International arbitration may encounter jurisdictional conflicts when two distinct courts hold different views on the same issue. The recent case of Nael v Niamh Bank (2024) highlights the tension between the enforcement of an arbitration award under the DIFC Arbitration Law and its potential contradiction with the Dubai's public policy.While this case may appear to be of particular relevance to the practitioners in the UAE, it is important to recognise that UK courts have previously dealt with similar challenges. This article examines the details of the case, the DIFC court’s ruling, and the impact it has on international arbitration.
BACKGROUND OF THE CASE
An employer engaged a contractor fora construction project, requiring that the contractor provides bank guarantees as a form of financial security. These guarantees, which were subject to Dubai law, identified both the bank and the employer as parties involved and included arbitration provisions under the DIFC.
Following the contractor's declaration of bankruptcy, the employer terminated the contracts and sought payment under the guarantees. The bank, however, refused to comply, resulting in arbitration proceedings. On 18 July 2022, the Arbitral Tribunal ruled in favour of the employer, ordering the bank to pay AED160,722,946, along with interest and legal fees.
Rather than contesting the award, the bank approached the Liquidation Trustees, asserting that the contractor had nearly completed the project and that the liquidation process should be suspended. The bank failed to disclose critical information, including the employer’s entitlement to payment, which had been confirmed in the arbitration. Consequently, misled, the Trustees petitioned the Dubai Bankruptcy Court, which issued a suspension order on 21 July 2022, resulting in ajurisdictional clash.
When the bank did not fulfil the payment obligation, the employer pursued enforcement through the DIFC Courts. In response, the bank contended that the award was invalid and subsequently challenged the jurisdiction of the DIFC on 10 January 2023, leading to the additional legal conflicts. Meanwhile, the Trustees submitted a further application to the Dubai Bankruptcy Court. An Engineering Projects Committee indicated that the contractor had completed the project in its entirety, and the employer was obligated to compensate the contractor. Once more, both the Trustees and the Dubai Courts were misinformed, as the award in question pertained to the Bank's liability under the Guarantees rather than their liquidation value. Nonetheless, the Dubai Bankruptcy Court ordered to temporarily suspend the liquidation.
The DIFC Courts dismissed the Bank's challenge regarding the jurisdiction and, on 30 October 2023, upheld the arbitral award. Subsequently, the Bank attempted to overturn the judgment, claiming that it was inconsistent with Dubai’s public policy, particularly since the Dubai Bankruptcy Court had suspended the liquidation process. However, the DIFC determined that the Bank continued to be liable under the Guarantees and was required to fulfil the payment obligation. The Bank insisted that this situation resulted in a legal conflict, leading the DIFC judge to allow the appeal on 25 October 2024.
DIFC’S JUDGEMENT
The judge acknowledged that a violation of public policy could serve as grounds for dismissing an Award. This was emphasised in the case of Five Holding Limited v Orient UNB Takaful PJSC (2021), where Justice Wayne Martin highlighted that inconsistent judgments create uncertainty within the legal framework and impose additional costs and time burdens on the parties involved. However, for the public policy to be triggered, the applicant must satisfy a ‘high threshold test’, which, in this instance, the applicant did not achieve. Furthermore, the New York Convention states that public policy can be used as a defence only when fundamental justice and morality principles are violated and it should be applied narrowly. This was also applied by the UK Privy Council in the British Virgin Islands in Cukurova Holding A.S. v Sonera Holding B.V.[2014] and the US case of the US case of Parsons & Whittemore (1974).
Additionally, it is crucial to differentiate between conflicting judgments and conflicting orders. While the UAE's public policy aims to prevent inconsistent judgments from two separate courts regarding the same issue, the current situation does not involve conflicting decisions on the matter but rather pertains to the same parties. The DIFC ruling specifically addressed the Bank's obligations under the Guarantees, whereas the Dubai Court's order related to the contractor's liquidation process. Additionally, the suspension issued by the Dubai Court was a provisional measure rather thana conclusive ruling. Even though the Dubai Court restricted the Bank from executing payments under the Guarantees, it remains uncertain whether they possessed the authority to enforce such an order that would be binding on either the Bank or the Employer.
The judge determined that prioritising the enforcement of arbitral awards and ensuring that banks adhere to their previously established financial guarantees is significantly more important than maintaining a temporary ruling issued by the Dubai Bankruptcy Court. The judge concluded that the Bank's actions were merely a tactic to postpone the payment under the Guarantees, rather than a legitimate legal concern. The judge upheld the decision to acknowledge and enforce the Award, resulting in the dismissal of the appeal.
LEGAL IMPACT OF THE CASE
This case shows a pro-arbitration approach and the importance of arbitration awards. Several precedents from this case can be relevant for future cases, including:
· Limitations on the Public Policy defence. Parties cannot consistently rely on the public policy defence to evade liability, as its application is quite restricted.
· The significance of honouring financial guarantees. Financial institutions are required to adhere to the guarantees they have entered into. In certain situations, maintaining these guarantees takes precedence over complying with a temporary suspension order. Attempts to postpone payment under the guarantee do not constitute a legitimate legal issue.
· The distinction between conflicting orders and conflicting judgments. While conflicting judgments can lead to significant public policy concerns, conflicting orders from different courts do not necessarily interfere with the recognition and enforcement of an arbitration award.
These principles will assist future cases in understanding when two rulings are genuinely in conflict and will deter parties from employing dishonest strategies to delay payments.
CONCLUSION
The ruling of the DIFC Court'spro-arbitration approach underscores the necessity of distinguishing betweenconflicting judgments and conflicting orders. In doing so, it sets a precedentaimed at discouraging procedural tactics, such as public policy defences, thatare employed to postpone payments and evade liability.
