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DIFC Courts introduce unique mechanism to convert DIFC money judgments into arbitral awards

In February 2015, a new Practice Direction of the DIFC Courts (No 2 of 2015) was introduced that sets out a mechanism for converting DIFC Court judgments into arbitral awards.

The Practice Direction is a recommendation from the DIFC Courts and does not make any substantive change to DIFC laws.

The Practice Direction contemplates that parties to DIFC Court litigation will agree to refer a "Judgment Payment Dispute" to arbitration under the DIFC-LCIA arbitration rules. A "Judgment Payment Dispute" is defined in the Practice Direction as "any dispute, difference, controversy or claim between a judgment creditor and judgment debtor with respect to any money (including interest and costs) due under an unsatisfied [DIFC Court] judgment" including "a failure to pay on demand any sum", but excluding "any dispute about the formal validity or substantive merits of the judgment". The mechanism cannot be used for judgments in respect of employment or consumer contracts.

The obvious attraction of the mechanism is that a judgment debtor could bypass the limitations and uncertainties that apply to the enforcement of a DIFC Court judgment outside of the DIFC/Dubai by relying upon the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which provides an unparalleled mechanism for the enforcement of arbitral awards globally.

The key limitation of the suggested mechanism in the Practice Direction is that it relies upon the parties to DIFC Court litigation agreeing that a final DIFC Court judgment will be referred to arbitration. This would appear to be a challenge both prior to any dispute arising (when the choice would usually be between litigation and arbitration as alternatives) and after a judgment is issued (when it is likely to be difficult to reach any agreement with the unsuccessful party).

Before the Practice Direction was finalised, it was circulated in draft form for public consultation and was met with scepticism by the legal community in the UAE.

The Chief Justice of the DIFC Courts, Michael Hwang, acknowledged that the public consultation process identified a number of "principal worries" which included:

  •  whether national courts at the enforcement stage would consider the conversion of a DIFC Court judgment into an arbitral award to be invalid because non-payment of a judgment may not be a genuine dispute that is capable of being referred to arbitration; and
  • whether the reference of a DIFC Court judgment to arbitration could re-open the merits of the dispute or otherwise undermine the enforceability of the judgment.

The final version of the Practice Direction included changes that were intended to address these concerns, but it has been acknowledged by the Chief Justice of the DIFC Courts that the Practice Direction is an "experiment".

The success or failure of this experiment will depend on whether any parties to DIFC Court litigation will make use of the suggested mechanism and, if so, what the approach of the arbitrators that are appointed will be and how the relevant national courts will treat any resulting arbitral award at the enforcement stage.

In the meantime, many practitioners in the UAE agree with the Chief Justice of the DIFC Courts that the Practice Direction is a unique and bold attempt to "synthesize litigation and arbitration by giving concurrent remedies for enforcement and thereby resolve one of the great problems of international litigation".

Legal and Regulatory Risk Note
Middle East