Has the pendulum swung back in favour of the DIFC courts? Two new decisions of the Judicial Tribunal

We recently reported on three decisions of the Judicial Tribunal (please click here) following our commentary on the Judicial Tribunal’s controversial first decision in Daman v Oger and the effect on the Banyan Tree jurisdiction (click here). We concluded that, notwithstanding the absence of detailed reasoning in individual decisions, it was possible to piece together the Judicial Tribunal’s approach from its decisions taken as a whole. The two new decisions shine further light on that approach.

1.    The Judicial Tribunal’s approach

We suggested in our last report that, fundamentally, the Judicial Tribunal approaches its role in determining conflicts of jurisdiction as between the DIFC and Dubai Courts on the basis that the Dubai Courts are the courts of general or ‘natural’ jurisdiction, from which the DIFC Court’s jurisdiction is carved out. Therefore, for the DIFC Courts to have jurisdiction, special circumstances, such as submission of a party, must be present. Accordingly, the Judicial Tribunal would only decide in favour of the DIFC courts if certain conditions have been satisfied, namely (i) express submission (or concession) by a party to the DIFC’s jurisdiction (whether to the DIFC Court or for the DIFC to be the seat of arbitration); or (ii) the absence of parallel proceedings in the onshore Courts of Dubai (and therefore no conflict).

The Judicial Tribunal’s approach has important repercussions for the conduit jurisdiction. Typically, when a party seeks to enforce non-DIFC awards or judgments (ie. those rendered in onshore Dubai or abroad), the award or judgment debtor will not have submitted to the jurisdiction of the DIFC. This has led to a concern that a party looking to frustrate enforcement of an award or judgment could simply manufacture a Dubai Court connection (relatively straightforward if the party is situated in Dubai), commence proceedings in onshore Dubai and then apply to the Judicial Tribunal, resulting in a stay of any DIFC Court enforcement proceedings.

Decisions such as these have shaken the foundation of the conduit jurisdiction, painstakingly assembled by the DIFC courts over a line of decisions, and cast doubt over whether awards rendered in arbitrations seated in either onshore Dubai or internationally can be enforced in the DIFC without time-consuming and expensive satellite litigation. As a practical consequence, it could be argued that, while the conduit jurisdiction has been damaged, the Judicial Tribunal’s decisions have in fact enhanced the attractiveness of the DIFC as an arbitration venue.  After all, DIFC awards can be enforced without conduit questions arising.

The Judicial Tribunal has handed down two new decisions, ruling in favour of the DIFC Courts on both occasions. We review each of the decisions in turn below and reflect on how they further clarify the Judicial Tribunal’s approach.

2.    The recent decisions

IGPL v Standard Chartered Bank – Cassation No. 7 of 2017 (JT)

This is a novel decision insofar as it involves a reference made by a previous applicant to the Judicial Tribunal in the same dispute, (Cassation No. 4 of 2016 (JT)). In the earlier case, the Judicial Tribunal had determined the conflict of jurisdiction in favour of the DIFC Courts on the grounds that the applicant had already conceded that the DIFC Court had jurisdiction.

Following the decision in Cassation No. 4 of 2016, in the resumed DIFC Court proceedings, the judgment debtor filed a counterclaim, which the DIFC Court allowed subject to certain conditions, including payment of an outstanding costs order and discontinuance of the proceedings before the Union Supreme Court, commenced prior to Cassation No. 4 of 2016. Refusing to withdraw its petition before the Union Supreme Court, the judgment debtor filed a new application to the Judicial Tribunal, seeking an order from the Judicial Tribunal that the DIFC Court be compelled to accept the counterclaims without condition.

The parties’ arguments turned on Article 4 of Decree No. 19 of 2016 pursuant to which the Judicial Tribunal was established (the “Decree“) which sets out the scope of the Judicial Tribunal’s jurisdiction.  Article 4 provides that the Judicial Tribunal has authority to decide which of the DIFC or Dubai Court is competent to hear proceedings in circumstances where either both Courts accept claims or neither does (in other words, a positive or negative conflict). The judgment debtor contended that the Judicial Tribunal’s previous decision, in proscribing the Dubai Court from hearing the case, and the DIFC Court’s conditional consent to its counterclaims amounted to a negative conflict, ie neither the DIFC nor the Dubai Court had accepted jurisdiction.

The Judicial Tribunal unreservedly dismissed the reference, stating that there were no proceedings before the Dubai Court, and therefore no possible conflict. Further, Article 7 of the Decree provides that the Judicial Tribunal’s decisions “are final and not subject to any form of appeal or challenge” – the judgment debtor’s reference was simply an attempt to appeal or re-litigate the same issues. Finally, the Judicial Tribunal explained its scope, stating that it “is not tasked with dictating the procedures or decision of the Dubai Courts or DIFC courts, and is only authorised to make a determination of the competent court when a conflict of jurisdiction arises“.

Assas OPCP Limited v VIH Hotel Management Ltd – Cassation No. 8 of 2017 (JT)

The second decision is potentially very significant. The application related to a much-reported dispute involving the termination by the owner of the Viceroy Hotel on the Palm of a hotel management agreement. Following the owner’s takeover of the hotel, the hotel operator under the management agreement commenced substantive arbitration proceedings and applied to the DIFC Court for a prohibitive injunction restraining the owner from effecting the takeover, which the DIFC Court granted.

In response, the owner commenced proceedings before the Dubai Court submitting that: (i) the hotel management agreement should be annulled; and (ii) the arbitration agreement was invalid because the individual representing the hotel operator lacked authority. On the basis of the Dubai Court proceedings, the hotel operator argued that the parallel proceedings in the DIFC and Dubai Courts created a positive conflict of jurisdiction and referred the matter to the Judicial Tribunal, at which point all proceedings, including the DIFC Court injunction, were stayed in accordance with Article 5(1) of the Decree.

Significantly, the Judicial Tribunal dismissed the application, holding that the nature of the remedy granted by the DIFC court, an interlocutory injunction aimed at “maintaining and restoring the status quo pending determination of the dispute” by arbitration, did not “prevent either the court or the arbitral panel from entertaining the case“. Accordingly, there could be no conflict as between the DIFC and Dubai Courts, although the Judicial Tribunal did note that there was the potential for one to arise in the future, which would depend on the construction and validity of the arbitration agreement.

3.    Conclusion

The new decisions further elucidate the court’s approach. Although the Judicial Tribunal appears to maintain the view that the Dubai Court is the court of ordinary jurisdiction, the latest decisions demonstrate that the Judicial Tribunal will not necessarily tolerate parties seeking to expand its limited remit or abuse its procedures.  Further, the Viceroy Hotel case illustrates that the Judicial Tribunal is prepared to examine the nature of the proceedings before each of the Courts, determining in that case that the DIFC Court’s orders were preservatory in nature and therefore did not establish a conflict. This should provide comfort to parties with DIFC seated arbitrations that the exercise of the Court’s powers as the courts of supervisory and curial jurisdiction is not likely to be affected if Dubai Court proceedings are commenced.

 

For more information, please contact Craig Shepherd, Partner, Caroline Kehoe, Partner, Joseph Bentley, Associate or your usual Herbert Smith Freehills contact.

Craig Shepherd
Craig Shepherd
Partner
Email | Profile
+971 4 428 6304
Caroline Kehoe
Caroline Kehoe
Partner
Email | Profile
+971 4 428 6302
Joseph Bentley
Joseph Bentley
Associate
Email
+971 4 428 6350

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