and benefits whatsoever of the Owners in and to the Assigned Documents, the Accounts Agreements, the Insurances, the Earnings and any Requisition Compensation and in all sums which are now or may at any time hereafter become due and payable to the respective Owners pursuant thereto including, without prejudice to the generality of the foregoing, all moneys payable by the Bareboat Charterer and the Bareboat Charter Guarantor under the Assigned Documents to which they are a party;

“Secured Indebtedness” means the aggregate from time to time of the amount of the Loan outstanding; all accrued and unpaid interest on the Loan; and all other sums of any nature (together with all accrued and unpaid interest on any of those sums) payable by the Owners or any of them to the Assignee under all and any of the Finance Documents; and

“Security Period” means the period commencing on the date hereof and terminating upon discharge of the security created by this Deed by payment of the Secured Indebtedness and all other moneys payable hereunder.

  1. Assignment and application of funds

2.1  Assignment

By way of security for payment of the Secured Indebtedness, each of the Owners with full title to guarantee hereby assigns and agrees to assign, with first priority, to the Assignee all of its respective rights, title and interest in and to the Assigned Property, provided, however, that the Earnings shall be payable to the Earnings Accounts until such time as the Assignee shall direct to the contrary following an Event of Default (which is continuing) whereupon the Assignee may at any time thereafter instruct the persons from whom the Earnings are then payable to pay the same to the Assignee and any Earnings then in the hands of the Owner’s brokers or other agents shall be deemed to have received by them for the use and on behalf of the Assignee.

2.4 Use of Owners’ Names

Each owner covenants and undertakes with the Assignee to do or permit to be done each and every act or thing which the Assignee may from time to time require to be done for the purpose of enforcing the Assignee’s rights under this Deed and to allow its name to be used as and when required by the Assigned for that purpose.  Provided that such covenant and undertaking shall only be enforceable after the occurrence (and during the continuance of an Event of Default or notice of such event has been given to the relevant Owner.

2.5 Reassignment

Upon payment and discharge in full to the satisfaction of the Assignee of the Secured Indebtedness and provided the Owners are no longer under any actual or contingent liability under any of the Finance Documents, the Assignee shall, at the request and cost of the Owners, re-assign (but without recourse to or warranty by the Assignee) the Assigned Property to the Owners or as they may direct.

2.6 Exercise of Right

Save as otherwise provided herein, unless and until an Event of Default shall have occurred and notice of such event has been given to the Owners, the Assignee will permit the Owners to exercise all of their respective rights under the Assigned Documents.

4.1 Continuing Security

The security created by this Deed shall:

4.1.1 Be held by the Assignee as a continuing security for the payment of the Secured Indebtedness and the performance and observance of and compliance with all of the covenants, terms and conditions (express or implied) contained in the Security Documents and the security so created shall not be satisfied by any intermediate payment or satisfaction of any part of the amount hereby and thereby secured (or by any settlement of accounts between an Owner or any other person who may be liable in respect of the Secured Indebtedness or any part thereof and the Assignee) and shall remain in full force and effect until the Secured Indebtedness has been discharged and satisfied in full…

4.3 Obligations of Owners and Assignee

The Owners shall remain liable to perform all the respective obligations assumed by them in relation to the Assigned Property and the Assignee shall be under no obligation of any kind whatsoever in respect thereof or be under any liability whatsoever in the event of any failure by an Owner to perform its obligations in respect thereof.

  1. Powers of Assignee on Event of Default

7.1 Powers

Upon or at any time after the occurrence of an Event of Default (which is continuing), the Assignee shall forthwith become entitled (but not bound) as and when it may see fit, to exercise in relation to the Assigned Property or any part thereof all or any of the rights, powers and remedies possessed by it as assignee and/or charges of the Assigned Property (whether at law, by virtue of this Deed or otherwise) and in particular (without limiting the generality of the foregoing):

7.1.1  to assume and exercise all of the Owners’ respective rights and benefits under the Assigned Documents.

7.1.2 to exercise and implement any of the Assigned Property whether in its own name or in the name of the Owners or otherwise;

7.1.3 to assign or sell the Assigned Property upon such terms as the Assignee may in its absolute discretion determine;

7.1.4 to discharge, compound, release or compromise claims in respect of the Assigned Property or any part thereof have given or may give rise to any charge or lien or other claim on any Vessel, the Assigned Property, or any part thereof or which are or may be enforceable by proceedings against any Vessel, the Assigned Property or any part thereof; and

7.1.5 to recover from the Owners on demand all Expenses incurred or paid by the Assignee in connection with the exercise of the powers (or any of them) referred to in this Clause 7.1.

7.3 Attorneys

7.3.1 By way of security, each of the Owners hereby irrevocably appoints the Assignee to be its attorney generally for and in the name and on behalf of that Owner, and as the act and deed or otherwise of that Owner to execute, seal and deliver and otherwise perfect and do all such deeds, assurances, agreements, instruments, acts and things which may be required for the full exercise of all or any of the rights, powers or remedies conferred hereby or which may be deemed proper in or in connection with all or any of the purposes aforesaid.  The power hereby conferred shall be a general power of attorney under the Powers of Attorney Act 1971, and each Owner ratifies and confirms, and agrees to ratify and confirm, any deed, assurance, agreement, instrument, act or thing which the Assignee may execute or do pursuant thereto.  Provided that the Assignee shall refrain from exercising its right under this Clause 7.3.1 until the occurrence of an Event of Default which is continuing.”

