Dispute Resolution & Arbitration

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Azhari Legal Consultancy representing Claimant in a USD 17 million ICC Arbitration Case

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Azhari Legal Consultancy (“ALC”) is currently representing a significant client, a foreign engineering and architecture company, in an International Chamber of Commerce (“ICC”) Arbitration case in Dubai. In this case, ALC team of attorneys and professional staff is offering its breadth of experience and knowledge to arbitrate a dispute in connection with one of the most distinguished construction projects of the region. We will keep you updated on the progress of the case.

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New DIFC-LCIA Arbitration Rules came into effect as of October 1, 2016

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The DIFC-LCIA Arbitration Rules have been slightly amended with effective date of October 1, 2016. In a nutshell, the new DIFC-LCIA Arbitration Rules have incorporated provisions regarding the access to emergency arbitrator (see Article 9B); provision for multi–party disputes (see Articles 1.5 and 2.5); measures to increase efficiency and avoid delays in proceedings (see Articles 9C, 10 and 11); and online filing and commencement of proceedings (see Articles 1.3 and 2.3). It seems clear that the amendments have the purpose to expedite and simplify the arbitration proceedings.

However, the introduction of an ‘Emergency Arbitrator’ gives a party access to interim relief even prior to the constitution of the Arbitration Tribunal.

What is an Emergency Arbitrator?

The constitution of the Arbitration Tribunal, i.e. the appointment of the arbitrators, inevitably can be time-consuming. A problematic situation might arise where interim relief is needed by one party before the tribunal has been constituted. In order to bridge this time-gap, most arbitration rules contain provisions for the appointments of an emergency arbitrator. As such an emergency arbitrator deals with requests for urgent interim relief, such as an interim injunction, before the main tribunal is constituted.

In light of the above situation the newly included Article 9 B provides:

  • 9.4 Subject always to Article 9.14 below, in the case of emergency at any time prior to the formation or expedited formation of the Arbitral Tribunal (under Articles 5 or 9A), any party may apply to the LCIA Court for the immediate appointment of a temporary sole arbitrator to conduct emergency proceedings pending the formation or expedited formation of the Arbitral Tribunal (the “Emergency Arbitrator”).
  • 9.5 Such an application shall be made to the Registrar in writing (preferably by electronic means), together with a copy of the Request (if made by a Claimant) or a copy of the Response (if made by a Respondent), delivered or notified to all other parties to the arbitration. The application shall set out, together with all relevant documentation: (i) the specific grounds for requiring, as an emergency, the appointment of an Emergency Arbitrator; and (ii) the specific claim, with reasons, for emergency relief. The application shall be accompanied by the applicant’s written confirmation that the applicant has paid or is paying to the DIFC-LCIA Arbitration Centre the Special Fee under Article 9B, without which actual receipt of such payment the application shall be dismissed by the LCIA Court. …..
  • 9.8 The Emergency Arbitrator shall decide the claim for emergency relief as soon as possible, but no later than 14 days following the Emergency Arbitrator’s appointment. This deadline may only be extended by the LCIA Court in exceptional circumstances (pursuant to Article 22.5) or by the written agreement of all parties to the emergency proceedings. The Emergency Arbitrator may make any order or award which the Arbitral Tribunal could make under the Arbitration Agreement (excepting Arbitration and Legal Costs under Articles 28.2 and 28.3); and, in addition, make any order adjourning the consideration of all or any part of the claim for emergency relief to the proceedings conducted by the Arbitral Tribunal (when formed).

The application fee is fixed at AED 50,000 (appr. USD 13,600) and the Emergency Arbitrator’s fee amounts to AED 120,000 (appr. USD 32,700)

By inserting Article 9 B the DIFC-LCIA Arbitration opens the door for granting interim relief for the parties of an arbitration prior to the constitution of the Tribunal.

