UAE Ministerial Directive Gives the Green Light towards Allowing Enforcement of English Court Judgments onshore the UAE

21 Sept

On 13 September 2022, the UAE Ministry of Justice (MOJ) issued a landmark directive to the President of the Dubai Courts, referring to a recent English Court judgment in Lenkor Energy Trading DMCC v Puri (2020) EWHC 75 (QB) which enforced a UAE Court judgment, and urging the Dubai Courts to take requisite steps to follow the principle of reciprocity when it comes to enforcing English Court judgments in the UAE.

In other words, the MOJ gave the Dubai Courts the “green light” towards allowing direct enforcement of English Court judgments.

Why is this a landmark directive?

The trials and tribulations of enforcing English Court judgments in the UAE have led to a history of confusing precedents – from first being unthinkable, to experimenting with enforcement by using the DIFC Courts as a conduit jurisdiction (which was quickly shut down by the creation of the Joint Judicial Committee), and finally reverting to the long-standing reality that it would be extremely difficult to do so in the absence of a treaty and/or reciprocal judicial treatment between the UAE and England.

With many international contracts governed by English law and English Court jurisdiction, the barriers to the enforcement of English Court judgments in the UAE have long piqued various industry leaders' interest.

Prior to the issuance of the MOJ’s landmark directive, there have been two significant barriers to enforcement (enshrined under Article 85 of the Executive Regulations to the UAE’s Civil Procedures Code (CPC)):

First Barrier: Article 85(2)(A) provides that (inter alia) it is a pre-condition to filing a petition for the enforcement of a foreign court judgment that (a) the UAE Courts did not have exclusivejurisdiction over the underlying dispute, and (b) the foreign court had jurisdiction under private international law; and
Second Barrier: Article 85(1) provides that foreign judgments may be enforced in the UAE “under the same conditions prescribed in the law of that foreign state for the enforcement of [UAE Court] judgments and orders” (i.e. the Principle of Reciprocity).

The First Barrier: UAE Court Jurisdiction

The First Barrier has historically led to a Catch-22 situation – it is a pre-condition for the UAE Courts not to have had jurisdiction over the underlying dispute, but the UAE Courts always have statutory jurisdiction based on the defendant’s UAE domicile, and given that these enforcement actions are almost always lodged against UAE-based defendants, this pre-condition was incapable of being satisfied.

However, the Executive Regulations superseded some of the provisions of the CPC, and one of the key changes introduced was the addition of the word “exclusive” to the First Barrier’s pre-condition. Accordingly, the test now is whether the UAE Courts did not have exclusivejurisdiction over the underlying dispute.

There is no definition or uniform case law in the UAE distinguishing between the Courts’ general statutory jurisdiction vs its “exclusive” jurisdiction. Nonetheless, many commentators have come to a consensus that the distinguishing factor is whether the dispute concerned a right in rem in connection with real property located in the UAE, or similar public policy matters. Whilst there are no precedents in which this has been successfully tested/applied in the context of an enforcement action, the argument is conceptually well-developed based on UAE public policy jurisprudence, and may therefore allow leeway towards satisfaction of the First Barrier.

The Second Barrier: the Principle of Reciprocity

As a base point, there is no bilateral or multilateral treaty between the UAE and England in respect of the mutual recognition and enforcement of each jurisdiction’s court judgments. This then begs the question: is it possible to satisfy the Second Barrier – i.e. proving the existence of reciprocal judicial treatment in enforcement actions between the UAE Courts and the Courts of England and Wales?

In comes the significance of the MOJ’s recent directive, which essentially guides the Dubai Courts towards accepting the existence of reciprocal enforcement of judgments between the UAE and English Courts.

In its letter, the MOJ referred to the bilateral treaty between the UAE and the UK concerning mutual assistance on Civil and Commercial matters and their willingness to strengthen their cooperation in legal and judicial fields. That said, the MOJ recognized that whilst said treaty did not contain any obligations governing the mutual enforcement of court judgments, Article 85(1) of the Executive Regulations to the CPC does not require that a treaty on mutual enforcement be in place to satisfy the Second Barrier (i.e. the Principle of Reciprocity).