24. Mr Steven Thompson QC submits on behalf of the Defendant that, assuming there to have been a legal assignment of charter hire and other payments, that assignment comprehended not only the substantive cause of action for recovery of such hire and termination but also the means of dispute resolution provided by the bareboat charters and the Efa guarantee applicable to claims for such hire and other payments. He criticised the Claimants’ submissions in as much as they relied on judgments in cases where the assignee had sought to recover from the principal debtor by proceedings in court without regard to the incorporation of an arbitration clause into the contract giving rise to the assigned debt.  Thus, he relied on judgments of Hobhouse LJ and Sir Richard Scott VC in Schiffahrtsgesellschaft Detlef von Appen Gmbh v Voest Alpine Intertrading Gmbh (The Jay Bola) [1997] 2 Lloyd’s Rep 279, of Moore-Bick J in Through Transport Mutual Insurance Association (Eurasia) Ltd. v New India Assurance Co. Ltd. (The Hari Bhum (No. 3)) [2005] 2 Lloyd’s Rep 378 and of Hamblen J in The London Steamship Owners’ Mutual Insurance Association Ltd. v The Kingdom of Spain (The Prestige) [2013] EWHC 3188 (Comm.).  In each of those cases an issue arose as to whether the assignee could recover the assigned debt otherwise than by referring the claim to arbitration and in each such case the court, in holding that the assignee was obliged to invoke the arbitration agreement as its only means of recovery, explained this requirement in the following way.  The assignee was obliged to refer the claim to arbitration not because the effect of the assignment was to make him a party to the arbitration agreement but because the assignment of the contract debt had attached to it the means of recovery of it prescribed by the contract, namely the arbitration agreement.  All those authorities make clear that this requirement was not the result of a transfer to the assignee of the burden of the contract in general or of the agreement to arbitrate in particular but rather of that mechanism of debt recovery as attached to the assigned debt.

25. In The Jay Bola, supra, at page 286 Hobhouse LJ observed:

“Where the assignment is the assignment of the cause of action, it will, in the absence of some agreement to the contrary include as stated in s.136 all the remedies in respect of that cause of action. The relevant remedy is the right to arbitrate and obtain an arbitration award in respect of the cause of action.  The assignee is bound by the arbitration clause in the sense that it cannot assert the assigned right without also accepting the obligation to arbitrate…

Miss Bucknall submits that, even so, there is no right which can be asserted by the time charterers against the insurance company which gives a cause of action by the former against the latter. She submitted that to recognize any such cause of action would amount to treating the burden of the contract as having been transferred, something which would only occur if there had been a novation. In the present case all that had been transferred was a right of the voyage charterers against the time charterers. The burden of the contract was not transferred. The insurance company came under no actionable liability to the time charterers. In my judgment this argument fails to understand the nature of the equitable remedy which is being sought in this action…”

At page 291 Sir Richard Scott VC stated:

“Miss Bucknall argued that, because WAV were not parties to the sub-charterparty and because the subrogation which entitled WAV to sue on Voest’s contractual causes of action did not constitute a novation under which WAV became a party to the sub-charter-party, WAV were not bound by the arbitration agreement.  The premises on which this argument is based are correct but the conclusion drawn therefrom is not.  WAV is bound by the arbitration agreement not because there is any privity of contract between WAV and OVA but because Voest’s contractual rights under the sub-charterparty, to the benefit of which WAV has become entitled by subrogation, are subject to the arbitration agreement which, too, is part of the sub-charterparty.  WAV cannot enforce those contractual rights without accepting the contractual burden, in the form of the arbitration agreement to which those rights are subject…  WAV is, through subrogation, an assignee from Voest of Voest’s contractual rights against OVA.  OVA is contractually entitled, whether as against Voest or any assignee from Voest, to require the enforcement of those rights to be pursued by arbitration.  WAV’s attempt to enforce those rights otherwise than by arbitration is a breach of DVA’s contractual entitlement.”

Commenting on that decision Moore-Bick J observed in his judgment in the Hari Bhum (No. 2) at page 385:

“In my view the decision in this case is authority for the proposition that a person who obtains by an assignment or transfer of some other kind the right to pursue a claim under a contract can only enforce that right in accordance with the terms of the contract and subject to any restrictions or limitations which those terms may impose.  In other words, what he obtains is a chose in action whose precise scope is determined by the contract under which it arises and which is inherently subject to certain incidents, in this case a requirement that it be enforced by arbitration.”

26. It is not suggested in this case that there was a novation of both the rights and the obligations of the Claimants under the bareboat charters. The assignee, the third party, never assumed any of the obligations of the owners.  Thus the submission in Paragraph 10 of the Defendants’ Submissions cannot be correct:

“10.  As a matter of logic, if the rights under the contract, including the right (and duty) to arbitrate, have all been assigned, then there is, ex hypothesi, no right to arbitrate left in the hands of the assignor; there are no rights at all left with the assignor.  The present situation is the converse of the reported cases: in those cases it was the assignee or transferee who sought to cherry-pick the rights that suited him.  In this case, the assignors (at least pending re-assignment back to them) had no right to arbitrate.

11.The only question in this case is whether there was any dispute in which the assignors could claim an interest, when they made the references to arbitration. If not, the tribunal had no jurisdiction.  The answer to that question lies in what was left in the assignors’ hands after the assignment, not what obligations bind the assignee.”

The arbitration agreement remained alive, a free-standing requirement for the purpose of providing a means of dispute resolution in respect of any issue between the parties to it which fell within its scope as “arising out of or in connection with” the charters.  It is well established that these words are to be widely construed.  They cover issues which go to the enforceability not only of specific rights arising under a contract but of the entire contract: see Fiona Trust v Privalov [2007] UKHL 40.  That is because it is the existence of an issue between the parties to the contract which engages the applicability of the arbitration agreement and not the legal effect on the contract of resolving the issue.

27. In the present case the Claimants deployed arbitration to recover outstanding charter hire and payments on termination. They were met with the submission on behalf of the Defendants that they had lost the right to claim for either because they had entered into an absolute assignment of such rights and had therefore no standing.  The issue to which this defence gave rise was thus whether the Claimant’s had title to sue.  That issue was clearly one “in connection with” the charter contracts because the underlying question was whether an original party to the contract remained entitled to enforce it.  Given that it is the characterisation of this issue and not the legal consequence off its correct resolution which engages the arbitration agreement, the inescapable conclusion is that the arbitrator had jurisdiction to determine that issue and to give effect to that decision in his award as to the amount recoverable by the Claimants by way of charter hire and termination payments.

