DIFC Court of Appeal overturns its previous decision in Sandra Holding and confirms that the DIFC Court has jurisdiction to grant interim relief in support of foreign proceedings

Executive Summary

In the recent judgment of Carmon Reestrutura (available here), the DIFC Court of Appeal confirmed that the DIFC Courts have jurisdiction to issue worldwide freezing orders in support of foreign proceedings. This judgment overturned the previous decision made in Sandra Holding¹ in September 2023, which found that the Court’s jurisdiction only extended to areas where there is sufficient connection between the order sought and the DIFC.

Legislative Framework

We consider it helpful to first set out the legislative framework relevant to the decisions made in the above-mentioned judgments.

Article 24(1)a of the DIFC Law No.10 of 2004² (the “Court Law”) provides that, pursuant to Article 7(6) of the Judicial Authority Law, the Court of First Instance has jurisdiction to ratify any judgment, order or award of (among others) any recognised foreign court.

Article 5(A)(1) of the Judicial Authority Law DIFC Law No.12/2004 (the “JAL”) provides for five gateways which provide exclusive jurisdiction for the DIFC Courts³. The relevant limb for the purposes of these judgments is Article 5(A)(1)(e).

Turning to the Rules of the DIFC Courts (“RDC”), Rule 25.24 contemplates the availability of an interim remedy being granted by the DIFC Court in relation to proceedings which are taking place, or will take place, outside the DIFC.⁴

Background: The DIFC Court of Appeal's initial approach in Sandra Holding

In (1) Sandra Holding Ltd (2) Nuri Musaed Al Saleh v (1) Fawzi Musaed Al Saleh (2) Ahmed Fawzi Al Saleh (3) Yasmine Fawzi Al Saleh (4) Farah El Merabi [2023] DIFC CA 003 (“Sandra Holding”), the claimant sought a worldwide freezing order (“WFO”) from the DIFC Court of First Instance in relation to proceedings started in Kuwait and France following an alleged breach of a shareholders' agreement in respect of companies registered in the Cayman Islands. The defendant was not licensed in the DIFC and did not hold any assets in the DIFC.

Initially, the DIFC Court of First Instance issued a WFO pending the determination of the ongoing foreign proceedings in Kuwait. However, the DIFC Court of Appeal assessed the jurisdictional gateways set out in Article 5(A)(1) of the JAL and considered, in particular whether DIFC Laws or Regulations gave the DIFC Courts jurisdiction pursuant to Article 5(A)(1)(e). The Court of Appeal held that the wording of RDC 25.24 (which contemplates a general power of the DIFC Court to grant an interim remedy in aid of foreign proceedings) does not confer jurisdiction. Additionally, the Court of Appeal found that whilst Article 24 of the Court Law provides jurisdiction to ratify a judgment, order or award, it was not a source of jurisdiction where there is no judgment or award to ratify.

As such, the Court of Appeal held that the DIFC Court of First Instance had no jurisdiction to make a WFO in support of the enforcement of a judgment in proceedings pending in a foreign court, unless the Court had such jurisdiction expressly established through one of the other pathways specified in Article 5(A) of the Judicial Authority Law (No. 12 of 2004)⁵ . The WFO was consequently overturned.

Background: Carmon Reestrutura-engenharia E Serviços Técnios Especiais, (Su) LDA v Antonio Joao Catete Lopes Cuenda [2024] DIFC CA 003 (Carmon Reestrutura)

The earlier decision of the Court of Appeal in Sandra Holding was the focus of the appeal in Carmon Reestrutura-Engenharia e Servicos Tecnios Especiais, (SU) LDA v Antonio Joao Catete Lopes Cuenda [2024] DIFC CA 003 (“Carmon Reestrutura”). This matter also concerned a WFO. The Claimant was an Angolan construction company and alleged that the defendant had misappropriated USD 20 million contained in the claimant’s Hong Kong bank account, with some of the funds being transferred to two accounts at Emirates NBD Bank in the UAE. A WFO was granted by the Hong Kong Courts, but Emirates NBD Bank stated that it was not bound by the injunction unless and until the injunction was recognised by the courts in the UAE. Accordingly, on 20 July 2023, the Claimant made an ex parte application to the DIFC Court of First Instance for a WFO over the account. On 24 July 2023, before the Sandra Holding decision, the WFO was issued by the DIFC Court of First Instance. It was later set aside when the defendant raised a jurisdictional challenge following the Sandra Holding decision.