The Enforceability of an Emergency Arbitrational Award

The practical impact of the introduction of an “Emergency Arbitrator” seems to be limited, as the nature of an interim injunction normally requires a sudden and immediate execution, e.g. in the case of an attachment of certain assets. If, for example, the claimant fears that the respondent will dissipate assets outside a specific jurisdiction, a request for an interim injunction before an Emergency Arbitrator might even increase this risk, as Section 9.4 of the DIFC-LIAC Rules 2016 requires that the Applicant and the Arbitration Centre respectively have to notify the Respondent with the request to issue an interim junction. By doing so, the Respondent will be aware of the request and has sufficient time to defeat the purpose of the interim measure, i.e. transferring his funds to a safe haven.

In contrast, in most jurisdictions the national courts issue interim junctions without notifying the Respondent about the request to issue an interim junction, so called ex parte (without notice). Arbitration tribunals, however, never hear ex ante or make ex parte orders.

If the national courts issue an interim junction, it can be executed immediately and it reaches the Respondent without any warning. As such, interim junctions issued by national courts, have – compared to an interim junction of an Emergency Arbitrator – more “bite” and are more effective.

Moreover, the enforceability of an award of an Emergency Arbitration cannot be compared with the recognition and execution of final arbitral awards. The recognition and execution of a final arbitral award is governed in most jurisdictions by the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (“The New York Convention”). As the award of the emergency arbitrator is not (even) binding for the Tribunal that will at a later stage deal with the dispute, it is at least controversial whether an Emergency Award is governed by the Convention. Thus, if it comes to an award of an Emergency Arbitration one has to consider the position of the local courts that have jurisdiction regarding the execution whether they will enforce such award.

In light of the above, the appointment of an ‘Emergency Arbitrator’ still might make sense in the following cases:

  • An interim relief of an ‘emergency arbitrator’ serves its purpose in ongoing contractual relationships mostly in construction case, e.g. an application for specific performance under an existing agreement or the release of an interim payment under a construction contract.
  • The Appellant seeks to keep the entire dispute confidential.
  • It is clear or expected that the Respondent will apply voluntarily with the interim injunction of the Emergency Arbitrator
  • The competent local courts are inefficient or might be partial

In this context, it is worthwhile to mention that Article 9B provides that it shall not prejudice any party’s right to apply to a state court or other legal authority for any interim or conservatory measures before the formation of the Arbitration Tribunal.

The practical impact of emergency arbitration will be limited due to the above mentioned practical obstacles. In certain situations, it will be a case by case decision whether Emergency Arbitration is worth the candle.

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Court of Cassation Rejects the Recognition of a California Judgment – DIFC Courts as “Conduit” Jurisdiction

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Azhari Legal Consultancy defended successfully the recognition and enforcement of a judgment issued by a California District Court. The judgment of the Dubai Court of Cassation rejecting the recognition and execution of the US-judgment is not a “milestone” judgment. It rather confirms the traditional case law related to the recognition and execution of foreign judgment in the UAE.

In this context, the question raised is whether it would have been advisable for the Claimant to have used the DIFC Court as a “conduit” jurisdiction for the recognition and execution of the US-judgment?

The facts:

On May 11, 2014, an action was filed before Dubai Court of First Instance by a U.S. company (“the Claimant”) against a UAE company (“the Defendant”), represented by Azhari Legal Consultancy, for recognition of a judgment from a foreign court – the U.S. District Court, Northern District of California. The Court of First Instance dismissed the case on the grounds that (i) there is no applicable enforcement treaty between the United States and the United Arab Emirates (the “UAE”) and (ii) the judgment by the foreign court was issued in absence of one of the parties (Default Judgement) and as such cannot be deemed a final judgement and therefore it is subject to challenge. Subsequently, the Claimant appealed the judgment to the Court of Appeal.

In its appeal memorandum, the Claimant argued that under the agreement in question, a distribution agreement, the legal procedures must have been followed under the laws of California and accordingly they did a proper service of notice which lead to the Default Judgment. Further, the Claimant cited a UAE Court of Cassation Ruling that all judgements or orders issued by foreign courts may be executed within the UAE if all elements of Article 235 of UAE Civil Procedures Law (the “CivPro Law”) are met. Article 235 of the CivPro Law enumerates the conditions under which a foreign judgement can be executed within the UAE. The Court of Appeal accepted the Claimant’s argument and reversed the Court of First Instance’s decision. Consequently, the Defendant challenged the decision and filed an appeal before the Court of Cassation.

