Gauge Investments Limited v Ganelle Capital Limited  DIFC ARB 003/006
Claim No: ARB 003/2016 and ARB 006/2016
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 RICHARD FIELD
GAUGE INVESTMENTS LIMITED
GANELLE CAPITAL LIMITED
Hearing:19 May 2016
Counsel: Dr Hamish Lal of XXX for the Award Debtor
Mr Scott Geary of XXX for the Award Creditor
Judgment: 8 June 2016
JUDGMENT OF JUSTICE SIR RICHARD FIELD
Summary of Judgment
| This case concerns an arbitration award made by a sole arbitrator of the DIFC-LCIA on 30 January 2016, arising out of a dispute between a DIFC incorporated company providing financial services, regulated by the DFSA (Award Creditor) and an investment company established as a special purpose vehicle to act as owner of a parcel of land to be built upon (Award Debtor). Before the Court were two applications, one by the Award Creditor for the recognition and enforcement of the award and another by the Award Debtor, seeking to set aside the award on the grounds that (i) the subject matter of the dispute was not capable of being settled by arbitration under DIFC Law; and/or (ii) the award was in conflict with the public policy of the UAE, as the claim was founded on DFSA regulatory breaches and to allow these to be arbitrated would be contrary to the public interest.
The learned judge decided that the DIFC Courts ought only to find that the subject-matter of a dispute covered by the wording of an arbitration agreement is non-arbitrable where this has been clearly and distinctly demonstrated; in this case it had not. The learned judge was also satisfied that there was no appreciable risk that a client, professional or retail, would be induced to believe by an arbitration clause that he has no right to complain to the DFSA if he is aggrieved by the way he has been treated by a DIFC provider of a financial service; therefore, there was no conflict of interest with UAE public policy.
Accordingly, the application for the arbitration award to be set aside was dismissed and an order made for its recognition and enforcement.
This summary is not part of the Judgment and should not be cited as such
UPON reviewing the Claim Form in ARB-003-2016 dated 25 November 2015, seeking to set aside a final DIFC-LCIA Arbitral Award (the “Award”) and the Claim Form in ARB-013-2016 dated 17 December 2015, seeking the recognition and enforcement of the Award
AND UPON reading the relevant material in the case file
AND UPON hearing Counsel for the Award Creditor and Award Debtor at a hearing on 19 May 2016
IT IS HEREBY ORDERED THAT:
1.The Award Debtor’s application to set aside the Award is dismissed.
2. The Award Creditor’s application for the ratification and enforcement of the Award is granted.
3. The Award Creditor’s application for costs (if any) and the Award Debtor’s application for permission to appeal (if any) shall be filed within 7 days from the date of this judgment.
4. Replies to both sets of applications shall be filed and served 7 days thereafter.
5. Final replies shall be filed and served 4 days thereafter.
Maha Al Mehairi
Date: 8 June 2016
1.There are two applications before the Court. One is a claim for the recognition and enforcement of an arbitration award (“the Award”) dated 30 January 2016 made by Mr Gaylord as a sole arbitrator (ARB-006-2016). The other is an application to set aside the Award on the grounds that: (i) the subject matter of the dispute was not capable of being settled by arbitration under DIFC Law; and/or (II) the Award is in conflict with the public policy of the UAE.
2. As will appear shortly, the application to set aside the Award is a truly extraordinary application.
3. The parties to both matters before the Court were the parties to the underlying arbitration. In that proceeding Ganelle Capital Limited (“Ganelle), claimed (inter alia) unpaid fees and a declaration of entitlement to an option to purchase up to four apartments, claims that were denied by Gauge Capital Limited (“Gauge”) which counterclaimed for the recovery of fees paid to Ganelle.
4. Ganelle is a company incorporated in the DIFC which provides financial and corporate advisory services and is regulated by the DFSA as a Category III Licence Holder.
5. Gauge is a special purpose vehicle established to act as owner of a parcel of land on the Palm Jumeirah trunk on which a property development project was to be built.
6. On 23 January 2013, Gauge and Ganelle entered into an agreement (the “engagement agreement”) under which Ganelle agreed to introduce XXX Construction Engineering Corporation (“XXX”) and to continue to assist in negotiations with XXX with a view to procuring for Gauge a construction-tied debt financing package as well as looking to secure any other Debt Financing and/or Equity for the project. In consideration of these services Gauge agreed: (i) to pay or to procure the payment of a Debt Advisory Fee equal to 1.5% of the gross amount of the Debt Financing raised and an Equity Placement Fee of 4.00 % of any equity raised; and (ii) to grant Ganelle an option to acquire up to four 2-bedroom apartments “on a friends & family” basis.
