NIHAN v NICHOLAS [2024] DIFC CA 012 — Clarifying the distinction between arbitrability and public policy (14 November 2024)

This Court of Appeal judgment clarifies the jurisdictional boundaries of the DIFC Arbitration Law, specifically confirming that the arbitrability of a dispute is governed by DIFC law, while public policy considerations remain tethered to the broader UAE legal framework.

What was the specific nature of the dispute between Nihan and the Appellants, Nicholas and Niaz, that led to the AED 47,538,871 arbitral award?

The dispute arose from a breach of a Shareholders Agreement (SHA) and a Memorandum of Association (MoA) concerning a water desalination project. The Claimant, Nihan, a Spanish company, sought to enforce an arbitral award against the Appellants, Nicholas and Niaz, following a successful ICC arbitration. The core of the conflict involved the transfer of shares and the subsequent failure of the Appellants to adhere to the contractual obligations stipulated in the governing agreements.

The legal stakes were significant, involving an award valued at AED 47,538,871. The Appellants resisted enforcement by challenging the arbitrability of the underlying share transfer dispute and invoking public policy defenses. As noted in the judgment:

The Claimant/Respondent is Nihan (“Nihan”), a company incorporated under the laws of Spain having its registered office in Spain.

The arbitration was conducted under the ICC Rules, as the parties had agreed that:

Each arbitration agreement provides that any arbitration pursuant to its terms shall be conducted pursuant to the Rules of Arbitration of the International Chamber of Commerce (the “ICC”).

The enforcement proceedings were initially brought before the DIFC Court of First Instance, which recognized the award, leading to the subsequent appeal by the Respondents.

Which judges presided over the Court of Appeal hearing for Nihan v Nicholas [2024] DIFC CA 012?

The appeal was heard by a distinguished bench of the DIFC Court of Appeal, consisting of Chief Justice Wayne Martin, H.E. Deputy Chief Justice Ali Al Madhani, and Justice Andrew Moran. The hearing took place on 21 October 2024, with the final judgment delivered on 14 November 2024.

What specific legal arguments did Gregor Hogan and Zoe O’Sullivan KC advance regarding the enforcement of the ICC award?

Gregor Hogan, representing the Respondent (Nihan), argued that the arbitral award was final, binding, and enforceable under the DIFC Arbitration Law. He maintained that the Appellants’ attempts to re-litigate the merits of the dispute under the guise of "public policy" or "non-arbitrability" were unfounded. Hogan successfully contended that the DIFC Court of First Instance had correctly applied the law in recognizing the award and that the Appellants failed to meet the high threshold required to set aside an arbitral award.

Conversely, Zoe O’Sullivan KC, representing the Appellants (Nicholas and Niaz), argued that the dispute—specifically regarding the transfer of shares—was not capable of settlement by arbitration under the laws of the UAE, which she contended should inform the interpretation of "arbitrability" under DIFC Law. She further argued that enforcing the award would violate the public policy of the UAE. The Appellants sought to conflate the two limbs of Article 44(1)(b) of the DIFC Arbitration Law to suggest that if a matter is not arbitrable under UAE law, it is inherently contrary to UAE public policy.

What was the precise doctrinal question the Court of Appeal had to answer regarding the interpretation of Article 44(1)(b) of the DIFC Arbitration Law?

The Court was tasked with determining whether the two grounds for refusing recognition and enforcement under Article 44(1)(b) of the DIFC Arbitration Law—namely, the non-arbitrability of the subject matter and the violation of UAE public policy—are distinct, and whether the test for arbitrability is governed by DIFC law or UAE law. Specifically, the Court had to address whether the DIFC legislator’s departure from the UNCITRAL Model Law and the New York Convention was intentional, thereby mandating that arbitrability be assessed exclusively through the lens of DIFC law, regardless of onshore UAE restrictions.

How did the Court of Appeal apply the test for arbitrability and public policy under Article 44(1)(b)?

