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Asset recovery: New opportunities in the UAE

October 11, 2019
Daniel Hall & Michael Redman

The UAE has long sought to position itself as a hub for global business, trade and finance. Key to that ambition, however, is the development of sophisticated mechanisms for international dispute resolution and assurance that parties have a means of collecting on arbitral awards.

The development of financial free-zones such as the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM) continue to encourage new business and foreign investment in the region. Both the DIFC and the ADGM are common law, English language jurisdictions separate from the UAE civil law regime and offer rules and regulations that are aligned with international best practice standards. This provides greater transparency, increased legal certainty, familiarity and therefore less risk to international businesses than other jurisdictions in the UAE.

While the DIFC and ADGM have indeed helped spur growth, tension between the DIFC and local courts has created additional hurdles for parties seeking to resolve disputes and enforce awards in the region. Still recent developments underscore the permissibility of litigation finance in the UAE, ensuring claimants and the likely growth of funding to be used as a tool to increase access to justice.

Legal developments

Last year the DIFC Courts released Practice Direction No.2 which establishes the correct procedure for funded matters to proceed in DIFC Courts. This expressly outlines the rules that parties must adhere to if they decide to use litigation finance from a third party for a matter facing the DIFC. This is a clear indication that the DIFC recognises the benefits of litigation funding and wishes to ensure its availability to parties and its appropriate regulation. Under the Practice Direction parties must disclose solely their funded status and the identity of the funder but are not required to disclose the terms of their underlying funding agreement.

The ADGM issued regulations of a similar tone, §225 ADGM Courts Regulations 2015, that expressly allow for litigation funding and outline the correct procedures to be followed. The ADGM regulations in many ways emulate the DIFC Practice Direction. They too require the mere disclosure of the parties funded status and nothing further.

As common law jurisdictions, both the DIFC and ADGM recognise the concept of privilege and therefore adopt light-handed approaches to disclosure of third-party funding which clearly encourages the use of these jurisdictions for arbitration disputes. Despite these efforts to facilitate the rise of the UAE as a global centre for international arbitration there remains significant difficulty in the enforcement of arbitral awards and judgments within the region.

Challenges to asset recovery and enforcement

Though the DIFC is meant to make the UAE more attractive to outside investors, the creation of the court has created tension in the UAE between the DIFC and local courts in the UAE – two competing judicial systems in the same jurisdiction. While the DIFC is designed to be a common law friendly court, with matters heard in English, in local courts everything is in Arabic and falls under UAE civil code.

Since its inception, the DIFC has had a pro-enforcement approach, which has made it popular with parties looking to recover assets from within the UAE. The seminal arbitration award case that demonstrates this is Banyan Tree Corporate Pte Ltd v Meydan Group LLC, in which the Courts ordered the enforcement of a DIFC award against a defendant domiciled within Dubai, but outside the DIFC, in circumstances where nether parties nor the award itself had any connection with the DIFC. This set a daring precedent and gave rise to a slew of unmeritorious arbitral awards being recognised within the jurisdiction and caused unpopularity with local Dubai Courts.

In contrast, the UAE onshore courts are notoriously tricky jurisdictions in which to enforce. Asset recovery historically has been a difficult undertaking, due to awards frequently being refused to be recognised—often for egregious technical reasons. As just one example, in 2016 the Dubai Court of Appeal rejected an English arbitral award, stating that the UK had not fully ratified the New York Convention, and therefore ruling that instead UAE Civil Procedure Law applied to enforcement. This decision was ultimately overturned (as the UK is clearly a signatory to the New York Convention), but the Court’s ruling nevertheless added an unnecessary delay to enforcing on a legitimate award.

The underlying tension between these two competing jurisdictions cumulated in the creation of the Joint Judicial Committee (JJC) by Dubai Decree No.19 of 2016. The JJC was intended to stem the increasing trend of the DIFC overextending its reach, to curtail its attempts to establish itself as a conduit jurisdiction for enforcement and ultimately to mediate between the two opposing regimes. In the event of a conflict between the courts, the matter will be referred to the JJC to be resolved or to determine which regime should apply.

Because the JCC is a relatively new solution, there are inevitably challenges with how it operates, including the perceived biases based on the composition of the judges and chair (the committee consists of three judges each from the DIFC and local courts, plus a chair from a local court, creating 4:3 majority towards the local Dubai courts). How this continues to evolve will be fascinating—but certainly not straightforward.

Navigating the asset recovery landscape in the UAE

Fundamentally, pursuing enforcement in the UAE is a longer, more expensive and higher-risk road that ever before. Asset recovery in these scenarios requires significant access to capital, substantial experience and expertise. Despite these complications, a hard-won judgment should not go unpaid simply because the debtor dodges justice and the claimant runs out of steam.

This is where Burford can help. Burford has an in-house team of asset recovery and enforcement experts. Our team has been involved with recoveries for hundreds of clients in a variety of multinational investigations including in the Middle East, where we currently have live enforcement proceedings underway. We have the experience and the expertise to navigate the unique complexities of the legal landscape in the UAE.

In addition to having a team of asset recovery experts, Burford is also the world’s largest provider of litigation finance, and we often provide financing alongside our asset recovery capabilities. Because capital is typically provided on a non-recourse basis, the presence of external finance helps remove the risk of pursuing assets for the client. This combination of capital and enforcement expertise makes us uniquely placed to assist with complicated international enforcement challenges such as those claimants face in the UAE.

Burford is continually relied on by law firms, companies and sovereign states for one simple reason: We have the expertise and resources to deliver results even in the most complex of jurisdictions.