7. The engagement agreement superseded an earlier agreement on similar terms made between Ganelle and Gazsa LLC (“Gazsa”), an entity related to Gauge which at the time was the licensed developer of the project.
8. Ganelle introduced XXX to Gazsa and XXX introduced Gauge to ZZZ (“ZZZ”). In May 2013, XXX made an equity investment of AED 27.5 million in Gauge in respect of which Gauge paid Ganelle an Equity Placement Fee of AED 799,830.00; and following the conclusion of a debt facility agreement for US$201 million between Gauge and ZZZ, Ganelle raised an invoice for AED 11,085,000 of which Gauge paid only AED 4,615,984. It refused to pay the balance (AED 6,469,106) or to recognise any option in favour of Ganelle for the purchase of apartments.
9. Clause 10 of the engagement letter provided (in relevant part):
“This letter [i.e. the engagement letter] is governed by and shall be construed in accordance with Dubai International Financial Centre (“DIFC”) law. Any dispute arising out of or in connection with this contract [i.e. the engagement letter] including but not limited to any question regarding its existence, formation, performance, interpretation, validity or termination, shall be referred to and finally resolved by arbitration under the rules of the DIFC-LCIA Arbitration Centre (the “Rules”) from time to time in force, which Rules are deemed to be incorporated by reference into this Clause. …. “
Gauge’s contentions in the arbitration
10. Gauge’s Statement of Defence to Ganelle’s claim was an extremely prolix document the burden of which was to allege that the engagement agreement was unenforceable against Gauge by reason of Ganelle’s many alleged breaches of various rules contained in the DFSA Rulebook concerned with Conduct of Business (“COB”) and Anti Money Laundering (“AML”) and also the DFSA General Module (“GEN”). In particular, Gauge alleged that in breach of COB Rules 2.3.1, 2.3.2 and 2.3.3, Ganelle failed to determine whether Gauge was a “professional client” (as defined) and failed to inform Gauge that it had the option to be treated as a “retail client” (as defined). Gauge also alleged that Ganelle was in breach of GEN Rule 4.2 in that it failed: (i) to observe high standards of integrity and fair dealing; (ii) to act with due care and skill and diligence; (iii) to have adequate systems and controls; (iv) to have regard to the interest of its customer and communicate in a clear, fair and not misleading way; and (v) to take all reasonable steps to ensure that conflicts of interest between itself and its customer were prevented.
11. Paragraphs 22 and 23 of Gauge’s Statement of Defence and Counterclaim read:
“22. For the avoidance of doubt, Article 94 of DIFC Law No.1 of 2004 (the “DIFC Regulatory Law”) empowers a court and by extension an arbitration tribunal to draw the civil law consequences from a financial advisor’s violations of the DFSA regulatory laws and rules where these have been committed “intentionally, recklessly or negligently”. Equally, by virtue of Article 160 (2) of the DIFC Law of Obligations, an arbitrator has the power to set aside the agreement between the financial advisor and a client in the event of breach by the financial advisor of its fiduciary obligations. On this basis, the Sole Arbitrator is therefore empowered to find the relevant violations committed by the Claimant of its fiduciary obligations under all regulatory and other sources of DIFC law and draw the civil law consequences therefrom.
23. For the avoidance of doubt, the Respondent expressly reserves the right to initiate the complaints procedure before the DFSA for the Claimant’s various violations of the DFSA rules and regulations in parallel with the instant arbitration proceedings in accordance with Article 94 of the DIFC Regulatory Law.”
12. In paragraph 44 of Gauge’s Statement of Defence and Counterclaim, Gauge averred that as a consequence of the aforesaid breaches of COB, AML, GEN and fiduciary duty, there had been an irretrievable demise and breakdown in the parties’ fiduciary relationship and in paragraph 45 pleaded:
“45. As a result, the Sole Arbitrator is hereby requested to exercise its powers under Article 94 of DIFC Regulatory Law and declare the [engagement] Agreement null and void.”