The Court of Appeal emphasized that the DIFC Arbitration Law is a self-contained regime. It held that the legislator made a deliberate choice to separate the two grounds for refusal. The Court reasoned that while public policy is a broad, albeit narrow, concept linked to the UAE, the question of whether a dispute is "capable of settlement by arbitration" is a matter of DIFC law.

The Court rejected the Appellants' attempt to import UAE onshore restrictions into the DIFC’s arbitrability test. The reasoning was clear:

The two sub-paragraphs of Article 44(1)(b) are clearly distinct and separate, not only by reference to the grammatical construction of the paragraph, but also by reference to the subject matter of the

The Court further clarified the relationship between the DIFC and the UAE’s public policy, noting that while the DIFC is part of the UAE, the application of public policy must be handled with nuance to avoid undermining the finality of arbitral awards.

Which specific statutes and precedents did the Court of Appeal rely upon to reach its decision?

The Court primarily relied on Article 44(1)(b) of the DIFC Arbitration Law, which governs the refusal of recognition and enforcement. It also referenced Article 42 (on the binding nature of awards) and Article 41 (on setting aside awards). The Court contrasted these with Article 36 of the UNCITRAL Model Law and Article V of the New York Convention to highlight the specific legislative intent behind the DIFC’s unique wording.

Key precedents cited included Banyantree TE Ltd v Meydan Group LLC, which established that the public policy defense should be applied only if the award fundamentally offends basic principles. The Court also looked to Lachesis v Lacrosse regarding the unitary nature of UAE public policy, and Loralia Group LLC v Landen Saudi Company to affirm that the constitutional creation of the DIFC is itself a component of the UAE’s public policy.

How did the Court of Appeal distinguish the authorities cited in the case?

The Court used Banyantree to reinforce the narrow scope of the public policy defense, ensuring that it is not used as a "backdoor" to challenge the merits of an award. By citing Loralia, the Court underscored that the DIFC’s legal autonomy is not an affront to UAE public policy but rather a manifestation of it. The Court used these cases to demonstrate that the DIFC’s legislative framework is designed to be pro-enforcement, aligning with international standards while maintaining its distinct jurisdictional identity.

What was the final disposition and the specific monetary orders made by the Court of Appeal?

The Court of Appeal dismissed the appeal in its entirety, affirming the lower court's decision to recognize and enforce the ICC arbitral award. The Appellants were ordered to pay the Respondent's costs.

The Appellants are to pay the Respondent’s costs of the appeal fixed at AED 195,000 payable immediately.

The Court also noted that the hourly rates charged by the Respondent’s legal team were consistent with the guidelines set out in Registrar’s Direction No. 1 of 2023.

How does this judgment change the practice for litigants seeking to enforce arbitral awards in the DIFC?

This judgment provides critical certainty for practitioners. It confirms that challenges to the arbitrability of a dispute in the DIFC must be argued based on DIFC law, not UAE onshore law. This effectively insulates DIFC-seated arbitrations from external jurisdictional challenges regarding the subject matter of the dispute. Litigants must now anticipate that the DIFC Court will strictly interpret the distinction between the two limbs of Article 44(1)(b). The ruling reinforces the DIFC as a robust, autonomous seat of arbitration, making it significantly harder for parties to use "public policy" or "non-arbitrability" as a tactical delay mechanism.

Where can I read the full judgment in Nihan v Nicholas [2024] DIFC CA 012?

The full judgment is available on the DIFC Courts website: https://www.difccourts.ae/rules-decisions/judgments-orders/court-appeal/nihan-v-1-nicholas-2-niaz-2024-difc-ca-012

Cases referred to in this judgment:

Legislation referenced:

• DIFC Arbitration Law Article 44(1)(b)
• DIFC Arbitration Law Article 42
• DIFC Arbitration Law Article 41
• UNCITRAL Model Law on International Arbitration (Article 36)
• New York Convention (Article V)
• Registrar’s Direction No. 1 of 2023