An Assessment of Enforceability of Foreign Judgments and SPV Incorporation In Sukuk With a Specific Reference To Saudi Arabia, UAE, and Bahrain

Sukuk are Shariah-compliant securities that constitute undivided shares in the underlying assets, usufructs, or services for the sukuk holders or investors. The framework of a sukuk is relied on the exchange Contracts outlined in Shariah; in the meantime, the underlying asset must also adhere to Shariah’s norms. This comprises of prohibition of interest (riba), uncertainty (gharar), and speculation (maysir). Similarly, Shariah also emphasizes ethical and equitable businesses that contribute to the benefit of society, since Sukuk is based on Shariah compliant exchange contracts which are the means of transferring ownership. They also possess the features of tradability and liquidity. Furthermore, by virtue of having such attributes, Sukuk holders are exposed to the risk and return associated with the underlying asset or project. Given this backdrop, it must be acknowledged that Sukuk are the fundamental part of Shariah-compliant securitization and there are many parties involved in Sukuk issuances such as obligor, Sukuk underwriter, SPV, board of directors, trustees, and investors. However, when it comes to the SPV incorporation , its level of significance increases and it becomes more crucial since in a Sukuk structure an SPV is liable to facilitate the management of Sukuk, hold the title of the undelaying asset, services as a bankruptcy-remote and facilitate the cash flow for the investors because in an Islamic mode of securitization, the underlaying assets are owned by the security holders. Similarly, the extent of accepting and rejecting the enforceability of foreign judgements in UAE, Saudi Arabia, and Bahrain is grounded on distinct circumstances whereas Sukuk agreements are primarily regulated by English law while Shariah aspect of the transaction, namely Sukuk’s Shariah framework and underlying contract are governed under the jurisdiction of the local laws where Sukuk assets are located. As a result, there is uncertainty, unpredictability, and ambiguity in the legal conflict resolution process. Hence, this study aims to examine the enforceability of foreign judgements and SPV framework of Saudi Arabia, Bahrain, and UAE, and afterward, qualitatively analyze to find the best practices from developed jurisdictions such as the UK, USA, Malaysia, Indonesia, and Turkey which can be incorporated in the selected jurisdictions. The research tends to evaluate the Sukuk structure of Saudi Arabia, UAE and Bahrain only since they are civil jurisdictions, and the Islamic finance industry of these nations is mature and predominant. Consequently, the analysis of these areas will facilitate an adequate understanding of the regulatory landscape in each dominion and further assist to make a few recommendations that might be encompassed in the regulations of respective jurisdictions.

“Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM)” are playing major and crucial role in recent years in resolving the commercial disputes which occurs in GCC countries and globally.

DIFC

The Dubai International Financial Centre (“DIFC”) was founded in 2004 in line with Federal Decree No. 35 of the United Arab Emirates (UAE), as part of Dubai’s strategic goal to diversify its economic sources and attract cash and investments to the area. “Federal Law No. 8 of 2004 established it as a Financial Free Zone”. DIFC, being a separate jurisdiction inside the UAE, has the authority to establish its own regulatory environment for all civil and commercial concerns. The “DIFC Authority, the Dubai Financial Services Authority (“DFSA”), and the Dispute Resolution Authority” are three autonomous organisations that have been formed to facilitate and assist the growth and expansion of enterprises in theDIFC(“DRA”).

The United Arab Emirates’ judicial system includes the DIFC Courts. They handle civil and commercial issues involving the DIFC or where the parties have agreed that the DIFC Courts should have jurisdiction. A small “Claims Tribunal (SCT), a Court of First Instance, and a Court of Appeal” make up the DIFC Courts. They were founded in 2004 by “Dubai Laws 9 and 12” and function as a common law court, using the highest international legal procedural norms. The judiciary of the Courts is drawn from common law countries across the world, as well as Dubai, and is of the greatest international repute.

“Dubai Law No. 12 of 2004 (as amended by Dubai Law No. 16 of 2011)” (the “Judicial Authority Law”) contains a reciprocal protocol of enforcement between the DIFC and onshore Dubai courts, according to which a Dubai Court judgement can be enforced in the DIFC as if it were a DIFC Court judgement, subject to certain procedural formalities being met. It also works in the other direction, allowing a DIFC Court ruling to be implemented in Dubai in the same manner, and is a proven and true technique of enforcing domestic UAE judgements. Between 2008 and 2014, there were 61 seemingly successful enforcement proceedings between the DIFC and onshore Dubai courts, according to the data as of 2 July 2014. According to “article 7(6) of the Judicial Authority Law and article 24(1)(a) of the DIFC Court Law No 10 of 2004”, the DIFC courts possess authority to approve international court judgements “(DIFC Court Law). Article 24(1)(a) of the DIFC Court Law states that the Court of First Instance (of the DIFC courts) has authority to confirm any decision, order, or award of any recognised foreign court under Article 7(4) (now Article 7(6)) of the Judicial Authority Law”.