13. In its Counterclaim Gauge pleaded that as a consequence of Ganelle’s various alleged violations under the DFSA laws and regulations and/or the DIFC Law of Obligations the parties’ fiduciary relationship had ultimately broken down and (in paragraph 94):
“As a result, the Sole Arbitrator is hereby requested to exercise its powers under Article 94 of DIFC Regulatory Law and/or 160 (2) of the DIFC Law of Obligations, declare null and void and set aside the [engagement] agreement] and order the Respondent to return to the Claimant the Equity Placement Fee …. And the Debt Advisory Fee already paid by the Respondent to the Claimant … “
14. In its Rejoinder to Reply to the Statement of Defence and Counterclaim, Gauge pleaded that: (i) it deemed the arbitrator competent to deal with the regulatory claims and the decision at first instance in the Al Khorafi case confirmed the court’s and, by extension, a tribunal’s competence to investigate regulatory irregularities by virtue of Article 94 of the Regulatory Law (para 175); (ii) by treating Gauge as a “professional client” when in fact it was a “retail client” Ganelle was in breach of COB Rule 2.3.5 and therefore in breach of the Financial Services Prohibition contained in Article 41 of the DIFC Regulatory Law (the “Regulatory Law”) pursuant to Article 65 of the Regulatory Law (para 153); and (iii) the engagement agreement was void ab initio and should be set aside under Article 65 for breach of its regulatory obligations and its implied duty of good faith (para 216).
15. Finally, in Gauge’s Closing Submissions it was submitted that Gauge was entitled to recover the fees paid under the engagement agreement under Article 65, alternatively Article 94 by reason of Ganelle’s regulatory breaches.
The arbitrator’s decision
16. The sole arbitrator rejected all of Gauge’s many pleaded defences and Counterclaim based on alleged breaches of DFSA regulatory rules and Articles 65 and 94 of the DIFC Regulatory Law and upheld Ganelle’s claim to the balance of the Debt Advisory Fee. In particular, he found that Ganelle was entitled to treat Gauge as a “professional client” and had given Gauge the opportunity to elect to be classified as a “retail client.” He also found that Ganelle owed no fiduciary duties to Gauge. As regards Ganelle’ claim that it had an option to purchase up to four 2-bedroom apartments, the arbitrator rejected this claim on the ground that it had been waived by Ganelle.
17. In relevant part, in his Final Award the arbitrator ordered that Gauge should pay to Ganelle the following sums:
(1) AED 6,469,106, being the balance of the Debt Advisory Fee, together with simple interest thereon at 4% pa in the sum of AED 484,207.16 to date and continuing thereafter to accrue from 31 January 2016 at the daily rate of AED 708.94.
(2) AED 1,356,825.53 by way of legal costs.
(3) AED 179,650.00 by way of costs of the arbitration as fixed by the DIFC-LCIA.
Gauge changes its legal representation and applies to set aside the Award
18. The Award was issued on 30 January 2016, by which date no notice of any change of legal representation by Gauge had been served on the arbitrator. Thereafter, Gauge engaged Akin Gump Straus Hauer & Feld in place of the legal team that had acted throughout the arbitration proceedings, Baker & McKenzie Habib Al Mulla and Mr Richard Hill QC.
19. On 16 March 2016, Gauge, acting by its new solicitors, issued its application to set aside the Award on the ground that the arbitration’s regulatory subject matter (for which it was entirely responsible) was non-arbitrable and in conflict with UAE public policy within the meaning and effect of Article 41 (1) and Article 41 (2) (b) (i) & (iii) of the DIFC Arbitration Law.
Has Gauge waived any entitlement to apply to set aside the Award?
20. Article 9 of the Arbitration Law provides:
“A party who knows that any provision of this Law, including one from which the parties may derogate, or any requirement under the Arbitration Agreement has not been complied with and yet proceeds with the Arbitration without stating his objection to such non-compliance without undue delay or, if a time limit is provided therefor, within such period of time, shall be deemed to have waived his right to object.”
21. Mr Geary for Ganelle contended that Gauge had waived its right to object under Article 9 but he reluctantly conceded that Gauge was not debarred from seeking to set aside the Award on grounds of non-arbitrability and/or conflict with public policy. The effect of Article 9, submitted Mr Geary, was to debar Gauge from advancing a defence based on breaches of DFSA regulations in any subsequent proceedings in which Ganelle repleaded the claims it made in the arbitration.
22. I have some doubts whether Mr Geary’s concession was soundly based but, it having been made, I did not stop Gauge from proceeding with its application.
The case advanced by Gauge in support of its application to set aside the Award
23. As recorded above, the application to set aside the Award was made under Article 41 (1) and Article 41 (2) (b) (i) & (iii) of the DIFC Arbitration Law (the “Arbitration Law”) which, in relevant part, provide:
“41 (1) Recourse to a Court against an arbitral award made in the Seat of the DIFC may be made only by an application for setting aside in accordance with paragraphs (2) and (3)
41 (2) Such application may only be made to the DIFC Courts. An arbitral award may be set aside by the DIFC Courts only if:
(b) the DIFC Courts finds that:
(i) the subject-matter of the dispute is not capable of settlement by arbitration under DIFC Law;
(ii) … or
(iii) the award is in conflict with the public policy of the UAE.”