28. Once it is concluded that the arbitrator did have jurisdiction to determine whether the Claimants had retained title to sue, the conclusion at which he arrived, namely that they were entitled to recover unpaid charter hire and termination payments cannot be re-opened before this court upon an enforcement application. An enforcement court is not concerned with whether the arbitral tribunal arrived at the right legal conclusion.  In English law the only means of challenge on the ground of error of law is by the procedure prescribed by Section 69 of the Arbitration Act 1996.  The Defendants have not pursued that remedy.  An application to the English High Court whereby the Defendants sought to appeal the arbitrator’s decision on jurisdiction was in effect abandoned by reason of the Defendants’ failing to put up security for costs.

29. Once therefore it is determined by this court that the arbitral tribunal had jurisdiction to determine the issue whether there was an absolute assignment, the tribunal’s decision on that issue cannot be re-opened for the purposes of this application.

30. The Claimant has raised an argument that the Defendants submitted to the jurisdiction of the arbitral tribunal, a point which can only arise, if, contrary to my decision, there would otherwise have been no jurisdiction. It is therefore unnecessary to consider the argument in any detail. However, had it been necessary to do so, I should have concluded that the Defendants had by their conduct submitted to the jurisdiction of the tribunal, not least by the extent to which they participated in the arbitral proceedings.

31. For the reasons already given, it is therefore irrelevant for the purposes of this application whether the assignment was legal or equitable. It is therefore unnecessary to investigate the submissions on that latter point in any detail.

32. The Defendants argue that it was a legal assignment under Section 136 of the Law of Property Act 1925. The Claimants submit that it was equitable on the principal grounds that it was entered into before there existed any chose in action to which it could be attached, the assignment having been entered into on 21 February 2008, whereas the charters and the Efa guarantee were not entered into until 25 February 2008 and notice of assignment to the third party was given on the same day and acknowledged on 22 February 2008, whereas the charters and the Efa guarantee were entered into on 25 February 2008. Thus, at the time when the assignment was entered into, there existed only a loan agreement between the Claimants as borrowers and the third party, entered into on 20 February 2008. The Deed of Assignment recited that it was entered into by the Owners (Claimants) “in satisfaction of a condition precedent to the advance of the loan under the Loan Agreement”.  Completion of the purchase and chartering of nine vessels to the First Defendant took place four days later and chartering of one vessel to the First Defendant took place on 31 March 2008.  Thus, at the time when the assignment was entered into there was not merely no charter hire yet due to the Claimants but there was no contract under which such hire could become due.  This is an unusual sequence of events, in as much as in the ordinary way the principal debtor would be bound under the terms of a contract with the assignor under which payments the subject of the assignment would be made: cf Hughes v Pump House Hotel Co. Ltd. [1902] 2 KB 190, where there was held to be a valid assignment.  In the present case it could be argued that, because the Claimants could change their mind about entering into the charter after the date of the assignment and, before any charter had been entered into, there could be a valid assignment neither in law or equity.  However, given that the assignment was expressly a condition precedent to the loan from the third party by which the Claimants were to finance the purchase of the vessels to be chartered to the First Defendants in exchange for charter hire it could be said that there was a closer analogy to Hughes v Pump House Hotel Co. Ltd. (supra).  On balance, however, I prefer the view that here was an assignment of a future chose in action and that the general rule applied with the consequence that it could not be a legal assignment.

33. Then it is argued on behalf of the Claimant that this was not an absolute assignment, but only an equitable assignment because it was by way of security for the principal debts which would fall due from Marsol and the Efa guarantor. Thus the principal debtor could not know without reference to the state of account between the assignee, the third party, and the Claimant, how much was due to be paid pursuant to the assignment. In this case the assignment was expressly stated to be by way of security until the secured indebtedness had been discharged in full. There are numerous references to the assignment standing as security: see Clauses 2.1, 4.1, 6, 7.3, 7.4. Further, the entitlement of the third party to the rights assigned was conditional on the occurrence of an event of default and such rights were extinguished if and when there was repayment in full of the Secured Indebtedness.  Therefore the principal debtor would need to know of the incidence of an event of default and when there had been full repayment of the Secured Indebtedness. The well-known passage from the judgment of Chitty LJ in Durham Bros v Robertson [1898] 1 QB is thus directly in point:

“The commonest and most familiar instance of a conditional assurance is an assurance until J. S. shall return from Rome.  The repayment of the money advanced is an uncertain event, and makes the assignment conditional.  Where the Act applies it does not leave the original debtor in uncertainty as to the person to whom the legal right is transferred; it does not involve him in any question as to the state of the accounts between the mortgagor and the mortgagee.  The legal right is transferred, and is vested in the assignee.  There is no machinery provided by the Act for the reverter of the legal right to the assignor dependent on the performance of a condition; the only method within the provisions of the Act for revesting in the assignor the legal right is by a retransfer to the assignor followed by a notice in writing to the debtor, as in the case of the first transfer of the right.”

In my judgment, this is a classic example of a conditional assignment where the assignor retains the title to sue.

34. Finally in relation to the jurisdiction issue, the Defendants submit that the Claimants are estopped from denying that there was a legal assignment and therefore from asserting that the arbitrator had jurisdiction. In order for this submission to work, it would be necessary to establish that by words or conduct the Claimants had represented that the assignment was absolute and secondly that the Defendants had acted in reliance on that representation so as to make it unconscionable for the Claimants now to assert that the assignment was not absolute. This argument is completely far-fetched. It involves the proposition that the Claimants’ assignment to the third party was absolute notwithstanding its express terms and that the Defendants acted in reliance on that representation so as to make it unconscionable for the Claimant now to assert that the assignment was not absolute.

35. In order to support their estoppel argument the Defendants rely on the following correspondence as incorporating representations by the Claimants:

(a) A letter dated 5 February 2010 from the third party to Eava regarding Fanny trading with Iran in contravention of international sanctions, including a report that such trade should cease. Such a request by an assignee gave rise to no representation that the third party was entitled as a matter of law to recover charter hire as legal assignee.  Indeed, by the terms of the notice of assignment, Paras 3 and 4, the Claimants had appointed the assignee as attorney with full power to demand payment of hire and had irrevocably authorised the Defendants to pay all moneys due to the third party.  The designation of the third party as attorney was clearly inconsistent with the third party being entitled to demand payment as a legal assignee.  Eava responded not to the third party but to the Claimants’ representatives, a clear indication that the Claimants were regarded as continuing counter‑parties.

