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Posted In: Alert

Posted By: Singularity Legal

Tags: DIFC, Singularity Legal

 253

DIFC courts qualify their previously unqualified Injunctive Powers

 

BACKGROUND

  1. The DIFC Court of Appeal (“Court of Appeal”), in (i) Sandra Holding Ltd. and (ii) Nuri Musaed Al Saleh (“Respondents”) v. (i) Fawzi Musaed Al Saleh, (ii) Ahmed Fawzi Al Saleh, (iii) Yasmine Fawzi Al Saleh, and (iv) Farah El Merabi (“Appellants”), overturned a worldwide freezing order (“WFO”) issued by the DIFC Court of First Instance (“Court of First Instance”) in favour of the Respondents.

  2. The dispute arose between two wealthy Kuwaiti brothers out of a series of intra-company commercial transactions, which were materially breached including but not limited to payment of dividends. The cause of action found genesis in an allegation of fraud perpetrated during these commercial transactions.

  3. The Respondents’ claim for a WFO was in relation to a shareholders’ agreement of a Cayman Islands registered entity which provided exclusive jurisdiction to commence proceedings in the Cayman Islands.

  4. Between 2021 and 2022, the Respondents commenced proceedings against the Appellants in France, the United States, and Kuwait. In support of these proceedings, the Respondents also made an application to the DIFC Courts for a WFO to prevent the dissipation of the Appellants’ assets. Notably, the Appellants neither had any connection with, nor any assets within, the DIFC.

  5. The Court of First Instance held that RDC 25.24 was a “DIFC Regulation” for the purposes of Article 5A(1)(e) of the Judicial Authority Law (“JAL”) and conferred jurisdiction on the DIFC Courts to grant injunctions in support of foreign proceedings whether or not the defendant against whom the injunction is sought has any connection with the DIFC.

  6. Aggrieved by this decision, the Appellants appealed principally as to the DIFC Court’s jurisdiction to grant an interim relief order outside the ambit of Article 5A(1)(a)-(d) of the JAL.

PARTIES’ SUBMISSIONS

Appellants’ Arguments

  1. The DIFC Court of First Instance’s decision was appealed on six grounds. However, the foundation of the appeal was that the DIFC Courts do not have the jurisdiction to issue a WFO in support of foreign proceedings outside of the gateways in Article 5A(1) of the JAL.

  2. The Appellant contended that if the DIFC Courts are not conferred inherent sovereign jurisdiction by one of the provisions in Articles 5A(1)(a)-(d) of JAL, they cannot look elsewhere to derive such jurisdiction.

  3. It was also argued that the reliance on RDC 25.24 to expand the DIFC Courts’ jurisdiction is misplaced as RDC 25.25 is procedural and not substantive – it cannot purport to give way to free-standing jurisdiction. Should the DIFC Courts intend to expand its jurisdiction to grant extraterritorial relief orders in favour of foreign proceedings, it must be done by way of statute, unlike sovereign common law courts.

  4. Moreover, while the WFO was granted primarily on the basis that there were ongoing proceedings in Kuwait, these First Kuwaiti Proceedings were later dismissed. Consequently, there were no live proceedings pursuant to which a WFO could be sought.

  5. It was also contended that there was no nexus with the DIFC. There was no indication that the Appellants were residents in the DIFC; nor had they agreed to any contract subject to DIFC Law or exclusive jurisdiction of the DIFC Courts; nor had registered companies, corporate vehicles, or ownership of any other assets in the DIFC.

  6. Finally, it was asserted that in granting the WFO, the Court of First Instance effectively implied the application of exorbitant jurisdiction by issuing injunctions over individuals or companies anywhere in the world, in relation to any proceedings albeit without in personam jurisdiction, thereby extending their remit contrary to existing DIFC principles.[i]

Respondents’ Arguments

  1. The Respondents argued that the DIFC Courts have jurisdiction under Article 5A(1)(e) and Article 7(6) of the JAL read with by Article 22(2) and Article 32 of DIFC Law No. 10 of 2004 (“Court Law”) which gives the DIFC Courts wide and unqualified injunctive powers to issue injunction orders in aid of enforcement of foreign judgments.

  2. The Respondents relied on Articles 22, 24 and 32 of the Court Law No. 10 of 2004 to support their claim that the DIFC Courts were empowered with jurisdictions to hear their claim. It was contended that the broad and the unqualified provisions of the Court Law confer unqualified injunctive powers upon the DIFC Courts, similar to those enjoyed historically by the English Courts.