24. The argument that the subject matter of the dispute was not capable of settlement under DIFC proceeded under two limbs. The first limb focussed on the fact that Articles 65, 94 and 95 of the Regulatory Law expressly contemplate proceedings in “the Court” which is defined as “the DIFC Courts as established under Dubai Law. Dr Lal, representing Gauge, submitted that these provisions were to be read as precluding arbitration as a means of determining civil claims founded on DFSA regulatory breaches.
25. Articles 65, 94 and 95 of the DIFC Regulatory Law provide:
“65. Unenforceable Agreements – Breach by Party to the Agreement
(1) Subject to Article 65(5), a person who makes an agreement in the course of carrying on a Financial Service in breach of the Financial Services Prohibition or the Collective Investment Prohibitions, or who makes an agreement as a result of the making by himself or another person of a Financial Promotion which is in breach of the Financial Promotions Prohibition shall not be entitled to enforce such agreement against any party (a “relevant party”) to the agreement.
(2) Subject to any agreement that may otherwise be reached between the parties, a relevant party may apply to the Court to recover: (a) any money paid or property transferred by him under the agreement; (b) compensation reflecting any loss sustained by the relevant party as a direct result of such payment or transfer; and (c) compensation for an amount becoming due that is dependent upon a contingency occurring under the relevant agreement, provided that such contingency shall have occurred prior to the relevant party being notified by the other party or by the DFSA that the agreement has been entered into in breach of the Financial Services Prohibition, the Collective Investment Prohibitions or the Financial Promotions Prohibition.
(4) The compensation recoverable under Article 65(2)(b) is the amount agreed between the parties to the agreement or, following an application to the Court, the amount determined by the Court.
(5) If the Court is satisfied that the person: (a) carrying on the Financial Service reasonably believed that he was not in breach of the Financial Services Prohibition or the Collective Investment Prohibitions by entering into such agreement; or (b) who made the Financial Promotion reasonably believed that he was not in breach of the Financial Promotions Prohibition, or 41 (c) who made an agreement as a result of the making by another person of a Financial Promotion which was in breach of the Financial Promotions Prohibition, did not know that the relevant Financial Promotion was in breach of the Financial Promotions Prohibition, and that it is fair and just in the circumstances to make such an order, it may make one or more of the following orders: (d) an order that the agreement be enforced between the parties to such extent and under such terms and conditions as the Court sees fit; or (e) an order that money paid or property transferred under the agreement be retained or dealt with in accordance with the agreement or in such manner as the Court deems fit.
94. Civil Proceedings
(1) Where a person:
(a) intentionally, recklessly or negligently commits a breach of duty, requirement, prohibition, obligation or responsibility imposed under the Law or Rules or other legislation administered by the DFSA; or
(b) commits fraud or other dishonest conduct in connection with a matter arising under such Law, Rules or legislation;
the person is liable to compensate any other person for any loss or damage caused to that other person as a result of such conduct, and otherwise is liable to restore such other person to the position they were in prior to such conduct.
(2) The Court may, on application of the DFSA or of a person who has suffered loss or damage caused as a result of conduct described in Article 94(1), make orders for the recovery of damages or for compensation or for the recovery of property or for any other order as the Court sees fit, except where such liability is excluded under the Law or Rules or other legislation administered by the DFSA.
95. Power of DFSA to Intervene in any Proceedings
(1) The DFSA may intervene as a party in any proceedings in the Court where it considers such intervention appropriate to meet the objectives of the DFSA.
(2) Where the DFSA so intervenes, it shall, subject to any other law, have all the rights, duties and liabilities of such a party.”
26. The second limb of Gauge’s non-arbitrability case was to the effect that to allow claims founded on DFSA regulatory breaches to be arbitrated would be contrary to the public interest, given the DFSA’s role as the appointed regulator of financial services within the DIFC, that role involving, inter alia: (i) a power to make regulatory rules and to discipline entities providing financial services which breach those rules; (ii) duties under s. 8 of the Regulatory Law to foster confidence in and maintain the financial stability of the financial services within the DIFC; to protect users of the financial services industry in the DIFC; and to prevent, detect and restrain conduct that causes or may cause damage to the reputation of the DIFC or the financial services within the DIFC.