(b) A letter dated 9 February 2010 from the third party to the Defendants. This made no mention of the third party being assignees under a legal assignment.

(c) An email dated 15 April 2010 from the third party to Eava, copied to the Claimants and Efa, in which the third party requested information as to the movements and trading history of the vessels. This request for voyage movements emanated from discussions with the owners from whom instructions were given to provide the third party with the information, showing that the Claimants controlled the relationship with the third party.

36. When it came to making demand for payment of charter hire and termination sums due it was the Claimants’ lawyers and not the third party who sent the letters to the Defendants on 21 May 2010. They were clearly claiming payment on the basis of the Claimants having title to sue.  This was not challenged by the Defendants in their reply.

37. In my judgment this point – first raised not by the Defendants but by the Claimants as a possibility in the course of their full disclosure obligation – has no basis in the facts and has the appearance of being created as a make weight in support of the allegation of want of jurisdiction.

Would Recognition and Enforcement be Contrary to the Public Policy of UAE?

38. The Defendants submit that an order for recognition and enforcement by this court would be contrary to the public policy of the UAE and ought therefore to be refused. The submission proceeds on the following lines:

(a) The Defendants have no assets or presence in the DIFC.

(b) The commencement of the present proceedings is a device to obtain automatic enforcement otherwise applicable in the courts of non-DIFC Dubai where the Defendants carry on business, are domiciled and may have assets.

(c) To proceed in this manner would be to bypass the procedure for enforcement otherwise applicable in the courts of non-DIFC Dubai which would conduct a full investigation of the award and its enforcement in accordance with the Civil Procedure Code (“CPC”) of non-DIFC Dubai.

(d) This procedural device is contrary to the public policy of the UAE and operates as a defence to an application for recognition and enforcement in this court.

39. In order to investigate these submissions it is necessary first to consider the relevant legislative structure. This is as follows:

(a) Under the DIFC Arbitration Law it is provided as follows:

“42. Recognition and enforcement of awards

(1)  An arbitral award, irrespective of the State or jurisdiction in which it was made, shall be recognised as binding within the DIFC and, upon application in writing to the DIFC Court, shall be enforced subject to the provisions of this Article and of Articles 43 and 44.  For the avoidance of doubt, where the UAE has entered into an applicable treaty for the mutual enforcement of judgments, orders or awards the DIFC Court shall comply with the terms of such treaty.

(2)  The party relying on an award or applying for its enforcement shall supply the original award or a duly certified copy thereof and the original Arbitration Agreement referred to in Article 12 or a duly certified copy thereof. If the award or the agreement is not made in English, the DIFC Court may request the party to supply a duly certified translation thereof.”

(4)  Awards issued by the DIFC Court may be enforced in the DIFC in the manner prescribed in this Law and any rules of Court made for this purpose. Awards recognised by the DIFC Court may be enforced outside the DIFC in accordance with the Judicial Authority Law and recognition under this Law includes ratification for the purposes of Article 7 of the Judicial Authority Law.

43. Recognition

(1)  Where, upon the application of a party for recognition of an arbitral award, the DIFC Court decides that the award shall be recognised, it shall issue an order to that effect.

(2)  An order recognising an arbitral award shall be issued in English and Arabic unless the DIFC Court shall determine otherwise.  Either language version, in its original or certified copy form, shall constitute sufficient proof of recognition.

44. Grounds for refusing recognition or enforcement

(b) if the DlFC Court finds that:

(vi) the subject-matter of the dispute would not have been capable of settlement by Arbitration under the laws of the DIFC; or

(vii) the enforcement of the award would be contrary to the public policy of the UAE.”

(b) Under RDC 43.61:

“II RECOGNITION AND ENFORCEMENT OF ARBITRAL AWARDS

43.61

Rules 43.62 to 43.74 apply to awards made in arbitration proceedings wherever the seat.

43.62

An application under Article 42(1) of the Arbitration Law to enforce an award under Article 43 of the Arbitration law for recognition of an award may be made without notice in an Arbitration Claim Form.

43.63

The Court may specify parties to the arbitration on whom the Arbitration Claim Form must be served, for example where the relevant time period for setting aside the award from the date of service of the award on the losing party has not yet expired, or there is some doubt about the validity of the award or its service upon the respondent.

(c) The Judicial Authority Law, Article 7:

“Article 7: The Enforcement

(1)  Should the subject of execution fall within the Centre, judgments, awards and orders issued by the Courts and Arbitral Awards ratified by the Courts shall be enforced by the executive judge at the Centre.

(2)  Should the subject of execution fall outside the Centre, judgements, awards and orders issued by the Courts and Arbitral Awards ratified by the Courts shall be enforced by an executive judge at Dubai Courts, subject to the following:

(a)   The judgement, award or order is final and is appropriate for enforcement; and

(b) The judgment, award or order has been translated into Arabic.

(3) The executive judge at Dubai Courts has no jurisdiction to review the merits of a judgement, award or order of the Courts.

(4) Judgements, awards and orders of any court outside the Centre may be enforced within the Centre in the manner prescribed in the Centre’s Laws.”

40. Before considering whether the Claimants’ deployment of Articles 42(1) and 43 of the Arbitration Law and Rule RDC 43.62 of the DIFC Rules amounts to a procedure which is contrary to the public policy of the UAE, it is necessary to set out the manner in which the legislative mechanism operates. This legislative structure has to be understood against the background that the UAE is a party to the New York convention and that accordingly Article 44(1)(b) of the Arbitration Law when it refers to “the public policy of the UAE” must be construed as consistent with Article V2(b) of that Convention.

41. Under the Arbitration Law provision is made in Article 42(4) whereby foreign arbitration awards are to be recognised and enforced within the DIFC and may be enforced outside the DIFC. The phraseology in Article 42(4) – “may be enforced” as properly construed connotes that the Article provides an available facility which it is open to the arbitration creditor to use if he chooses to do so.

