FABIOLA v FADDEY [2015] DIFC ARB 001 — Stay of enforcement pending Dubai annulment proceedings

What was the specific monetary stake and the nature of the liability dispute in Fabiola v Faddey [2015] DIFC ARB 001?

The dispute centered on the recognition and enforcement of an arbitral award issued under the Dubai International Arbitration Centre (DIAC) rules. The Claimants, Fabiola and Fairuza, sought to enforce an award dated 26 February 2015, as amended by a supplemental award on 11 April 2015. The core of the enforcement action involved a significant financial claim against two Defendants, Faddey LLC and Fai Properties PJSC.

The relief sought in the proceedings was recognition and enforcement of the Arbitration Award and, in particular, an order for payment by Faddey and Fai (together “the Defendants”) within 14 days of the sums (in aggregate some AED 36,496,744) set out in paragraph 469, chapter 9, of the final Award by the Defendants on a joint and several basis.

The factual dispute was complicated by the Defendants' contention that the award failed to clarify the nature of their liability. Specifically, the Defendants argued that the award was silent on whether the obligation was joint, joint and several, or several, and questioned whether Fai Properties PJSC was even a party to the underlying Sale Agreement dated 3 January 2005.

Which judge presided over the Arbitration Division hearing in Fabiola v Faddey [2015] DIFC ARB 001?

The matter was heard by Deputy Chief Justice Sir John Chadwick in the DIFC Court of First Instance, Arbitration Division. The hearing took place on 7 September 2015, and the judgment was delivered orally on the same day.

How did Sarah Malik and Harris Bor frame the arguments regarding the enforcement of the DIAC award?

Sarah Malik, representing the Claimants, sought the immediate recognition and enforcement of the award, pushing for an order for payment of the AED 36,496,744. The Claimants’ position was that the DIFC Court should proceed with enforcement under the DIFC Arbitration Law, notwithstanding the parallel challenges initiated by the Defendants in the Dubai Civil Courts.

Conversely, Harris Bor, representing the Defendants, argued for a stay of proceedings. The Defendants contended that the award was fundamentally flawed because it failed to provide reasons for holding both entities liable, particularly given that Fai Properties PJSC was allegedly not a party to the original contract. They argued that the DIFC Court should either decline jurisdiction or, at minimum, stay the enforcement proceedings under Article 44(2) of the DIFC Arbitration Law while the Dubai Civil Courts determined the validity of the award under the UAE Civil Procedures Law.

What was the precise doctrinal issue the Court had to address regarding the enforcement of an award with ambiguous liability?

The Court faced the doctrinal question of whether it should exercise its discretion to enforce an award that appeared to contain significant ambiguities regarding the identity of the liable parties and the nature of their liability. The Court had to determine if it was appropriate to resolve these questions of interpretation—specifically whether liability was joint or several—before the seat of the arbitration (the Dubai Civil Courts) had ruled on the validity of the award itself.

I think this Court should not address what I think is a difficult question - can it make an order for an enforcement of an award against two parties in circumstances where the award itself is silent as to the basis of liability - unless and until it has become clear that it is necessary for it to do so.

How did Sir John Chadwick apply the test for staying enforcement under Article 44(2) of the DIFC Arbitration Law?

Sir John Chadwick employed a test of "bona fide" challenge and "realistic prospect of success" to determine if a stay was warranted. He reasoned that if the annulment proceedings in the Dubai Civil Courts were not merely a delaying tactic, the DIFC Court should avoid pre-empting the seat court’s decision on the award's nullity.

In my view, it would be premature to decide the question whether this Court should decline jurisdiction on that basis until it knows the views of the Dubai Civil Court on the question whether the Award is a nullity; or whether there is some process under which it can be clarified - perhaps by a further reference back to the arbitral tribunal – whether it was intended that liability under the Award should be joint, joint and several, or several.

The Judge concluded that the challenges raised by the Defendants were substantive and required the expertise of the Dubai Civil Courts to resolve, particularly regarding the application of Article 216 of the UAE Civil Procedures Law.

Which specific statutes and rules were central to the Court’s decision to stay the enforcement proceedings?

The Court’s decision was primarily grounded in Article 44(2) of the DIFC Arbitration Law (Law No 1 of 2008), which grants the Court the power to adjourn its decision on recognition and enforcement if an application for setting aside or suspension has been made to the court of the seat. Additionally, the Court referenced Rule 4.2(6) of the DIFC Courts Rules as a procedural basis for the stay. The Defendants also relied on Article 216 and Article 212 of the UAE Civil Procedures Law (Federal Law No. 11 of 1992) to argue that the award was a nullity due to a lack of reasoning.

How did the Court utilize the precedent set in IPCO (Nigeria) Ltd v Nigerian National Petroleum Corp?

The Court utilized the IPCO criteria to assess whether the annulment proceedings were brought in good faith. The Judge applied the principle that the DIFC Court should not exercise its discretion to enforce an award if there is a legitimate, non-frivolous challenge pending in the courts of the seat.

In my view, it cannot be said that the annulment proceedings now pending in the Dubai Civil Courts were brought other than bona fide or that they were brought simply in order to delay the point by which the Award has to be satisfied.

By citing the IPCO approach, the Court aligned itself with the established international standard that favors judicial comity, ensuring that the DIFC Court does not act in conflict with the supervisory jurisdiction of the Dubai Civil Courts.

What was the final disposition and the specific order made by the Court regarding the enforcement of the award?

The Court granted the Defendants' alternative application for a stay of proceedings. The enforcement proceedings were formally stayed until the Dubai Civil Courts reached a final determination on the annulment application.

For those reasons, I am satisfied that the right order to make in this case is an order under Article 44(2) staying the recognition and enforcement proceedings commenced in this Court under reference ARB-001-2015 until the Dubai Civil Courts have determined, one way or the other, the annulment proceedings that now are before them.

The Court declined to rule on the substantive enforcement of the AED 36,496,744 claim, effectively pausing the litigation to await the outcome of the annulment proceedings.

What are the practical implications of this ruling for practitioners dealing with parallel annulment proceedings?

This judgment establishes that the DIFC Court will not act as a forum for "forum shopping" when a substantive challenge to an award is already pending in the Dubai Civil Courts. Practitioners must anticipate that if an award is silent on the nature of liability or contains clear procedural defects, the DIFC Court will likely favor a stay under Article 44(2) rather than attempting to interpret or "fix" the award. Litigants seeking enforcement should be prepared to demonstrate that any pending annulment proceedings are either frivolous or lack a realistic prospect of success if they wish to avoid a stay.

Where can I read the full judgment in Fabiola v Faddey [2015] DIFC ARB 001?

The full judgment is available on the DIFC Courts website: https://www.difccourts.ae/rules-decisions/judgments-orders/arbitration/1-fabiola-2-fairuza-v-1-faddey-llc-2-fai-properties-pjsc-2015-difc-arb-001

Cases referred to in this judgment:

Legislation referenced:

• DIFC Arbitration Law (Law No 1 of 2008), Articles 42(1), 44(1), 44(2)
• DIFC Courts Rules, Rule 4.2(6), Rule 12.1(1), Rule 12.1(2)
• UAE Civil Procedures Law (Federal Law No. 11 of 1992), Articles 212, 216