27. Dr Lal, also submitted that if claims founded on regulatory breaches could be arbitrated this could have “unsatisfactory consequences” which strongly pointed to the conclusion that such claims were non-arbitrable. The consequences he asserted were: (i) users may not appreciate the full implications of an arbitration agreement which might provide for a determination in a faraway jurisdiction by an unsuitable arbitrator; (ii) users may be induced to think that they have no right to complain to the DFSA; (iii) the hearing would be in private allowing alleged breaches of the rules to be “swept under the carpet”; (iv) arbitrators may take a less stringent view of alleged misconduct than the DFSA or the DIFC Courts and may be misled into thinking that they are empowered to impose disciplinary sanctions; (v) inconsistent findings may result where disciplinary proceedings are instituted by the DFSA in parallel with arbitration proceedings or the doctrine of res judicata may prevent DFSA proceedings in respect of regulatory breaches pronounced on by an arbitrator in a civil claim founded on those breaches; and (vii) the DFSA may not have the same right to intervene in arbitration proceedings as it does in DIFC Courts proceedings under Article 95 of the Regulatory Law.
28. The second limb of the non-arbitrability case was also advanced under Article 41 (2) (b) (iii) of the Arbitration Law (conflict with the public policy of the UAE) on the undoubted footing that the DIFC was part of the UAE.
29. In this regard, Dr Lal drew the Court’s attention to Article 3 of The Law of Civil Transactions, Federal Law No. 5 of 1985 (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 sovereignty, freedom of trade, the circulation of wealth, rules of private ownership and the other rules and foundations upon which society is based, in such manner as not to conflict with the definitive provisions and fundamental principles of the Islamic Shari ‘ah”.
30. Dr Lal cited a number of cases decided in the UAE Courts from which he drew the conclusion that there can be no arbitration in respect of claimed dispositions of property if a mandatory provision regulating the registration of the property has not been complied with. He submitted that, by parity of reasoning, there can be no arbitration of claims founded on DFSA regulatory breaches, these being matters within the concept of UAE public policy.
31. In the Singapore Court of Appeal decision Larsen Oil and Gas Pte Ltd v Petroprod Ltd  SGCA 21, V K Rajah said:
“44. The concept of non-arbitrability is a cornerstone of the process of arbitration. It allows the courts to refuse to enforce an otherwise valid arbitration agreement on policy grounds. That said, we accept that there is ordinarily a presumption of arbitrability where the words of an arbitration clause are wide enough to embrace a dispute, unless it is shown that parliament intended to preclude the use of arbitration for the particular type of dispute in question (as evidenced by the statute’s text or legislative history), or that there is an inherent conflict between arbitration and the public policy considerations involved in that particular type of dispute.
32. These words were cited with approval by Patten LJ in Fulham Football Club (1987) Limited v (1) Sir David Richards and (2) The Football Association Premium League Limited  EWCA Civ 855, a case whose facts are not dissimilar (in a general sense) to those in the instant case. The question for decision was whether a petition presented under s. 994 of the UK Companies Act 2006 (the “CA 2006”) for an order based on an allegation that the 2nd Respondent’s affairs had been conducted in a manner unfairly prejudicial to the interests of its members or part of its members should be stayed pursuant to s. 9 of the UK Arbitration Act 1996 (the “1966 AA”) on the ground that it was in respect of a matter which fell within an arbitration agreement. Article 79 of the Articles of Association of the 2nd Respondent required the company to comply with the rules of the Football Association (the “FA Rules”) which contained a rule obliging members of the Football League to submit all disputes that arose between them to binding arbitration. The s.994 petition was presented by the applicant, Fulham Football Club (“Fulham”) which complained that the 1st Respondent (the 2nd Respondent’s Chairman) had interfered in breach of the FA Rules with the transfer of a player for Portsmouth City Football club with the result that instead of being transferred to Fulham (which had made a prior offer for him) he was transferred to Tottenham Hotspur Football Club (“Tottenham”). The relief sought was an injunction restraining the 1st Respondent from acting as an unauthorised agent or participating in transfer arrangements; and/or an order that he cease to be Chairman of the 2nd Respondent; and such other relief as the Court thinks fit.
33. Fulham argued that the arbitration agreement could not apply to a s. 994 petition because: (i) that section conferred a statutory right to present an unfair prejudice petition; (ii) only a court could make an order under s.994 and in doing so would be exercising a supervisory jurisdiction; and (iii) the petition sought a class remedy which required the court to have regard to the interests of other shareholders and possibly creditors.