42. Articles 42(1) and (2) and 43 make clear that a substantive and procedural distinction is to be drawn between recognition and enforcement of foreign awards. Under Article 42(4) it is prescribed that an award, including a foreign award (as per Article 42(1)) which has been recognised by an order of the DIFC Court, as per Article 43, is available to be enforced outside the DIFC in accordance with the Judicial Authority Law (“JAL”). The Law applies both to judgments and orders by the DIFC Courts and to arbitral awards “ratified” by the DIFC Courts. For this purpose “ratified” means that the arbitration award, if foreign, has been recognised by the DIFC Courts, as provided under Article 42(4) of the Arbitration Law.  Accordingly, once the DFIC Court has made an order under Article 43(1) of the Arbitration Law recognising a foreign award, that award, like a DIFC Court judgment, can be taken to an “executive judge” of the non-DIFC Dubai Court, which means a judge designated to exercise powers to order execution of orders, for the purpose of enforcement in non-DIFC Dubai.  It is to be observed that under Article 7(2) of the JAL it is assumed that “the subject of execution” falls outside the DIFC, that is to say there is a single subject of execution and the whereabouts of that subject is non-DIFC Dubai. This contrasts with and is super-added to the provision of 7(1) which contemplates the subject of execution falling within the DIFC. In particular, there is no suggestion that Article 7(2) can only operate in a case where “the subject of execution” is both in the DIFC and in non-DIFC Dubai.  Consequently, Article 7(2) expressly contemplates orders for execution of awards recognised by the DIFC Court where the only subject of execution is in non-DIFC Dubai.

43. The effect of Article 7 is therefore that once an order for recognition and enforcement in respect of property in non-DIFC Dubai lands on the executive judge’s table, he or she is bound to enforce it, provided that the pre-conditions specified in Article 7(2)(a) and (b) are satisfied. “Appropriate for enforcement” means that it articulates a remedy which can be the subject of enforcement, such as a specified money sum or defined prohibited conduct if the prohibition is lawful. What the executive judge is not permitted to do is to review the merits of the award or order. His jurisdiction is thus confined to confirming execution except where the requirements of Article 7(2)(a) and (b) are not satisfied. The only requirements which could thus present a challenge to execution at that stage would be that the award was final, appropriate for enforcement and had been translated into Arabic. Consideration of the grounds for refusing recognition or enforcement as prescribed in Article 44(1)(a) and (b) would not be open before the non-DIFC executive judge: it cannot have been the legislative purpose of the JAL that it would be open to that executive judge to second guess the DIFC judge’s decision to order recognition and enforcement. An arbitration creditor who has selected the DIFC Court as its port of entry into UAE for enforcement purposes can thus only be met at one stage of the procedure – in the DIFC Court – by a challenge based on non-compliance with Article V2(b) of the New York Convention as expressed in Article 44(1) of the DIFC Arbitration Law.

44. Further, it is nowhere provided, either in the New York Convention or in the Arbitration Law, that an order for recognition and enforcement can only be made on proof that the arbitration debtor has assets upon which execution can be levied in the territory of that party to the convention in which application is made for recognition and enforcement. There are good reasons for this. In the modern world of highly mobile financial resources it may be essential for an arbitration creditor to be in a position to levy execution on an arbitration debtor’s assets introduced into a jurisdiction subsequent to the making of an order. Bank accounts may exist but at any point of time may have little or no credit balance. In Article 7(2) of JAL the words “should the subject of execution fall outside the Centre” do not import a requirement that it has to be proved to the executive judge that any particular asset of the arbitration debtor is located in non-DIFC Dubai; they merely identify the circumstance that the arbitration creditor requires an order for execution to be made and available upon some (undefined) subject matter in non-DIFC Dubai. The entitlement to such an order is to be determined by the intrinsic characteristics of the arbitration award and of the arbitration from which it arose.  If the arbitration creditor has chosen to obtain an order for enforcement in a state where no assets turn out to be currently available for execution, that is his misfortune and not the concern of the judge making the order for recognition.

45. Finally, in relation to the legislative structure consisting of the DIFC Arbitration Law and JAL, these are laws binding to the extent of their scope not only in the DIFC but also in the UAE generally. Thus, they have the force of law to the extent of their scope throughout Dubai. Indeed JAL expressly prescribes the limitations on the jurisdiction of the executive judge of the non-Dubai court.  Accordingly, the structure for the recognition and enforcement of awards in both the DIFC and the non-DIFC Dubai courts is part of the legislative machinery of UAE.

Expert Evidence

46. This court has heard expert evidence on the meaning of the words in Article 44(1)(b)(vii) “contrary to the public policy of the UAE”. On behalf of the Defendants, Mr James Whelan, an English solicitor with very wide knowledge of UAE Law and Dubai Law, gave evidence that the primary source of the definition in UAE law of public policy – al-nizam al amm – or public order was to be found in Article 3 of the Civil Code:

“Public order shall be deemed to include matters relating to personal status such as marriage, inheritance, and lineage, and matters relating to systems of government, freedom of trade, the circulation of wealth, rules of individual ownership and the other rules and foundations upon which society is based, in such a manner as not to conflict with the definitive provisions and fundamental principles of the Islamic shari’ah.”

The commentary on Article 3 states:

“This article defines what will be deemed to be public order in a flexible manner, enumerating the several things that will be so regarded, and for the first time it links the concept of public order with the rules of the principles of the Islamic shari’ah in stipulating with regard to the rules relating to public order that they should not conflict with the definitive provisions and fundamental principles of the Islamic shari’ah.”

Mr Whelan further explained that decisions of the UAE courts hold that the administration of justice is part of “systems of government…and the other rules and foundations upon which society is based” within the meaning of Article 3 of the Civil Code.  Hence, procedural issues can be a matter of public policy.  In relation to the enforcement of foreign arbitration awards, as a general rule of UAE law, any person resident in the UAE is entitled to assume, upon entering into an arbitration agreement, that the enforcement provisions of the Federal Civil Procedure Code (“CPC”) will apply.  These involve application by the non-DIFC Dubai Courts of the provisions relating to ratification set out in the CPC.  If a person resident or company domiciled in non-DIFC Dubai is deprived of this judicial process of ratification as set out in the CPC, that would be a matter contrary to public policy, for were that to happen the arbitration debtor would have lost the benefit of judicial consideration of the issue of ratification in accordance with the CPC procedural regime for recognition and enforcement by reference to principles of shari’ah law.  In other words, the underlying infringement of public policy would be the choice by the arbitration creditor of a “port of entry” into UAE which provided for a route to execution by way of consideration by the DIFC Court of the matters covered by Article V of the New York Convention rather than route to execution by way of a non-DIFC Dubai Court applying the CPC procedure in relation to the same Article V matters.  The applicable procedure would thus not be that of the arbitration debtor’s place of residence or, in the case of a company, of domicile.