In the current disciplinary actions, the DIFC Tribunal issued a number of rulings regarding the implementation of the GCC Convention in the perception of the enforcement of a Saudi tribunal judgement:

1. The public order exemption implementation under Article 2(A) is limited and confined to situations that would be in violation of UAE public policy. It is against UAE public policy to deny implementing a final verdict of another GCC member rather than granting a stay of execution.
2. The bar for a compelling public policy argument that results in an absolute rejection to implement a final GCC ruling is unquestionably high.
3. A foreign award shall be properly executed in the DIFC courts, even when conflicting concerns about comity and litigation underway elsewhere in respect of third-country courts are advanced if those arguments do not exceed the strong public policy considerations in favour of implementation.
4. The breadth of Article 7 and the ban on the execution court evaluating the facts of the case are likely to capture issues of deception brought before the original court.
5. Reopening the investigation of claims such as deceit, which would necessitate delving into the grounds of the case as determined by the original court, is inadequate; and
6. The decision to implement a GCC member state’s final verdict is an extremely robust public policy. “Factual analyses that show only a risk of offending principles of comity or illegality in the third country courts may not cross that threshold”.

There have been occasions in English and Dubai courts (particularly the Dubai International Finance Centre (DIFC)) when the courts were confronted with applying Shariah in Islamic finance issues. The present legal stance is that the courts may apply Shariah in an indirect manner. While “English and DIFC Courts” will not implement Shariah principles directly, there are methods in which they might do so indirectly. They can, for example, apply Shariah values that are encompassed in a treaty; they can apply a national law that applies Shariah principles; they can use Islamic law as a construction aid; and/or they can decide a legitimate issue of IF [Islamic finance] principle under which a party’s rights are conditional. It is also critical to emphasise that the English court has the ability to implement Shariah law by incorporating the principles within the agreement. In “Shamil Bank of Bahrain v. Beximco Pharmaceuticals Ltd., the English Court of Appeal” clarified that foreign law provisions may be integrated into a contract in the form of private legislation; however, this rule is subject to the criterion of clarity. The court must be able to regulate the applicable regulations that the parties have integrated with confidence. The court in Shamil noted that applicable “requirements of foreign law or an international code or set of regulations” might be included, but that such legislation, code, or set of rules must contain precise black-letter provisions rather than generic ideas. As a result, it’s thought that an English court might enforce integrated conditions in a contract that are founded on codified Islamic law.

The Court of Appeal in the DIFC case of “Deyaar Development P.J.S.C. v. Taaleem P.J.S.C. & National Bonds Corporation P.J.S.C.32” concluded that the Murabahah Agreement in issue properly included the AAOIFI and OIC Islamic Fiqh Academy Shari’ah Standards. ‘On a genuine interpretation of the Murabahah Agreement, Shariah Standards were integrated into the Murabah agreement since they were appropriately definite,’ the court said. This was due to the fact that certain components of Shariah law were sufficiently referenced and identified. This significant legal backing for Islamic banking via the adoption of codified rules is unusual, and it will accelerate the industry’s growth. In certain ways, it may modify some experts’ unfavourable views on Islamic financial litigation. The particular role of the courts cannot be emphasized given the unusual character of cross-border Islamic finance operations such as Sukuk and its multijurisdictional nature, where the transaction agreements are controlled by various laws. For example, a Sharjah Court recognised and enforced an arbitral award issued by the International Islamic Centre for Reconciliation and Arbitration (IICRA) in a case involving ijārah muntāhiyah bi t-tamlīk (lease contract ending with ownership or financial lease) between an Islamic bank and an individual foundation based in Sharjah in its judgement No. 953/2013 on March 16, 2013. 4’. The “Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (New York Convention)”, aptly provides for a framework for common legislative standards for the identification and execution of foreign arbitral awards. Both the DIFC and Qatar Financial Centre (QFC) arbitration laws are based on the UNCITRAL Model Law which also provides for the recognition and enforcement of foreign arbitral awards.

In the following table, an effort has been made to compare the extent of accepting and rejecting the enforceability of foreign judgements in the “Kingdom of Saudi Arabia, the Kingdom of Bahrain, the United Arab Emirates, Malaysia, Indonesia, and Turkey”.

