English High Court Enforces Foreign Judgment That Is Unenforceable In The Jurisdiction Of Origin - Trials & Appeals & Compensation

Summary

The English High Court held in Invest Bank PSC v El-Husseini [2023] EWHC 2302 that a foreign judgment with res judicata effect in its jurisdiction of origin can be enforced in England at common law even if it is unenforceable in the jurisdiction of origin. There is no common law rule to the contrary.

Background

Enforcement of foreign judgments at common law

In order for a foreign judgment to be enforceable in England under the common law rules, among other things, it must be final and conclusive on the merits of the dispute. That is, it must be considered res judicata by the foreign court from which it originates. Enforcement of a foreign judgment pursuant to the common law rules in England is usually necessary where there are no reciprocal arrangements in place between the UK and the jurisdiction of origin.

As covered in our previous bulletin, the UAE Ministry of Justice in 2022 issued a directive confirming that English court judgments can be enforced by UAE courts under the principle of reciprocity. However, it remains the case that there is no formal treaty in place between the UK and the UAE for the recognition and enforcement of judgments.

The UAE Money Judgments

In this case, the High Court considered the enforcement in England of two money judgments obtained by the Claimant bank (the "Bank") against the first Defendant (D1) in the non-federal courts of Abu Dhabi (the "UAE Money Judgments"). The Bank sought to enforce these judgments in England and obtained default judgment in England on the basis of D1's liability pursuant to the UAE Money Judgments.

However, shortly prior to default judgment being entered by the English court, there was a material change in UAE law: in January 2023, Article 121 (bis) of UAE Federal Decree Law No.14 of 2018 regarding the Central Bank and Organisation of Financial Institutions and Activities (as inserted by UAE Federal Decree Law No.23 of 2022 in September 2022) ("Article 121b") took effect. In general terms, Article 121b prevents court enforcement of unsecured lending to individuals and their private joint stock companies. In reliance on Article 121b, D1 sought orders from the execution courts in Abu Dhabi prohibiting the Bank from executing the UAE Money Judgments. The Execution Department of the Abu Dhabi Court of First Instance held that the execution of the UAE Money Judgments was prevented by Article 121b (as confirmed by relevant Judicial Circulars) (the "UAE Orders").

This rendered the UAE Money Judgments unenforceable in Abu Dhabi, i.e. the jurisdiction in which they originated.

Application to set aside

An application was made to the High Court to set aside the English default judgment. It was contended (among other things) that the UAE Money Judgments are not capable of recognition and enforcement in England at common law because either:

(i) they no longer have res judicata effect in Abu Dhabi in light of Article 121b and/or the UAE Orders (the "first issue"); or

(ii) as a matter of English private international law, even if they do have res judicata effect in Abu Dhabi (being the jurisdiction of origin), they cannot and should not be enforced in England because they are not enforceable in Abu Dhabi (the "second issue").

This application was made in the context of wider litigation, namely an application by the Bank for relief under ss423 to 425 Insolvency Act 1986 (transactions defrauding creditors) (the "s423 claims") in respect of various transactions pursuant to which D1 is alleged to have transferred assets (including properties located in England) to one or more other Defendants for no consideration or at an undervalue. It was accepted that if D1 was liable to the Bank pursuant to the UAE Money Judgments such that the Bank could enforce such debt against D1 in England, then the Bank will be a victim of the transfers and have standing to pursue its s423 claims.

Judgment

On the first issue, the Judge was satisfied that—as a matter of UAE and Abu Dhabi law—both UAE Money Judgments were, at all material times, res judicata in Abu Dhabi, despite now being unenforceable in Abu Dhabi as a result of Article 121b and the UAE Orders. The UAE Money Judgments were therefore capable of recognition in England under the common law.