34. The Court of Appeal held that the petition should be restrained under s. 9 of the AA. The determination of whether there had been unfair prejudice consisting of a breach of an agreement or some other unfair unconscionable behaviour was plainly capable of being decided by an arbitrator; and an arbitral tribunal constituted under the FA Rules would have power to grant the specific relief sought by Fulham, even if it did not have power to make a winding up order (which was not part of the specific relief being sought and was an order that in any event would be rarely made where the company was solvent). Nor did the determination of the issues call for some kind of state intervention in the affairs of the company which only a court should sanction. Further, s. 994 of the 2006 CA was not to be construed as granting an unfettered right of access to the court which could not be relinquished by entering into an arbitration agreement.
35. In Longmore LJ’s view there were 3 questions to be answered: (1) On its true construction, did the arbitration clause cover the dispute on which the s.994 petition was founded? (2) Did the CA 1996 expressly or impliedly prohibit the reference to arbitration of such matters? (3) If there was no statutory prohibition of the reference, did public policy prohibit such a reference?
36. I respectfully propose to adopt the same approach. Thus question (1) will be whether the wording of Clause 10 of the engagement agreement covers Gauge’s claims founded on alleged breaches of the DFSA regulatory rules and Article 94 of the Regulatory Law? Question (2) will be whether the Regulatory Law, including in particular Articles 65, 94 and 95, expressly or impliedly prohibits the reference to arbitration of claims for civil relief based on regulatory breaches? And question (3) will be whether the reference to arbitration of civil claims based on regulatory breaches is contrary in conflict with the public policy of the UAE, including the DIFC.
37. As to question (1), it is common ground that Gauge’s claims under Articles 65 and 94, going as they do to the performance and validity and termination of the engagement agreement, are covered by the wording of Clause 10.
38. Questions (2) and (3) are closely related and require consideration of the powers and functions of the DFSA.
39. The DFSA is a public body established under the Regulatory Law. Under Article 8 it has a duty to perform its functions and powers in pursuance of a number of specified objectives including: [A] fostering and maintaining fairness, transparency, efficiency, confidence in and the financial stability of the DIFC financial services industry; [B] preventing detecting and restraining conduct that causes or may cause damage to the reputation of the DIFC or the DIFC’s financial services industry through appropriate means including the imposition of sanctions; and [C] protecting direct and indirect users and prospective users of the financial services industry in the DIFC.
40. Under Article 23 of the Regulatory Law, the DIFC’s Board of Directors is empowered to make Rules and to incorporate therein Standards or Codes of Conduct to be complied with entities carrying on a financial service in the DIFC. In addition, the DFSA has powers under Chapter 3 Part 1 of the Regulatory Law to issue and withdraw or suspend licences for Licensed Functions. It also has powers of supervision and investigation under Chapter 1 of Part 5; and under Article 90 of the Regulatory Law it may fine or censure or make restitution orders where a person is found to have contravened a provision of any legislation administered by the DFSA.
41. The Financial Markets Tribunal (the “FMT”) is part of the DFSA. It has powers under Chapter 5 Part 1 of the Regulatory Law to hear references to review decisions of the DFSA. It also hears regulatory proceedings to hear certain types of matters as prescribed under the Laws or Rules such as disputes over a takeover offer or an offer of securities.
42. In contrast to the above referred-to provisions of the Regulatory Law dealing with the DFSAs public functions, Articles 65 and 94 confer personal rights on users of financial services to obtain orders rescinding financial service agreements and for compensation where a provider of a financial service has acted in serious breach of a regulatory rule or rules.
43. Plainly, steps or proceedings taken by the DFSA and the FMT under their enforcement, disciplinary and adjudicative powers will not be undertaken in arbitration proceedings. This is so, first, because it is inconceivable that the DFSA and the FMT would agree to perform these functions through the medium of arbitration and, second, because as matter of statutory interpretation, neither the DFSA nor the FMT can delegate to an arbitral tribunal their enforcement, disciplinary and adjudicative powers. Does it follow that where a user of financial services relies on regulatory breaches to found a private civil remedy under Article 65 or Article 94 in arbitration proceedings that such proceedings are non-arbitrable and/or contrary to the public policy of the UAE?
44. The English courts have held that the underlying policy of the 1966 AA is to give effect to the autonomy of parties to agree to have disputes determined by arbitration rather than in court proceedings. In recognition of this policy, the English courts have become much readier to enforce arbitration agreements than was previously the case; see eg Fulham Football Club; Assaubayev v Michael Wilson Partners Ltd  EWCA Civ 1491 and Salford Estates (No:2) Ltd v Altomart Ltd  EWCA Civ 1575.
