Landmark Legal Triumph

By Mohamed Salama

Introduction

In a significant legal victory from February 2024, the Dubai Court of Cassation (“DCC”), the highest court of appeal in Dubai, has rendered a decisive verdict in favor of Global Advocacy & Legal Counsel (“Global”)’s client, a prominent regional insurance company (“IC”) after a protracted legal dispute with a major UAE bank (the “Bank”). We examine the case, highlighting both the significance of the Court's judgment as well as Global’s role in securing this groundbreaking result.

The dispute

Central to the dispute was the Bank's pursuit of various outstanding insurance receivables owed to a hospital but subject to a moratorium imposed by the ‘offshore’ common law court in the Abu Dhabi Global Market (the “CLC”) in unrelated insolvency proceedings. In addition to applying to the CLC as a creditor in the insolvency proceedings, the Bank initiated proceedings against the IC in the Dubai onshore courts, alleging that the hospital, as collateral for banking facilities worth hundreds of millions of dirhams, had assigned its right to payment of the outstanding receivables from the IC to the Bank.

Main issue

Represented by Global, the IC contended, amongst other things, that, pursuant to the CLC's moratorium and an associated ruling by which the hospital had been placed in administration, no legal action should be initiated against the hospital's funds or assets without the explicit prior consent of the joint administrators or the CLC itself.

Initial rulings

In a disappointing but perhaps not entirely surprising decision, the Dubai Court of First Instance (“CFI”) ruled against the IC, ordering it to pay the claimed amounts to the Bank and rejecting the application of the moratorium. The Court of Appeal (“CoA”) affirmed the CFI’s judgment.? Nevertheless, undeterred, the IC subsequently petitioned the DCC for a review of the lower courts’ judgments.

The verdict

Ultimately, the DCC rendered a conclusive ruling in favor of the IC. The Court recognised that the key to the case was the hospital's assignment of its receivables to the Bank, but concluded that the disputed funds rightfully belonged to the hospital, and not the IC. Accordingly, in light of the CLC's moratorium and express declaration that no legal action should be initiated against the hospital's funds or assets without the prior explicit approval of the joint administrators or the CLC itself, the DCC determined that the CoA had erred in dismissing the IC's submission that the Bank was obliged to comply with the CLC's directions and give effect to the moratorium.

What is noteworthy in this case is that as a general rule, the DCC does not examine the underlying merits of cases submitted to it for review; rather, it focuses on whether the lower court correctly interpreted the law – not whether the associated factual analysis and application of the law were correct. However, as this case was being heard on appeal from the CoA and therefore represented a second appeal, the DCC was required to examine the case on its merits. As matters transpired, the court nullified the CFI’s judgment, applied the CLC’s moratorium and stayed the proceedings until either the Bank obtained the necessary approval or consent, or matters were otherwise resolved through the administration. The DCC emphasized the enforceability of the CLC's moratorium and the obligation of Dubai’s onshore courts to apply and adhere to it. This groundbreaking decision emphasizes the importance that should be attached to rulings of the CLCs, even in matters involving the jurisdiction of the onshore courts. Moreover, it serves as a clear reminder of the importance of adhering strictly to required due processes concerning the financial resources and assets of entities that are subject to administration proceedings.

Landmark judgment

The DCC’s judgment is particularly noteworthy given that in an unusual development, it arrived at this result by adopting and implementing an ‘offshore’ common law court-imposed moratorium that had been ordered in proceedings unrelated to the dispute the DCC was reviewing.? In this regard, it is important to note that the CLC’s moratorium did not have any legally binding effect on the dispute brought before the DCC.? Consequently, the DCC’s decision marks a significant departure from the traditional practice of only enforcing judgments or orders from other courts based on an application of the principle of res judicata (i.e. the prohibition against relitigating the same dispute).? In this instance, however, the disputes presented before the onshore civil and offshore common law courts involved different parties, subject matters and causes of action – all otherwise necessary elements if the res judicata principle is to be applied.

As such, although it entailed a long and challenging legal battle for Global’s client, progressing through multiple levels of the onshore judicial system (including the CFI, the CoA (twice), and the DCC (also twice)), Global’s eventual success in persuading the DCC to apply a CLC ordered moratorium over an unrelated onshore court dispute represents a novel and important legal development.

Takeaways

This decision by the DCC not only represents a significant legal triumph for Global and its client, the IC but also reinforces the importance of respecting orders issued by the CLCs, even in matters where there is an overlap with the jurisdiction of the onshore courts. It also underscores how critical it is to uphold due process in matters concerning the financial resources and assets of entities in administration. Through this important judgment, the DCC has established a precedent that will undoubtedly influence attempts to circumvent the protection afforded to companies in administration by the CLCs as well as further strengthen the integrity of the UAE's judicial system – both onshore and offshore.