On 2 April 2024, Justice Sir Peter Gross granted the Claimant permission to appeal on the basis that it was arguable that Sandra Holding had been wrongly decided, citing the following key policy issues which arose, namely:

(1) “The power of the DIFC Courts, established (inter alia) to assist international trade, to grant freezing orders in circumstances where such relief could be crucial to avoid the dissipation of assets.

(2) The need to guard against the assertion by the DIFC Courts of an exorbitant jurisdiction.

(3) The proper limits of judicial (as distinct from legislative) development of the law by the DIFC Courts, whose jurisdiction is based on statute.”

The DIFC Court of Appeals decision on Carmon Reestrutura

In Carmon Reestrutura, the Court of Appeal respectfully concluded that ‘the Court in Sandra Holding took a wrong turning in an unduly restrictive view of the powers of this Court which may be deployed in aid of its express jurisdiction to recognise and enforce foreign judgments.’

The decision in Carmon Reestrutura confirmed that the Court has jurisdiction and the power to grant freezing orders in support of pending foreign proceedings under Article 5(A)(1)(e) of the Judicial Authority Law No. 12 of 2004⁶.

First, the Court of Appeal took regard to the function and purpose of the DIFC Courts, including the objective to promote Dubai as a leading international financial centre.

The Court of Appeal referred to each of:

1. Article 24 of the Court Law which confers jurisdiction to ratify any judgment, order or award of any recognised foreign court;
2.  Article 7(6) of the JAL which confers the power to execute foreign judgments; and
3.  Article 32 of the Court Law which gives the power to issue interim or interlocutory orders in proceedings before the Court.

The Court of Appeal concluded that whilst the first resort would be an express grant of jurisdiction, whether a Rule of Court carries with it a grant of jurisdiction is a matter of construction. These do not ordinarily confer jurisdiction but can do where (in the absence of jurisdiction) the rule would be of no effect or would have a lacuna in its operation. The express jurisdiction of the DIFC Court to recognise and enforce foreign judgments would otherwise be thwarted if a party defendant can dissipate its assets within the DIFC prior to the issue of an enforceable judgment.

The Court of Appeal concluded that Article 24 of the Court Law, 7(6) of the JAL and RDC 25.24(1) suggests that that the Court has the power to grant WFO in respect of the assets of a potential judgment debtor in foreign proceedings.

Implications of the decision in Carmon Reestrutura

The Court stated that the judgment would not encourage an overly liberal approach to the granting of WFO as applicants still need to overcome the hurdle of discretion. As the Court noted, in many cases, it would be appropriate that a freezing injunction is ‘limited to assets within Dubai’. Furthermore, a claimant will still need to satisfy the merits test of a WFO – that is that they have a good arguable case on the merits of the foreign proceedings and that there is a real risk that the assets sought to be protected will be dissipated if an order is not granted.

On the impact of overturning its decision in Sandra Holding, the Court provided commentary on its ability to depart from its own precedent. Namely, the Court noted that the DIFC Courts apply a doctrine of precedent and ‘will generally follow its own prior decisions but may depart from them in limited circumstances’. Additionally, as Sandra Holding was not decided based on established principles developed over a ‘significant succession of cases’ and overturning the decision simply restored jurisdiction that was incorrectly found to not exist, the Court considered that the Carmon Reestrutura decision would not be disruptive.

Conclusion

The Court’s judgment confirms that DIFC Courts have freestanding jurisdiction to grant interim relief in support of foreign proceedings.

The Court’s judgment overturned the often-debated restrictive approach that was followed in Sandra Holding in 2023. The decision is likely to give comfort to parties seeking to prevent the dissipation of assets pending the outcome of foreign court proceedings and also brings the DIFC into accord with other common law jurisdictions.

This article was drafted by Partner Aarti Thadani, and Counsel Ben Mellett, with special thanks to Trainee Solicitor Kehinde Oyebola for her assistance in the preparation.

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