The Court of Cassation (Case No.: 517/2015 date of judgment 08/28/2016) confirmed the Court of First Instance’s decision and opined that in the absence of an applicable enforcement treaty between the UAE and a relevant foreign jurisdiction in which the judgement originated from, a foreign judgment may be executed within the UAE; however, the Claimant failed to prove that all elements of Article 235 of the CivPro Law are met for recognizing and executing the foreign judgement.

This ruling should not surprise anyone since it is fair to say that the enforcement of foreign court judgments, in the absence of an applicable enforcement treaty, are extremely challenging, let alone the uncertainties and risks involved. Practically, in the absence of an applicable enforcement treaty between the UAE and a foreign jurisdiction, the odds of a successful enforcement through the courts of Dubai are slim.

DIFC-Courts as “Conduit” Jurisdiction

Alternatively, the DIFC Court’s enforcement regime may open up a wider route to enforce foreign court judgements within the UAE. According to Article 7(6) of the Judicial Authority Law (the “JAL”) and Article 24(1)(a) of the DIFC Court Law (DIFC Law No. 10 of 2004), the DIFC Courts have jurisdiction to ratify any judgment of a recognized foreign court for the purposes of enforcement in the courts of Dubai.

Several recent judgments by the DIFC Court of Appeal have confirmed that it has jurisdiction to recognize and enforce foreign court judgements. In DNB Bank ASA v Gulf Eyadah Corporation and Gulf Navigation Holdings PJSC, the DIFC Court of Appeal found that: “a foreign judgment when granted recognition in the DIFC Courts, becomes a local judgment of the DIFC Courts and should therefore be treated as such by the Dubai Courts”.

The most important issue to be addressed then would be whether the courts of Dubai are willing to enforce “conduit” DIFC Court judgments. Recent developments in the UAE legal system and in particular the increasing level of cooperation between the Dubai Courts and the DIFC Courts systems suggest a new channel of enforcing foreign court judgments through the DIFC Courts system, even though in practice it yet remains to be seen how the courts of Dubai would react.

In light of DNB Bank ASA v Gulf Eyadah Corporation and Gulf Navigation Holdings PJSC, it would have been certainly advisable for the Claimant to have sought recognition and execution of the California judgment before the DIFC Courts.

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Judicial Tribunal for the Dubai Courts and the DIFC Courts

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On June 9, 2016, H.H. The Ruler of Dubai issued Decree 19/2016 (the “Decree”) to establish the ‘Judicial Tribunal for the Dubai Courts and the DIFC Courts.’ Given the uncertainties as to how DIFC Courts and Dubai Courts should have jurisdiction, the Decree could become an important development in Dubai’s legal system. The intentions of the Decree are to rule on (i) conflicts of jurisdiction; and (ii) conflicts of judgments, between the DIFC Courts and the Dubai Courts.

Even though it is still unclear when the Judicial Tribunal will become operational or what precise procedure an applicant should follow, certain significant developments are expected to occur, thanks to the Decree. A few important ones are the following: a) Binding and non-appealable decisions on jurisdiction must be rendered within 30 working days of filing an application; b) the Judicial Tribunal will comprise the President of the Dubai Court of Cassation (as chairman, who holds the casting vote), 3 judges from the DIFC Courts (including the Chief Justice, and 2 nominated by the Chief Justice) and 3 judges from the Dubai Courts (including the Secretary General of the Judicial Council and Presidents of Courts Appeal and First Instance); and c) Applications to the Judicial Tribunal will result in a stay of the underlying proceedings, including stopping of the clock for the purposes of statute of limitation, in both the DIFC Courts and the Dubai Courts.

While the actual ramifications of the Decree are yet to be seen, it is fair to say that the Decree will provide more certainty on the already-existing conflicts of jurisdiction between the DIFC Courts and the Dubai Courts and perhaps an expansion of the jurisdiction of the former.