47. The application of these principles of shari’ah law to the facts of the present case is said by Mr Whelan to involve a further principle, namely that arbitration agreements are construed as exceptional agreements because they exclude the jurisdiction of the courts and are subjected by the non-DIFC Dubai Courts to a restrictive construction. Thus, the normal interpretation of an arbitration agreement would exclude the exceptional, namely the possibility that the process of enforcement would proceed otherwise than through the normal UAE Courts applying the CPC rather than through the DIFC Courts with which neither of the parties to the agreement had any connection and of which no mention was made in the agreement.  As Mr Whelan put it in his expert report:

“If the Awards in the present case were to go through the DIFC recognition process and thence to ‘automatic’ enforcement in the Dubai Courts (based on the assumption stated above as to the application and effect of Article 7 of the JAL), the Defendants would be deprived not only of the Article 215 protection, but also of their right to submit to the UAE courts, to whose jurisdiction they are in the normal course subject, any arguments under Article 216, including those concerning the correct interpretation of the arbitration agreement. Thus, enforcement of the Awards against the Defendants through the DIFC Court process under the Arbitration Law and the JAL would violate not only public order rights relating to jurisdiction under the CPC, but also the right to have the arbitration agreement correctly construed in accordance with the principles of the Islamic shari’ah. They would find that they were launched into a situation that is materially different from what they contracted for when they agreed to arbitrate.”

48. Additionally, the issue as to the arbitrator’s jurisdiction involving the construction of the contracts could not be argued before the non-DIFC Dubai Court and would have to be determined by the DIFC Court.

49. The conduct of recognition and enforcement proceedings in the DIFC Court would thus deprive the Defendants of specific procedural benefits, namely:

“(a) that proceedings brought against it shall be in the Arabic language;

(b)  that statements of case and other pleadings or memoranda submitted by the parties shall be in the Arabic language;

(c)  that all relevant documents from foreign proceedings should be submitted in Arabic;

(d)  that all copy documents from foreign proceedings should be independently certified as being true copies of the originals;

(e)  that all copy documents from foreign proceedings should be independently translated Into Arabic;

(f)   that any documents submitted in proceedings against it shall be provided in Arabic (with any documents not originally in Arabic accompanied by a translation certified by a translator licensed by the UAE Ministry of Justice);

(g)  that the rules of evidence under UAE law and Dubai law shall apply to the proceedings;

(h)  that the rights of appeal against a judgment or order will be available to it; and

(I)   that all other procedures and formalities of proceedings in the Dubai Courts outside the DIFC will apply.”

50. In the course of his evidence Mr Whelan was asked whether there were any decided cases in the courts of the UAE in which it had been held that a legislative provision was contrary to public policy. He replied that he could not recall any such case.  He also stated that if there were proved to be assets of the arbitration debtor in both the DIFC and in non-DIFC Dubai, it would probably be permissible to bring a claim for recognition and enforcement in the DIFC Court, even though the arbitration debtor had no domicile or residence in the DIFC.

51. Dr Habib Al Mulla, the expert on UAE law called by the Claimants, took a different view. While accepting that procedural irregularity in an arbitration context can render enforcement of an award contrary to the public policy of the UAE, he considered that a language requirement per se would not give rise to a public policy issue unless its effect was to prevent a litigant understanding the proceedings if no translation by an interpreter were available. In this connection he pointed to the fact that the Dubai World Tribunal, which had an Emirate-wide jurisdiction, was conducted in English and had no appeal facility.

52. Dr Al Mulla further emphasised that both the DIFC Court and the non-DIFC Dubai Courts provided an arbitration debtor with effective grounds of defence which were the same in both courts, namely those identified under the New York Convention. In that connection the Dubai Courts had developed a strong pro-Convention enforcement practice.  They adhered to the defences to enforcement listed in Article V.2(b) of the Convention and did not allow arbitration debtors to rely on such technical defences as might have been available upon application to enforce a domestic award.  It was also a well-established principle in the UAE that the scope and limits of jurisdiction of the courts of each Emirate, such as Dubai, were matters of public order in the Emirate concerned and that they could not be excluded by agreement, but that, as held by the UAE Supreme Court, each Emirate, such as Dubai, was free to regulate the internal allocation of jurisdiction between its own juridical bodies.  It would thus appear that once the Emirate concerned had allocated jurisdiction between its courts, that allocation would be respected as part of the public order both of the Emirate and of the UAE.

53. According to Dr Al Mulla, the legislative regime established in Dubai for allocation of jurisdiction provided for enforcement applications in respect of foreign awards to be brought either in the DIFC Court under the DIFC Court Law, the JAL and the Arbitration Law or under the CPC in the non-DIFC Dubai Courts. That jurisdictional allocation did not depend on the location of the arbitration debtor’s domicile or assets.  As it was defined by those legislative instruments, it reflected public order or public policy.  As he stated in his expert report:

“Article 7 of the JAL establishes a regime of mutual recognition between the DIFC and Dubai Courts, which is intended to facilitate the free movement of judgments, decisions and orders between the Dubai and DIFC Courts and vice versa.  This regime is based upon a statutory relationship between the two courts, which in turn finds its origin in both the DIFC and Dubai Courts belonging to the same family of courts, namely the Dubai Courts.  This is supported by the fact that both courts have been established by decrees of the Ruler of Dubai and render their rulings in the name of the Ruler of Dubai.  In other words, the DIFC Courts form part of the legal system of the Emirate of Dubai and as such ultimately qualify as a Dubai Court.  With this in mind, it is the Ruler of Dubai, who is the fountain of powers in the Emirate, who has ordained the co-existence of the two sets of courts in the same Emirate.”