Table 2. Comparative analysis of enforceability of judgments

Countries	Enforceability of Judgments
The Kingdom of Saudi Arabia	Enforcement Department has the discretion to enforce English judgement where all of such judgement or such part thereof as is not consistent with Saudi Arabian Law. Parties seeking the enforcement of foreign judgement shall demonstrate the following requirements set by Enforcement Department of the kingdom. The Saudi Arabian courts lacked jurisdiction over the relevant matter, but the international court that made the ruling was competent.  The “Kingdom of Saudi Arabia” and the jurisdiction where such foreign judgement was delivered are parties to a bi – lateral agreement for the “reciprocal enforcement of judgments”, however, in the absence of such an arrangement, such state would acknowledge the Saudi Arabian judgement in the same way that it would an internal judgement. In the overseas case, the Saudi Arabian judgement debtor had due process, including notification and the chance to present and defend himself.  In the nation where it was issued, the foreign judgement was final.  Nothing in foreign judgment violates the Kingdom’s Shariah or public policy or contradicts with a decision or directive made by a relevant judicial authority on the same issue. If a conclusive verdict has been issued by a Saudi court or other arbitral authority in proceedings among the same plaintiffs and regarding the same subject matter, the Enforcement Department may reject to implement a foreign judgment.
The Kingdom of Bahrain	The Kingdom of Bahrain also recognizes and enforces the judgments obtained in the courts of a foreign provinces. To seek the acceptance of foreign judgement the following procedural requirements outlined in “Article 252 of the Bahrain Civil and Commercial Procedure Law of 1971” shall be satisfied, those conditions are as follows.  “Courts of the jurisdiction in which the judgment was issued must afford reciprocal treatment to judgments issued by the Courts of Bahrain. The judgment was issued by a court of competent jurisdiction according to the law of the jurisdiction in which it was issued. That the Bahraini law Courts are not competent to hear the case in respect of which the court judgment was passed. The parties were duly summoned to appear and were duly represented at the proceedings; the judgment has become final in accordance with the court that passed it.  The judgment does not contradict any prior judgment or order rendered by the Courts of Bahrain. The judgment does not contain anything which constitutes a breach of Islamic law, public order, or ethics of the requested country”. The Act of Bahrain 1971).
United Arab Emirates	United Arab Emirates also recognizes and enforces foreign judgments however, there are some conditions which are mandatory to be followed to accept the foreign judgement. Those conditions are as follows. The UAE courts lack jurisdiction over the dispute in which the judgment or decision was made, and the foreign courts that granted it performed so in accordance with the global norms for legal jurisdiction outlined in their respective laws. That the judgement or order was released by a court of competent authority in the nation in which it was released. The contending groups in the dispute where the decision was issued were called to appear and they did so. That the decision or order, under the law of the court that issued it, has the effect of a fait accompli. It does not clash with a prior decision or order made by a UAE court, and it does not include anything that is contrary to UAE public morality or order. DIFC &ADGM  Dubai Court judgement can be enforced in the DIFC as if it was a “DIFC Court” judgement.  “DIFC Court” ruling can also be implemented in Dubai in the same manner. DIFC courts have authority to confirm any decision, order, or award of any recognized foreign court  (Abdel-Nabi, 2021).  Final judgment of a GCC member state shall be enforced.  Even though conflicting considerations about comity and lawsuits pending abroad in relation to third-country courts are presented, a foreign judgment should be enforced in the DIFC Courts provided those considerations do not exceed the significant public interest considerations in support of execution.  Any judgment, decision or order taken by the ADGM has ability to be enforced directly in the other court through a streamlined execution process.  The reciprocity is not required by the DIFC for the enforcement of judgement sent from another jurisdictions. The “ADGM Courts”, on the contrary do require reciprocity to be determined.  ADGM states that if any Judgement is rendered by “Saudi Courts, its requirements for reciprocity has been established by the GCC and Riyadh Convention”
Malaysia	“Foreign monetary judgement” which falls within the scope of “Reciprocal Enforcement of Judgments Act 1958” can only be implemented via a registering under REJA. There are certain provisions which need to be followed to enforce the foreign Judgements in Malaysia, these are as follows: There must be a “reciprocal enforcement of judgment agreement” between the origin nation and Malaysia. There must be a definitive decision in that country’s superior court for a specific amount of money. The enforcement must be performed within six (6) years of the judgment date. The decision shall not be based on a marriage dispute.
Indonesia	In Indonesia, external court rulings are not applicable. Indonesia is not a signatory to any international treaty concerning the acceptance and implementation of foreign court decisions. Parties intending to implement a foreign court’s verdict must file a new petition in an Indonesian court. The foreign court verdict could be used as evidence in the new claim in an Indonesian court.  According to Indonesian Arbitration Law, the Judge is only allowed to evaluate the award to see if the following requirements are met:  The “agreement to arbitrate” is legitimate and in writing, and or else meets the standards set forth in “Article 4 of the Arbitration Law”.  Complete legal authority to resolve amicably, as specified in “Article 5 of the Arbitration Law;” and,  The award does not violate nation morals or order.
Turkey	The competent court of Turkey has the authority to implement and recognize foreign judgments and arbitral awards if the following criteria are satisfied: The content of the foreign verdict is conclusive and decisive under the legislation of the nation in which it was given.  The subject matter of the verdict is beyond the exclusive jurisdiction of Turkish courts.  The ruling does not stand against the Turkish constitution. There is in effect a treaty among Turkey and the other nation, or a bilateral convention to which Turkey and the nation where the verdict is issued are parties. There is a provision in the other jurisdictions legal system that permits for the implementation of Turkish court judgements; or  Judgments delivered by Turkish courts are implemented de facto in the other jurisdiction.