45. In my opinion, the underlying policy of the Arbitration Law is the same as that which informs the 1966 AA. This is clear from a number of Articles within the Arbitration Law. For example: Article 13 compels the DIFC Courts to dismiss or stay an action brought before it which is the subject matter of an arbitration agreement which is not null and void, inoperative or incapable of being performed; Article 23 provides that an arbitral tribunal has competence to decide questions going to its jurisdiction; and Articles 10, 41 and 42 severely restrict the grounds of challenge to an award that can be taken in court proceedings. It follows, in my opinion, that a DIFC Courts ought only to find that the subject matter of a dispute covered by the wording of an arbitration agreement is non-arbitrable where this has been clearly and distinctly demonstrated.
46. As exemplified by Khorafi et al v (1) Bank Sarasin-Alpen (ME) Ltd and (2) Bank J Safra Sarasin Ltd (formerly Bank Sarasin & Co Ltd) (CFI 026/2009 and CA 003/2015), Articles 65 and 94 of the Regulatory Law contemplate proceedings before a DIFC Courts to which the DFSA is not a party and in which private civil remedies are sought on the back of breaches of DFSA rules and regulations. In my judgment, such civil claims are arbitrable and are not contrary to the public interest of the UAE. They do not trespass on or conflict with the public functions of the DFSA. A party to an arbitration asserting a civil contract remedy founded on a regulatory breach or breaches would remain free to present a complaint to the DFSA and the DFSA would remain free of its own motion to investigate the breaches relied on in the arbitration proceedings and to bring disciplinary proceedings if thought appropriate. The doctrine of res judicata would not apply since the former proceeding will have involved a private civil claim, whilst the other will have been in the nature of public disciplinary/enforcement proceedings.
47. I reject Dr Lal’s submission that the reference to “the Court” in Articles 65, 94 and 95 of the Regulatory Law means that those provisions are to be construed as meaning that only a DIFC Courts can hear claims for rescission and compensation based on regulatory breaches. There is no express requirement in the Regulatory Law that such claims under Articles 65 and 94 should not be referred to arbitration and, as Longmore LJ observed in the Fulham Football Club case:
“the fact that a statutory power, which a court would not have at common law apart from the statutory provision, is given to the court does not mean that an arbitrator, to whom a dispute is properly agreed to be referred, does not have a similar power. Power to make awards of monetary sums as between joint tortfeasors and between those who together have acted in breach of separate contracts are given to “the court” by various statutory provisions but it cannot be suggested that arbitrators are prohibited from making such awards: see Wealands v ICLC Contractors Ltd  2 Lloyd’s Rep 739 paras. 16-18. Such awards are frequently made.” (Para 96).
48. The DFSA’s guidance given in respect of GEN Rule 9.2.6 that requires a complainant retail client to be provided with other avenues of resolution of his complaint is also indicative of a regulatory and legislative intent that a civil claim based on regulatory breaches is arbitrable. The guidance reads:
“Other avenues for resolution of a Complaint may include an external dispute resolution scheme, arbitration or the DIFC Courts.”
49. I am also not persuaded by any of Dr Lal’s postulated “unsatisfactory consequences” if a contract claim based on Articles 65 and 66 were to be arbitrable.
50. In my view the likelihood that financial services providers in the DIFC might insert outlandish arbitration clauses in their client agreements that are then accepted by their clients is vanishingly remote. Most persons or firms authorised to carry on a financial service in the DIFC are authorised to provide such a service to professional clients only who, as a class, can be assumed to be ready to protect their interests to the extent of reading carefully and understanding the terms of the engagement contract. This is certainly the assumption made in the DFSA GEN Rules that do not expressly require an Authorised Firm in Rule 9.3.1 to have in place “a suitable” complaints procedure for professional clients. Also few, if any, authorised firms or persons would risk a complaint to the DFSA by adopting an outlandish arbitration agreement. As for those few firms or persons authorised to carry on a financial service for retail clients, if they incorporated an outlandish arbitration agreement they would be in breach of GEN Rule 9.2.2 that requires them to have adequate procedures that provide that complaints are handled “fairly”.
51. I am also satisfied that there is no appreciable risk that a client, professional or retail, would be induced to believe by an arbitration clause that he has no right to complain to the DFSA if he is aggrieved at the way he has been treated by a DIFC provider of a financial service.