The Principle of Reciprocity and the Lenkor Decision

The MOJ stated that the Principle of Reciprocity has materialized as the English Courts have recently enforced a Dubai Court judgment in the case Lenkor Energy DMCC V. Puri (2020) EWHC 75 (QB) (Lenkor). The MOJ emphasized that such final judgment is considered a precedent and binding to all English Courts under the common law system.

In the case of Lenkor, the English High Court considered whether to enforce a Dubai Court judgment in circumstances where it was argued that recognition of the judgment would breach UK public policy since the underlying contractual obligation being enforced was “illegal” (i.e. it breached the principles governing the piercing of the corporate veil (inter alia)). The Dubai Court judgment had found the defendant was personally liable for bounced cheques drawn on a company bank account. The English Court recognized the Dubai Court judgment and held:

As a general principle, a foreign court judgment is only impeachable on the ground that its recognition (rather than the underlying transaction) would be contrary to public policy. On the facts, it was found that the basis of the Dubai Court judgment was the UAE Commercial Code and there was therefore a powerful rationale for the statutory liability it imposed. While it is not in line with English law, it could not be said to oﬀend any principle of English public policy; and
Whilst there may be “circumstances where an English court might enquire into the underlying transactions which gave rise to the judgment”, those circumstances (e.g. corrupt practices) did not arise.

Based on the Lenkor judgment, the MOJ requested, in enforcement actions for English Court judgments or orders, that the Dubai Courts take the required legal steps in accordance with the laws in force in both countries, in order to affirm the Principle of Reciprocity initiated by the English Courts and to ensure its continuity between the English Courts and the UAE Courts.

It, therefore, appears that the MOJ directive has opened the door widely towards a “default” position of satisfying the Second Barrier to the enforcement of English Court judgments through the onshore UAE Courts.

How does this impact future prospects of successfully enforcing English Court judgments onshore the UAE?

The MOJ’s directive certainly gave the green light towards direct enforcement of English Court judgments onshore the UAE by way of petition and without an independent examination of the substantive issues. However, as highlighted above, the MOJ’s letter only satisfies the Second Barrier and remains untested, whereas judicial clarification is also required in respect of the satisfaction of the First Barrier.

Moreover, Article 85(2)(B)-(E) of the Executive Regulations to the CPC set out further pre-conditions to an enforcement application based on UAE public policy, which include:

That the judgment or order has been issued by a Court in accordance with the law of the state in which the judgment or order has been issued and duly certified;
That the Parties to the lawsuit on which the foreign judgment is issued have been required to appear and were properly represented;
That the judgment or order has acquired the legal effect of res judicata according to the law of the issuing Court, provided that a certificate shall be furnished indicating that the judgment has acquired the legal effect of res judicata, or where the same is already stated in the judgment itself; and
That the judgment neither conflicts with a judgment or an order previously issued by a UAE Court nor involves anything that violates the public order or morality.

The above are usually regarded as formalities, but do still require attention as a UAE Court may require evidence to be submitted to support the satisfaction of each pre-condition.

Similarly, whilst the judgment in Lenkor found no circumstances arose under English public policy to warrant an examination of the substantive issues, the residual judicial authority of both courts to do so on public policy grounds remains another obstacle to enforcement.

Accordingly, the MOJ Directive has accomplished strides in substantially increasing a claimant’s prospects to directly enforce an English Court judgment in the UAE – but it cannot be said that it is a straightforward or “guaranteed” process.

Does this mean governing law/ jurisdiction clauses should be reviewed?

In light of the above developments, can parties now be encouraged to incorporate English Court clauses as their choice of jurisdiction in commercial contracts with UAE counterparts?

Whilst the English Court has recognized the Dubai Court Judgment, there is arguably some uncertainty arising from the Lenkor judgment, which recognized that the English Courts have residual power to examine the substantive issues arising out of a UAE Court judgment (or any foreign court) in enforcement proceedings (e.g. corrupt practices or other public policy concerns).

At the time of writing, it would be premature to say that parties should confidently agree on English Court clauses to govern their contracts. Considering that the principle of reciprocity has been evidenced by only one English court judgment and there is still some uncertainty in relation to the definition of the exclusive jurisdiction of UAE courts (First Barrier), we would recommend waiting for the MOJ’s directive to be tested and applied in practice by the UAE Courts prior to adopting such clauses.

Authors

Sreedharan Subramaniam