Introduction
On 26 June 2023, the ADGM Courts handed down a landmark ruling in A8 v B8[1], a case that concerned the recognition and enforcement of an arbitral award in the ADGM. Our Dispute Resolution team was fortunate enough to have represented the Claimant (and successful party) in the case.
Factual Background
In September 2022, A8 prevailed in an ICC arbitration that culminated in it being awarded an aggregate sum of AED 7 million (the “Award”). Despite a written demand being made to B8 calling on it to settle the awarded sum, B8 failed to do so. As such, A8 sought to have the Award ratified and enforced in the onshore Abu Dhabi Courts (the “ADJD Courts”). In parallel, B8 brought proceedings in the ADJD Courts to have the Award set aside.
In both of those applications, the ADJD Courts found that it had no jurisdiction. Instead, the ADJD Courts took an unusual view that the ADGM Courts were “exclusively competent” to consider such applications on the basis that the ICC has a representative office within the geographical area of the ADGM. The ADJD Courts noted that because the ICC’s representative office is situated within the ADGM, this meant that the “venue of arbitration” was the ADGM, over which the ADGM Courts have exclusive jurisdiction. Both A8 and B8 appealed the respective decisions, but to no avail.
Accordingly, having exhausted all available options in the ADJD Courts to have the award ratified and enforced, A8 filed an arbitration claim in the ADGM Courts for recognition and enforcement of the Award. The claim was brought pursuant to Section 60(1)(c) of the ADGM Arbitration Regulations[2]. Unsurprisingly (given its prior conduct to frustrate enforcement of the Award), B8 responded to the claim by challenging the ADGM Courts’ jurisdiction (the “Jurisdiction Application”).
The Parties’ Positions
Defendant’s Position
B8, in essence, advanced two main arguments in support of its Jurisdiction Application. Firstly, it asserted that Section 60(1)(c) of the ADGM Arbitration Regulations was not satisfied because the Award was not one that A8 sought to enforce in the ADGM. In support of this, B8 filed witness statement evidence stating that it had no assets in the ADGM. However, A8 did not accept that evidence; A8’s investigations showed what appeared to be B8’s affiliated companies, with common directors, registered in the ADGM.
Secondly, B8 took the position that, given the 2020 amendments[3] to the ADGM Founding Law, the ADGM Courts could not be used as a conduit jurisdiction and therefore any recognition and enforcement order issued by the ADGM Courts would be futile.
Claimant’s Position
In reply, A8 asserted that the Award evidently fell within the meaning of Section 60(1)(c) since it is an “arbitral [award] which [is] sought to be recognised and enforced in the Abu Dhabi Global Market, irrespective of the State or jurisdiction in which [it was] made”. Regarding the conduit jurisdiction point, A8 submitted that this particular case was not your typical conduit jurisdiction case.
A8 asserted that, ordinarily, conduit jurisdiction cases involve an element of circumvention whereby the party ultimately seeking enforcement in onshore Abu Dhabi, initiates proceedings in the ADGM Courts to bypass the ADJD Courts. The goal in such conduit jurisdiction cases is for the party seeking enforcement to benefit from a streamlined execution framework agreed between the two jurisdictions. However, in the present case, A8 had not filed enforcement proceedings in the ADGM Courts to bypass the ADJD Courts, but had filed those proceedings simply because the ADJD Courts, quite remarkably, refused to entertain the application and, instead, referred A8 to the ADGM Courts.
The Court’s Decision
In the Court’s view, there were three issues to be decided. Firstly, whether the Award should be recognised in the ADGM. Secondly, whether the Award should be enforced in the ADGM. And thirdly, whether the Court should direct that the executory formula be affixed to the recognition and enforcement order, if granted.
Before going a bit deeper into the decision, it is important to briefly explain what the executory formula is and why it was something A8 sought to be affixed in this case. The executory formula is a form of words that are generally affixed to ADGM Court judgments and orders in the event that the successful party seeks to execute the terms of any such judgments/orders in onshore Abu Dhabi (through the ADJD Courts). According to Article 12 of the Memorandum of Understanding between the UAE Ministry of Justice and the ADGM Courts dated 4 November 2019 (the “MoU”), the executory formula directs the ADJD Courts to execute ADGM Court judgments and orders in the following manner: “[t]he authorities and competent bodies must proceed to execute this instrument and to carry out the requirements thereof, and they must give assistance in the execution thereof even by force if so requested”.
Therefore, an ADGM Court judgment or order that bears the executory formula is an instrument that makes enforcement in onshore Abu Dhabi much more streamlined. As Article 2 of the MoU explains, the MoU was concluded “so that [the parties] can formalise the agreed procedures for the reciprocal enforcement of judgments, decisions and orders, and arbitral awards ratified or recognised by the Federal Courts and ADGM Courts respectively, without re-examining the substance of the dispute on which they have been issued”.