52. Nor do I think that the private confidential nature of arbitration proceedings is a reason for finding that a civil claim under Articles 65 and/or 94 is non-arbitrable and/or contrary to the public interest. A complainant is free to complain to the DFSA of the regulatory breaches on which he seeks to rely in arbitration proceedings in support of a private Article 65 and/or Article 94 claim. Further, arbitration proceedings whether pending or concluded will be no bar to disciplinary proceedings being brought by the DFSA. Arbitration proceedings will also be no bar to the DFSA bringing disciplinary or enforcement proceedings on its own initiative. It is for these reasons that I am also of the view that the DFSA’s right to intervene in Court proceedings under Article 95 of the Regulatory Law does not compel the conclusion that arbitration is precluded by the Regulatory Law or would be contrary to the public interest.
53. It is possible that an arbitrator on the one hand, and the DFSA or the FMT on the other, might reach inconsistent decisions on the question whether regulatory breaches relied in the arbitration and complained about to the DFSA have been made out. But this is not a reason for finding that claims based on regulatory breaches are non-arbitrable. Rather, it is a consequence of which the parties took the risk when entering into the arbitration agreement. It is also a potential consequence of the bringing of a civil claim based on regulatory breaches in the DIFC Courts whilst those same regulatory breaches are prosecuted in separate DFSA disciplinary proceedings, and yet notwithstanding such a potential outcome, the Regulatory Law provides for the bringing of Article 65 and 94 claims in the DIFC Courts.
54. It is also possible that an arbitrator may take a more or a less stringent view of alleged regulatory breaches than would the DFSA or FMT. This again is not something of which the parties can complain, having agreed to refer the dispute to arbitration. Also, as noted above, the public interest will not be compromised because the client or the DFSA on its own initiative can start disciplinary proceedings. And if the arbitrator is misled into imposing disciplinary sanctions, any such award could be successfully challenged under Articles 42 and/or 43 of the Regulatory Law.
55. I have given careful consideration to whether the Award is in conflict with the public policy of the UAE. As noted in paragraph 29 above, UAE public policy is defined in Article 3 of The Law of Civil Transactions, Federal Law No. 5 of 1985. I also note that it was said by the Abu Dhabi Court of Cassation in Case No. 663 of 2012 that “public policy is a set of guidelines for taking decisions and pursuing actions that are of fundamental concern to society.” In my judgment, the Award is not in conflict with UAE public policy. The decisions of the Dubai courts drawn to my attention by Dr Lal all involved dispositions of property where a mandatory provision regulating the registration of the property had not been complied with. I do not think that it follows from those decisions that the Award conflicts with UAE public policy. The Award is not in conflict with the rules and foundations upon which society is based.
Decision on Gauge’s application
56. For the reasons I have given I dismiss Gauge’s application to set aside the Award.
Decision on Ganelle’s application for recognition and enforcement of the Award
57. It is common ground that if Gauge’s set-aside application fails, Ganelle is entitled to an order recognising the Award and enforcing it as a judgment of this Court under Article 43 of the Arbitration Law. I shall therefore make the recognition and enforcement order applied for Ganelle.
58. If I had concluded that Gauge was otherwise entitled to have the Award set aside on the grounds advanced herein, I would have made a costs order reflecting its withdrawal of the concession it implicitly made in the arbitration proceedings that its defence and counterclaim based on breaches of DFSA regulations and Articles 65 and 94 of the Regulatory Law were arbitrable and not in conflict with UAE public policy. Such an order could have been made in the form of a condition for the necessary permission to withdraw the concession requiring Gauge to pay Ganelle’s costs of the arbitration in the sum awarded by the arbitrator (see e.g. Investment Group Private Limited v Standard Chartered Bank [CA 004/2015] at para 64). Alternatively, it could have been a costs order made under RDC 38.6 – 38.9. As it is, upon obtaining the recognition and enforcement order it sought, Ganelle is entitled to its costs of that application and is now in a position to enforce the arbitrator’s award in full as a judgment of this court. It is also in a position to seek an order for its costs in resisting Gauge’s set aside application in accordance with the procedural order I make below.
Procedural Order for Consequential Applications
59. All applications going to matters consequential to this judgment, including costs and permission to appeal, must be made in writing supported by concise skeleton arguments to be served in accordance with the following timetable:
(1) Ganelle’s applications for costs (if any) and Gauge’s application for permission to appeal (if any) to be served within 7 days of the issue date of this judgment.
(2) Replies to both sets of applications to be served 7 days thereafter.
(3) Final replies to be served 4 days thereafter.
Maha Al Mehairi
Date: 8 June 2016