Discussion

54. The facts material to this application are, with one exception, not in issue. That exception is the question of whether it is established that there are no assets of either of the Defendants in the DIFC. Mr Khusroo of Efa gave evidence by reference to a list of assets which was clearly out of date, given that it had existed before September 2013 when it had been adduced in evidence in proceedings relating to the jurisdiction of this court.  He asserted that although there was one bank account at Barclays, DIFC, which contained little or nothing, there was no outstanding indebtedness from any of the DIFC companies listed as debtors.  His evidence was distinctly uninformative and did not suggest that he had any personal knowledge of the amounts, if any, due to the Second Defendants.  He gave the appearance of speaking to a well-rehearsed brief.

55. This court is therefore left in doubt whether, as at the time of the hearing before it, at least Efa had assets within the DIFC. However, as appears from the remainder of this judgment, the presence or absence of such assets is not relevant to the present application.

56. The issue as to public policy has not previously been raised in the DIFC Courts with regard to the recognition and enforcement of foreign arbitration awards. However, the closely-related challenge based on abuse of process to recognition of foreign arbitral awards, where it is not established that there are assets which are available for execution in, or some personal connection of the debtor with, the DIFC but where such assets or personal connection does exist in non-DIFC Dubai, has been the subject of a decision in the DIFC Court of Appeal, namely Meydan Group v Banyan Tree Corporate.  The Court of Appeal, the judgment being given by Justice Sir David Steel, observed:

“26. As best I understand it, Meydan’s submission was that the provisions of the Civil Procedure Code concerning service of proceedings applied as an overarching Federal law and/or because they constituted due process or public order rights to which deference was required; and they did not permit the service on Meydan as it had occurred.  The basis of this submission was questioned by the bench but it was left delightfully vague.

57.  In my judgment, perceiving matters against the statutory background outlined above, there is no basis for importing some limitation on the express terms of the DIFC Courts jurisdiction. The DIFC (and its Court) is in effect exempted from the Commercial and Civil laws of the Union. The State of Dubai is afforded freedom under Law 8 of 2004 to promulgate appropriate legislation.  DIFC Law 10 of 2004 included jurisdiction in respect of any application over which the DIFC Court has jurisdiction by virtue of DIFC laws and regulations.  These included the enforcement of the arbitration awards both by virtue of Article 7 of Law No. 12 of 2004 and Art. 11 of DIFC law No. 1 of 2008 (Arbitration law).  The rules of the DIFC Courts in regard to service of process have been promulgated and approved by the Chief Justice as permitted by Dubai Law No. 7 of 2011.  Those rules (ROC 44) permitted service on Meydan, both within and without the DIFC, without leave of the court.  There is no further express or implied limitation.  Thus I reject the proposition that some personal jurisdiction over Meydan, such as its presence in the DIFC, is a pre‑requisite to recognition of an arbitration award by virtue of some broad principle of “due process” or “public order.”

And further at Para 33 of the judgment it was observed:

“The absence of assets in the jurisdiction may be relevant consideration to the exercise of discretion to grant execution. But even then a judgment creditor is entitled to levy execution against assets which come into the jurisdiction after the judgment is entered or which did not even exist at that time.  Furthermore an enforcement order alone may be of value in the tracing of assets by, for example, oral examination: Fonu v. Demirel supra at para 43.  In any event; it is clear that there is no barrier to enforcement given the absence of assets within the jurisdiction.  This appears to be accepted and in any event is fully explained in Traxys Europe SA v. Balaji Coke Industry (No 2) FCA 276.”

Finally, Justice Sir David Steel said at Paragraph 42-44:

“42. The relationship between the jurisdiction of the Dubai Courts and the DIFC Courts in regard to recognition and enforcement of arbitration awards is set out in the judgment of the DCJ in X v. Y at para 36:

“Not only are the jurisdiction of the DIFC Courts and the jurisdiction of the Dubai courts in relation to the recognition and enforcement of foreign arbitral awards mutually exclusive, they are also complementary.  It is plain that, in enacting Article 7 of the Dubai Judicial Authority Law, the legislator contemplated that both the DIFC Courts and the Dubai Courts would have power (in appropriate cases) to ratify (or recognize) arbitral awards including foreign arbitral awards; that the enforcement of such awards within the DIFC (in the sense of execution of assets within the DIFC) would be for the DIFC Courts; and that the enforcement of such awards outside the DIFC would be for the competent entity – having jurisdiction outside the DIFC (which in the case where execution was sought against assets outside the DIFC but within the Emirate of Dubai, could be expected to be the Dubai courts).”

58. It is right to say that there is no evidence that Meydan has assets within the DIFC (or otherwise within the jurisdiction of the DIFC Courts). But there is no basis for asserting that the application for enforcement within the DIFC has no independent purpose. I do not understand it to be accepted that no such assets exist or alternatively that no such assets (whether they currently exist or not) may come within the jurisdiction following an order for enforcement.  In any event an order for enforcement would enable Banyan to engage the court’s machinery (in the form of say a freezing order or an oral examination) for obtaining details of any assets that are or become available.

59. It is also right to say that by virtue of Article 7 of the Judicial Authority Law and the Protocol on Jurisdiction between the DIFC Courts and the Dubai Courts, Banyan is enabled to present a DIFC order for enforcement to an execution judge of the Dubai Courts without that judge being enabled to consider the merits of the underlying order. But it is difficult to classify the use of that machinery as an abuse, not least before that machinery is even invoked. At the substantial hearing for relief, there may be a challenge to the validity of the award under Article 44 or alternatively any such challenge may be left to be raised before the Dubai courts.  The matter is not capable of resolution at this stage.  If in due course the matter is left to be raised before the courts of Dubai (which are the courts of the seat) the question whether the bar on considering the merits of the DIFC order before the execution judge would also inhibit the Dubai courts from ruling on a challenge to the validity of the underlying award is a matter for the Dubai courts and is a matter on which we have heard no argument.”

