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Developments in the DIFC Court

The DIFC Court is not a conduit for enforcement of foreign judgments in onshore UAE

The DIFC Court of Appeal has confirmed that the DIFC courts will act as a "conduit jurisdiction" for the enforcement of all arbitral awards in the onshore courts of the UAE without requiring any presence or assets in the DIFC 25 (in Banyan Tree Corporate PTE Ltd v Meydan Group LLC).

The Banyan Tree judgment led to speculation that the DIFC courts may also be prepared to act as a "conduit jurisdiction" for the enforcement of foreign court judgments. This would provide the enforcing party with significant advantages since the enforcement route between the DIFC courts and the onshore UAE courts provides for DIFC court judgments and orders to be enforced directly in the onshore execution courts without any re-hearing of the merits of the dispute. In contrast, a direct application to the onshore UAE courts can involve a full re-hearing of the dispute and is subject to appeals.

The DIFC courts provided a definitive answer to the speculation in a July 2015 judgment in the case of DNB Bank ASA v Gulf Eyadah Corp and Gulf Navigation Holding PJSC.

In this case, DNB Bank ASA applied to the DIFC courts for the recognition and enforcement of an English court judgment order that required the Defendants, Gulf Eyadah Corporation and Gulf Navigation Holding PJSC, to pay USD 8.7 million.

DNB Bank ASA referred to the Banyan Tree judgments and argued that the DIFC is an accepted "conduit jurisdiction" for the enforcement of foreign arbitration awards even where the awards have no jurisdictional nexus to the DIFC and that the same should apply in respect of foreign court judgments.

The DIFC court dismissed the application and confirmed that, under Dubai and DIFC laws, the DIFC courts cannot act as a conduit jurisdiction for the enforcement of foreign court judgments in onshore UAE courts. H.E. Justice Ali Al Madhani stated in his judgment:

"[T]his Court cannot be said to be a "conduit jurisdiction Court" if the matter before it is related to a Foreign Court Judgment".

The DIFC Court awards punitive damages of USD 35 million for regulatory breaches

We have reported previously on the landmark decision of the DIFC courts on mis-selling in the case of Al Khorafi & ors v Bank Sarasin- Alpen (ME) Ltd and Bank Sarasin & Co Ltd in which financial services providers in the DIFC and in Switzerland were held liable to investors for breaches of the Dubai Financial Services Authority regulatory framework. 26

On 7 October 2015 the DIFC Court of First Instance handed down its judgment on the damages payable to the investors. This has attracted a lot of attention from financial services providers in the region since the DIFC court doubled the damages payable to the investors, which added a sum of USD 35 million to the total award.

This judgment is the first time that the DIFC courts have exercised the power they have to award multiple damages under the DIFC Law of Remedies and Damages. Under this law, the DIFC courts have the power to award up to three times the actual damages suffered "where it appears to the court that the defendant's conduct producing actual damages was deliberate and particularly egregious or offensive".

The Deputy Chief Justice Sir John Chadwick commented in his judgment that the power given to the DIFC courts to award multiple damages reflected an intention to depart from the remedies available in the English courts in favour of what is available in the U.S. courts. In this case, the Judge held that it was appropriate to award multiple damages against Sarasin-Alpen on the basis of its conduct, which was described in the judgment as follows:

"[I]t is conduct which deliberately seeks to avoid the compliance which ought to be expected of financial institutions operating within the regulatory regime. This is not a case of the First Defendant making a mistake; this is a case of the First Defendant deliberately falsifying its records in order to mislead".

The DIFC Court of First Instance judgment on liability was appealed on multiple factual and legal grounds and that appeal was heard by the DIFC Court of Appeal in October 2015. Following the judgment on quantum (as described above), financial services providers in the region may now await the DIFC Court of Appeal judgment on liability with increased concern. 

Footnotes

25 We reported previously on the DIFC Court of First Instance decision http://www.allenovery.com/publicati ons/en-gb/ lrrfs/middleeastandafrica/Pages/O ther-legal-developments-in-the- UAE.aspx.

26 See: http://www.allenovery.com/publicati ons/engb/ lrrfs/middleeastandafrica/Pages/L andmark-decision-of-the-DIFCCourts- on-mis-selling.aspx.

Legal and Regulatory Risk Note
Middle East