The Judge heard expert evidence from both parties on matters of UAE law. The Defendants' expert accepted that the UAE Money Judgments had res judicata effect in UAE law. Preferring the evidence of the Bank's expert, the Judge concluded that (as a matter of UAE law) the raising of substantive objections in the execution phase of civil proceedings did not alter the final and binding status of a money judgment. It remained conclusive proof of the relevant indebtedness in accordance with Article 87 of UAE Evidence Law No.35 of 2022 applicable to civil and commercial transactions, and subsequent legal events do not affect the position. Further, the UAE Orders were procedural in nature, they were not themselves final and conclusive, and so they did not create res judicata or other preclusive effect.

On the second issue, the Defendants contested—as a matter of English private international law—that a foreign judgment (with res judicata effect in its jurisdiction of origin) cannot or should not be enforced in this jurisdiction if it is unenforceable in the foreign jurisdiction itself. The Judge rejected this argument and concluded that there was no impediment to the enforcement of the UAE Money Judgments in England.

The Defendants referred the Foreign Judgments (Reciprocal Enforcement) Act 1933 (the "1933 Act") s2(1), pursuant to which a foreign judgment cannot be registered for enforcement in England if it "could not be enforced by execution in the country of the original court". The 1933 Act applies to the enforcement of foreign judgments of jurisdictions with which the UK has treaties or other reciprocal arrangements in place. However, the UK has no such arrangements in place with the UAE, which was why the UAE Money Judgments were enforced via the common law rules. Rejecting this argument, as it was not possible to assume that s2(1) was intended to codify the position at common law, the Judge cited Professor Adrian Briggs in Civil Jurisdiction & Judgments: "As the common law does not enforce the judgment as such, as distinct from the obligations which arise from the adjudication, whether the foreign judgment is enforceable under the law which gave it is a matter of foreign procedure, [is] not relevant to a court in England". This reflects the nature of "enforcement" of a foreign judgment under the common law: the foreign judgment gives rise to a debt, and it is that debt which is enforced under the common law rather than the judgment itself.

The Judge also referred to the Court of Appeal's decision in Merchant International Co Ltd v Natsionalna Aktsionerna Kompaniia Naftogaz Ukrainy ¹in which it was held that the unenforceability of a foreign liability judgment in its jurisdiction of origin (by reason of a local statutory provision in this case) was not an impediment to its recognition or enforcement in this jurisdiction. It was still a final and conclusive judgment in the eyes of the common law.

The Defendants' submissions referred to cases where the foreign judgments were not enforced because they were not final and conclusive due to some conditionality or vulnerability imposed by their own terms or some power of the court which made them, and where a foreign order was subject to a stay of execution pending appeal in the local court system (the 'appeal stay' cases). The Judge concluded that such cases are not an impediment to enforcement at common law; they are simply part of the fundamental requirement that a foreign judgment must be final and conclusive in its jurisdiction of origin. The 'appeal stay' cases are different in principle from a situation in which a money judgment is final and conclusive in its jurisdiction of origin but not (fully or presently) enforceable against the judgment debtor in that place. In the latter situation, the local impediment to enforceability does not strike down its final and conclusive nature. The UAE Orders themselves acknowledge the "indebtedness" as a matter of binding substantive position, but the refusal to enforce the UAE Money Judgments was practical and procedural. Local non-enforceability does not alter the res judicata status or effect of the UAE Money Judgments, and is irrelevant to recognition and enforcement in England under the common law rules.

UAE law commentary

As noted in our previous article, it was another decision of the English courts (Lenkor Energy Trading DMCC v Puri ²) which prompted the UAE Ministry of Justice to issue a directive that English court judgments were capable of enforcement by the courts of the Emirate of Dubai. This is now therefore a small but growing body of evidence indicating that commercial judgments of the courts of England & Wales will be enforceable in the UAE on the basis of (de facto) reciprocity, pursuant to the UAE Civil Code. This is despite of the absence of a formal bilateral treaty between the UK and the UAE providing for the mutual recognition and enforcement of judgments.

Given the doubt that had—until now—existed regarding the reciprocal enforcement of English law judgments in the UAE, the decisions in both Puri and El-Husseini are a welcome development for transactions that have a nexus with both England and the United Arab Emirates.

Footnotes

1. [2012] 1 WLR 3036.

2. [2020] EWHC 75 (QB).

Originally published 20 December 2023.

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