David Holloway wins landmark DIFC State Immunity Case

David Holloway recently represented Fal Oil Company and successfully achieved the enforcement of a judgment for over US$300 million plus significant interest against the Sharjah Electricity and Water Authority (SEWA).

The underlying litigation had a complex and long history, involving appeals to the UAE Supreme Court and the intervention of a royal commission. Fal Oil had been unsuccessful in attempts to execute the judgment in Sharjah over a number of years. Enforcement proceedings in the DIFC Courts were contested by SEWA, who opposed the enforceability of the judgment on grounds of State Immunity and Public Policy.

The judgment of the DIFC Court in Fal Oil Company  v SEWA sheds considerable light on the question of State Immunity as understood in the DIFC and the UAE and also on issues of conflict of laws, particularly the enforcement of non DIFC judgment.

In particular:

• The Court accepted Fal Oil’s submission that the doctrine of State Immunity did not apply on an inter- emirate basis on interpreting the UAE Constitution, in particular Article 99. The Court reached this conclusion having considered extensive argument on comparative constitutional law and reviewing analogies from other federal legal systems.
• The Court also accepted Fal’s argument that the doctrine of State Immunity could not be invoked by SEWA, who were to be considered an entity separate from the Ruler and Government of Sharjah. The Court reached this conclusion construing the legal instruments establishing SEWA and by reference to the conduct of SEWA and the Government of Sharjah in the underlying litigation. The Court also applied principles outlined in the Privy Council Gecamines case [2012 UKPC 27] in distinguishing SEWA from the Government of Sharjah.
• Additionally the Court accepted Fal’s argument that the doctrine of State Immunity could not be invoked by SEWA because the transaction which gave rise to the dispute was commercial in nature rather than public (the dispute related to payment for large quantities of petroleum product). The Court here declined to draw any distinction between commercial claims and actions to enforce commercial judgments and applied an international  conception of “commerciality”. On this point the Court  declined to follow the English Supreme Court decision in NMC Capital Limited  v  Republic of Argentina [2011] UKSC 31, which the Court accepted was decided by reference to the particularities and history of the English State Immunity Act 1978.
• Finally the Court rejected various public policy reasons offered as reasons not to enforce the judgment. The Court did not accept that Fal were precluded from enforcing the judgment by virtue of ongoing execution proceedings in Sharjah. Equally any alleged difficulties in executing the judgment were rejected as irrelevant to the primary question of enforceability, following the approach of the earlier DIFC Court decision in the DNB Bank case. 

The decision is notable for a number of reasons. It is a rate occasion on which judgments from the other UAE courts have been enforced in the DIFC. It also clarifies that the doctrine of State Immunity, even if it were generally applicable, does not apply in the DIFC on an “inter Emirate basis” by virtue of the Constitution.

The more general findings of State Immunity, whilst perhaps technically obiter may provide indications on how this topic will be treated in future in non- UAE disputes.

• Whilst the defence of State immunity was rejected on the facts of this case on constitutional grounds, the Court appeared to accept that the doctrine forms part of common law as applied in the DIFC (a question previously left open in the Pearl Petroleum case https://www.difccourts.ae/rules-decisions/judgments-orders/arbitration/pearl-petroleum-company-limited-others-v-kurdistan-regional-government-iraq-2017-difc-arb-003).
• The Court accepted a narrow and commercial conception of State Immunity, giving prominence to the nature of the transaction, rather than the identity of the publicly owned party or the alleged purpose of the transaction from the perspective of that party. Additionally the Court adopted an international approach to the question of immunity in relation to enforcement actions, rather than the narrow approach adopted in (for example) UK law.
• The argument in the case involved wide reference to comparative law and drew on cases from comparative and international law.

David Holloway was instructed as sole counsel for Fal Oil by HFW Dubai. He prevailed against a large team of counsel led by a leading London QC, junior and various lawyers from a magic circle law firm.

Find out more

David Holloway is a specialist in international trade law and international commercial dispute resolution. He has particular expertise in the field of international arbitration and has represented clients in numerous arbitrations conducted under various international institutional rules and in ad hoc arbitrations. To find out more, contact Sam Carter on +44 (0)203 989 6669 or Colin Bunyan on +44 (0)20 7427 4886 for a confidential discussion.

News 4 Aug, 2021