60. In my judgment, the Court of Appeal’s analysis with reference to abuse of process is helpful in relation to the approach that this court should take with regard to the Defendant’s submissions in reliance on breach of public policy. Thus, it was implicit that, given that the combined effect of the Arbitration Law and JAL was to provide a procedure under which an order by the DIFC Court that a foreign award should be recognised automatically invested that award with the status of one that had been ratified for the purpose of enforcement by the “executive” judge in the non-DIFC Dubai Courts, the deployment of that very procedure in order to obtain execution in non-DIFC Dubai could not be said to be abusive.  On the contrary, the availability of that procedure operating reciprocally between two parts of the same Emirate was not engaged by means of some impermissible process or in unconscionable circumstances; it was being deployed for precisely the purpose which the legislation intended.  As Justice Sir David Steel indicated in Meydan Group v Banyan Tree Corporate, an order for recognition by the DIFC Court in circumstances where there were assets or domicile in non-DIFC Dubai but not proved to be currently assets in the DIFC would enable the arbitration creditor to levy execution in the DIFC should assets subsequently be introduced there and/or to deploy the powers of the DIFC Court to investigate by means of cross-examination of the Defendant the whereabouts of any such assets of the arbitration debtor.

61. With regard to the challenge to recognition upon this application based on public order or public policy, the submission is, in my judgment, founded on an untenable basis, namely that such an order, notwithstanding the clear availability of judicial procedure (the Arbitration Law and the JAL) properly enacted within the UAE, would be contrary to the very public policy which it was intended to enact. It is not surprising that neither of the experts on UAE law was able to refer the court to any decision of a UAE Court which had rejected reliance on an enacted law on the grounds that it was contrary to public policy that it be relied upon.

62. The core of the Defendants’ reliance on this argument is that such an order would drive them into a position in which, notwithstanding there being no proof of assets currently in the DIFC and there being no domicile there, they were exposed to DIFC Court procedure whereas, had recognition been sought in non-DIFC Dubai they would have had the benefit of the CPC and in particular the Arabic language. In other words the Claimants’ deployment of the DIFC Courts as the port of entry for enforcement of foreign awards was not only unjustifiable on the grounds of the location of assets and the Defendants’ domicile but was procedurally prejudicial to the Defendants.  However, in adopting the course of recognition which they did the Claimants were doing no more than the enacted procedure of the Emirate permitted.  The locale of assets or domicile in the place of application (DIFC) was not mandatory under the Arbitration Law or the JAL and the unavailability of the CPC Procedure was a necessary consequence of the operation of the JAL.  The extent to which that latter consequence would be procedurally prejudicial would indeed be minimal, given that the expert evidence indicates that the non-DIFC Dubai Courts would confine their investigation of the award to those same matters under Article V.2(b) of the New York Convention which the DIFC must consider in deciding whether to order recognition.

63. Further, there is clear authority that enacted laws are the primary source of public policy: see Uganda Telecoms Ltd. v Hi-Tech Telecom Pty. Ltd. (2011) 277 ALR 415 and also the words of H.E. Justice Ali Al Madhani in X v Y (ARB-001/2014).

“It is very well known that public policy can be generally defined as a system of laws, regulations, regulatory measures, or courses of action concerning a public matter and that the source of that public policy is usually laws.

Thus, it can be said that it is public policy in the whole of the UAE not to apply the CPC within the DIFC”

64. Finally, in states party to the New York Convention there is a strong inclination to permit enforcement of international awards. This was confirmed by Dr Al Mulla with regard to the courts of the UAE.  With regard to the public policy defence under Article V.2(b) of the Convention there is in English Law a particular disinclination to permit it to be used as a defence to enforcement: see Westacre Investments Inc. v Jugoimport SPDR Holding Co. Ltd. [1999] 2 Lloyd’s Rep. 65.  The UNCITRAL Digest summarises the general international approach to the public policy defence in these words:

“Only if the arbitral award fundamentally offended the most basic and explicit principles of justice and fairness in the enforcement State, or evidences intolerable ignorance or corruption on the part of the arbitral tribunal.”

65. Moreover, in the present case the public order or public policy defence is grounded not on any intrinsic characteristic of the award itself or on any alleged procedural defect in the course of the arbitration or the conduct of the arbitrators. Instead, it is founded on an allegation of impermissible use by the arbitration creditor of available recognition and enforcement procedure in respect of a pre-existing award.  In my judgment, this is not a public policy complaint within Article V2(b) of the Convention but rather an objection to the deployment of the procedural mechanism of enforcement in the country of domicile of the arbitration debtor, namely the UAE.  It is therefore an objection which falls outside the scope of challenges permissible upon applications for recognition or enforcement under Article 44(1) of the DIFC Arbitration Law. The words “Recognition or enforcement…may be refused by the DIFC Court only…” (emphasis added) leave absolutely no doubt that it is impermissible for a DIFC Court to refuse recognition or enforcement on any ground other than the grounds listed in Article 44(1)(a) and (b).  Given that those grounds are intended precisely to replicate the grounds set out in Article V2(b) of the Convention, for if there were additional or wider grounds, UAE would be in breach of the Convention, the DIFC Court is precluded from refusing recognition or enforcement by according a meaning to Article 44(1)(b)(vii) which is wider than Article V2(b) of the Convention.  For the reasons which I have given, none of the grounds relied upon can be characterised as contrary to the public policy of the UAE within the meaning of Article 44(1)(b)(vii) of the DIFC Arbitration Law.

66. On behalf of the Defendants, Mr Thompson sought to extract from the Arbitration Law a residual discretion in the DIFC Court to refuse recognition or enforcement notwithstanding the arbitration creditor’s application being neither contrary to public policy nor an abuse of process. The proper construction of Article 44(1) precludes any such residual discretionary refusal of the application. Unless the arbitration debtor brings himself within one of the grounds for refusal under 1(a) or (b) or (2) the DIFC Court must grant the application for recognition or enforcement.

67. For these reasons, the application for recognition and enforcement of this award must succeed.

68. The Defendants shall pay the Claimant’s costs of the application to be assessed by the Registrar if not agreed.

69. 66It is directed that this judgment be published with the parties’ names alone to be redacted.

Issued by:

Amna Al Owais

Deputy Registrar

Date of Issue: 29 July 2015

At: 9am

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