Enforcement of Arbitral Awards and WFOs: comparing the DIFC and English court approach
The benefits of arbitration when compared with litigation can include speed, cost, procedural flexibility, sector specific expertise, confidentiality, neutrality and finality. However, obtaining an arbitral award in favour of one party is rarely the end of the process in obtaining the relief to which they are entitled.
In the MENA region, the losing party will rarely comply with an arbitral award against it. As a result, the successful party, or award creditor (the Award Creditor), will have to proceed to enforce the arbitral award against the losing party, or award debtor (the Award Debtor), in order to obtain the relief to which it is entitled.
This article briefly sets out the procedure for enforcing UAE arbitral awards, whether domestic or foreign, with a particular focus on the DIFC courts approach, and alternatively, considers the English courts' approach when seeking to enforce worldwide freezing orders (WFOs) in aid of enforcement of arbitration awards.
Domestic Enforcement of a UAE arbitration award seated in the DIFC
The DIFC introduced the DIFC Arbitration Law in 2008 (the Law), based on the UNCITRAL Model Law on International Commercial Arbitration, making it more practical, efficient and flexible, which adheres to international practices.
The Arbitration Law covers all stages of the arbitral process, dealing with the recognition and enforcement of arbitral awards at Articles 42 to 44 of the Law. Whereas, the enforcement of foreign arbitral awards in the DIFC will be subject to the provisions of the New York Convention.
An arbitral award, irrespective of the state or jurisdiction in which it was made, will be recognised as binding within the DIFC once it has been ratified by the DIFC courts.
A party relying on an award must produce to the DIFC courts an original arbitration agreement (or a duly certified copy) and the original award (or a duly certified copy), and both must be in English (Article 42(2)).
If the DIFC courts are satisfied that the award should be recognised, it will issue an order to that effect (Article 43(1)) in both English and Arabic (Article 43(2)).
Grounds for refusing to recognise or enforce an award
The grounds upon which the DIFC Courts may refuse to recognise or enforce an award are contained under Article 44 of the Law and are as follows:
- The subject matter of the dispute would not have been capable of settlement by arbitration under the laws of the DIFC
- The enforcement of the award would be contrary to the public policy of the UAE
Further grounds for refusing to recognise or enforce an award will only be considered at the request of the party against whom the award is invoked, which include:
- A party to the arbitration agreement was under some incapacity
- The arbitration agreement was not valid according to the laws of the agreement, or under the jurisdiction where the award was made
- The party against whom the award is invoked was not given proper notice of the appointment of an arbitrator, the arbitral proceedings or was otherwise unable to present their case
- The award deals with a dispute not falling within the terms of submission to arbitration
- The tribunal was not constituted in accordance with the terms of the agreement, or absent any agreement, with the laws of the state or jurisdiction where the arbitration took place
- The award has not yet become binding on the parties or has been set-aside or suspended by a court in the state or jurisdiction under which the award was made
These grounds are based on and largely mirror the grounds set out at Article V of the New York Convention.
It is worth noting that awards recognised by the DIFC may be enforced in non-DIFC or 'onshore' Dubai, pursuant to Dubai Law No 12 of 2004 (the Judicial Authority Law).
A recent Court of Appeal decision in DNB Bank ASA v Gulf Eyadah (CA-007-2015) has confirmed that foreign judgments recognised by the DIFC Courts may be enforced against onshore assets in Dubai using the DIFC as the conduit or 'gateway' jurisdiction.
The DIFC Court of First Instance in ARB 006/2017 Isai v Isabelle, ruled in favour of the Award Creditor (being the claimant) and held that the DIFC Court had jurisdiction to hear a claim for the recognition and enforcement of a DIFC-LCIA arbitral award, arising from a Dubai-seated arbitration, governed by UAE laws.
The aforementioned judgments were welcomed by arbitration practitioners in the UAE, on the basis that they opened the door for award creditors to have both foreign and domestic arbitral awards (as well as foreign judgments) recognised and enforced in the DIFC first, thereby avoiding the often lengthy and unpredictable ratification process through the UAE courts
Worldwide Freezing Orders
Freezing orders are interim injunctions which preclude the defendant from disposing or otherwise dealing with its assets in a manner that would undermine enforcement of an arbitral award (or a judgment).
Freezing orders often impose an asset disclosure obligation on the defendant and can be issued before and after an arbitral award is rendered. They can also operate both in respect of assets located within the jurisdiction and outside England and Wales; the latter are known as WFOs.
Application of the UK Arbitration Act
The extent in which English Courts are prepared to grant freezing orders in support of arbitration proceedings is subject to section 44 of the Arbitration Act 1996 (the Act), which mainly provides the court with the power to grant interim injunctions (which includes freezing injunctions) and a list of other matters and circumstances in which it can be granted.
The powers conferred on the court by section 44 of the Act apply even if the seat of the arbitration was outside of England or the arbitration has no seat (s2(3) of the Act), provided that it is not inappropriate to do so.
WFO threshold requirements
Firstly, the threshold requirement to be met by the applicant in respect of the existence of defendant’s assets is that of either a “good arguable case” or “grounds for belief” that the defendant holds assets.
Secondly, and often the most difficult requirement to satisfy when the claimant has limited knowledge of the defendant’s asset position, is the risk of dissipation requirement. The test is that of “a real risk, judged objectively, that a future judgment would not be met because of unjustifiable dissipation of assets”.
Of these, the requirements of good arguable case and real risk of dissipation are subject to the "just and convenient" test, so as to ensure that the legitimate business interests of the losing party are not compromised
It is worth noting that DIFC courts generally follow the same English law principles when considering applications for freezing orders. Generally, the choice of seat as England or otherwise does not affect the grant of freezing injunctions by the English Courts, provided that there is a ‘sufficient connection’ of the assets or either party to England, thereby enabling the English Courts to exercise jurisdiction.
The Commercial Court in ArcelorMittal USA LLC v Essar Steel Limited and others  EWHC 724 (Comm) has recently granted a WFO in aid of the enforcement of an arbitration award, even though the award was foreign, the Claimant and Defendant companies were foreign and there were no significant assets within the jurisdiction.
The Court concluded that there was a “solid risk of dissipation of assets” and that it was “just and convenient” to grant the WFO, despite the absence of factors connecting the case with England. It applied the principle that in cases of “international fraud” the English courts should be more willing to intervene.
The above cases highlight the importance of advising clients on the powerful tools available to DIFC and English courts in aid of enforcement, both before and after the arbitral award is rendered. Some issues to consider when advising clients on enforcement-related issues include:
- Check that signatories to Contracts, Amendment Agreements, Addenda and Settlement Agreements have a Power of Attorney on behalf of the company which they represent that specifically entitles them to agree to arbitration
- When drafting Arbitration Agreements, consider where the assets which you are likely to enforce against are based and whether injunctive relief, which is more readily available in the DIFC courts and English courts, may be required
- The certainty offered by the DIFC courts and English courts on the issue of enforcement of arbitral awards in the UAE or England & Wales merits strong consideration when considering the seat of arbitration