Recognition
During the course of the proceedings, B8 did not deal with or invoke any of the grounds for refusing recognition or enforcement as set out in Section 62(1) of the ADGM Arbitration Regulations. As such, the Court found that there was no reason why the Award should not be recognised in this case.
In this regard, the Court referred to an earlier ADGM Court decision (A4 v B4[4]) in which Justice Sir Andrew Smith confirmed that because the language of Section 61(1) of the ADGM Arbitration Regulations is in mandatory form, the Court must recognise and order enforcement unless at least one of the grounds outlined in Section 62(1) has been satisfied.
Enforcement
While the Court noted that the same statutory framework in respect of recognition applied equally to enforcement, the question of enforcement was a bigger issue. This is because B8 had asserted that it had no assets or any presence in the ADGM. According to B8, this meant that the Court had no jurisdiction to order enforcement, and even if it did, jurisdiction should not be exercised because enforcement would be futile.
Drawing on the DIFC Court of Appeal’s decision in Meydan Group LLC v Banyan Tree Corporate Pte Ltd[5], the Court found that “the presence or otherwise of assets is an arid debate, since this [is] not a pre-condition to the grant of an enforcement order”. The Court went on further to note as follows:
“This Court respectfully agrees with [the Meydan] approach. There is no established international jurisprudence requiring the existence of assets as a necessary precursor to an enforcement application of an arbitral award”.
Accordingly, the Court found that it did possess jurisdiction, and chose to exercise its jurisdiction in recognising and ordering enforcement of the Award in the ADGM. As a consequence, B8’s Jurisdiction Application was dismissed.
Affixing the Executory Formula
Given the unusual set of circumstances of the case, the ‘executory formula issue’ was an interesting one. Article 13(13) of the ADGM Founding Law provides that “[j]udgments and orders rendered by the Global Market’s Courts and arbitral awards recognised by the Global Market’s Courts shall be enforced by the competent entities out the Global Market in accordance with the procedures and rules adopted by such entities, as well as any memoranda of understanding between the Board of Directors or the Global Market’s Courts and those entities”.
There are two exceptions to Article 13(13), which are set out in Article 13(14) of the ADGM Founding Law. The two exceptions are: (a) judgments or orders issued by a court outside the Emirate of Abu Dhabi or (b) an arbitral award rendered in respect of an arbitration where the seat of arbitration is not the ADGM. In other words, the ADGM Courts’ Registry cannot affix the executory formula in either of those two instances.
However, the question that presented itself in this case was whether the Court was able to order the affixing (of the executory formula) in light of the extraordinary circumstances of the case. The Court determined that, given the mandatory wording of Article 13(14) of the ADGM Founding Law, it was not able to. Paragraph 48 of the Judgment encapsulates the Court’s reasoning on the issue:
“This Court does not have the latitude to qualify the terminology of the Amended Founding Law, nor to construe the peremptory mandate otherwise than as applying to each and every instance wherein the ADGM Courts are sought to be used to enforce a non-ADGM arbitral award outside ADGM, however such has arisen: whilst it is accepted that A8 did not initially intend this to be the situation in this case, the practical effect is that de facto this is precisely what would occur should the order of this Court be affixed with the ‘executory formula’, and the Court does not direct the Registry to do so.”
Although unable to affix the executory formula, the Court did appear to encourage A8 to use the order (recognising and enforcing the Award in the ADGM) as a basis for a subsequent enforcement application in onshore Abu Dhabi or any other jurisdiction.
Closing Remarks
The Judgment should be welcomed as a declaration of the pro-arbitration approach adopted by the ADGM Courts when it comes to the question of enforcement. It shows that the Court will try to be as supportive as possible in such cases. The Judgment also follows a recent case (A6 v B6[6]) in which the Court was prepared to involve itself in set aside proceedings brought outside the seat of arbitration for almost identical reasons to those faced in A8 v B8.
Following the Judgment, and the ADJD Courts’ recent approach to ICC arbitration-related cases, it remains to be seen whether the ADGM Founding Law (or the MoU) will be amended to allow for the executory formula to be affixed in these situations. It also remains to be seen how the ADJD Courts will assess and consider enforcement applications brought on the basis of an ADGM enforcement order where the executory formula has not been affixed due to the limitations imposed by Article 13(14) of the ADGM Founding Law; might the ADJD Courts even waive the ‘executory formula’ requirement in such instances, in order for successful parties to benefit from the favourable enforcement mechanism outlined in the MoU? Only time will tell.
[1] [2023] ADGMCFI 0015
[2] ADGM Arbitration Regulations 2015 (as amended on 23 December 2020)
[3] Abu Dhabi Law No. 12 of 2020 Amending Some of the Provisions of Law No. 4 of 2013 Concerning the Abu Dhabi Global Market
[4] [2019] ADGMCFI 0007
[5] [2014] DIFC CA 005
[6] [2023] ADGMCFI 005
This article was originally published on LexisNexis Middle East, and can also be read via this link: https://lnkd.in/d-hNE7pk
Disclaimer
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Author: Nathan Baikie