  3. Reliance was also placed by the Respondents on DNB Bank v Gulf Eyadah Corporation,[ii] (“DNB Bank”) to illustrate that it in seeking an enforcement of a foreign judgment, a pre-condition to establish the existence of assets within the DIFC is not necessary.

  4. As to there being no live litigation pending on the basis of which the WFO might be in relation to, the Respondents argued that the dismissal of the Kuwait proceedings was erroneous as it was the result of technical difficulties, and that an appeal was pending against such dismissal.

  5. The Respondents raised an issue of limitation, stating that the Appellants did not apply to have the WFO vacated within the stipulated time period. Consequently, in terms of RDC 12.2 and 12.5, the Appellants were deemed to have submitted to the jurisdiction of the DIFC Courts and waived any jurisdictional objections.

  6. The Respondents also contended that Article 5A(1)(e) of the JAL read in conjunction with RDC 25.24 aptly conferred jurisdiction upon the DIFC Courts. In support of this argument, the Respondents relied on Nest Investments v Deloitte and Touche (“Nest Investments”), where the Court ruled that RDC 20.7 would become largely redundant if not seen as a source of jurisdiction for the purpose of Article 5A(1)(e) of the JAL.

JUDGMENT

  1. The Court of Appeal held that Article 5A(1)(e) of the JAL does confer a source of jurisdiction by way of laws and regulations. However, in order for a specific law or regulation to extend the DIFC Courts’ jurisdictional powers, there have to be “clear expressive words to confer such powers.” Therefore, the specific rule or regulation needs to be assessed on a case-by-case basis to determine its true effects and ascertain if it in fact confers jurisdiction to the DIFC Courts.

  2. As to the argument that RDC 25.24 provides a jurisdictional gateway to the DIFC Courts to issue WFOs, the Court of Appeal held that this rule provides only a general power which the DIFC Courts may exercise when granting an interim remedy in aid of foreign proceedings. However, the words used in RDC 25.24 are not meant to confer jurisdiction, and are procedural in nature. Thus, RDC 25.24 should not be read as a standalone provision, but must be read consistent with the gateways in Article 5A of the JAL. In this regard, the Court of Appeal distinguished RDC 25.24 from RDC 20.7, which, as per the decision in Nest Investments, is a regulation conferring jurisdiction on the DIFC Courts.

  3. The Court of Appeal also stated that the impact of the decision in the Court of First Instance would ultimately lead to the prospect of the DIFC Courts having jurisdiction over any foreign proceedings anywhere in the world. This would be contrary to the intended scope of the DIFC Courts’ jurisdiction to be constrained to the circumstances outlined in Article 5A of the JAL.

  4. It was also held that Article 5A(1)(e) of the JAL read with Article 24 of the Court Law cannot be a basis for jurisdiction. The Court of Appeal reasoned that the provisions of the Court Law and the RDC relating to the grant of injunctions and interim relief are not sufficient to confer such wide-ranging jurisdiction on the DIFC Courts.
  5. The fact that there may be a judgment in the Kuwaiti Proceedings at some point in the future is not sufficient to confer power on the DIFC Courts to grant an injunction. To this extent, none of the Articles in JAL, the Court Law, or the RDC provide the Court with the power to issue injunctions in aid of “anticipatory” foreign judgments.

  6. Regarding the Respondents’ argument on limitation, the Court of Appeal held that when the DIFC Courts do not have ordinary jurisdiction, as in the context of this appeal, RDC 12.5 cannot be invoked to claim that the Appellant is deemed to have accepted the DIFC Courts’ jurisdiction.

ANALYSIS AND CONCLUSION

  1. The Court of Appeal overturned the ruling in Jones v Jones[iii] to confirm that RDC 25.24 refers to general procedural matters and must be read in parallel with the jurisdictional gateways under Article 5A of the JAL.

  2. The decision in DNB Bank was also distinguished from the present facts of this case on the basis that DNB Bank did not deal with a situation where an interim relief was being sought in respect of a prospective judgment of a foreign court.

  3. The Court of Appeal has now clarified the ambit of the DIFC Courts’ jurisdiction to grant interim reliefs and the interpretation of Article 5A of the JAL. What was once considered an unbridled injunctive power, has now been narrowed down to specific circumstances. Where a potential judgment debtor is not based or licensed in the DIFC, the contracts are not performed or partly concluded within the DIFC, and parties have not agreed to jurisdiction of the DIFC Courts, then interim remedies may not be available from the DIFC Courts.

  4. This decision can be seen as limiting the jurisdiction of DIFC Courts only to instances where there is some nexus to the DIFC. In the absence of assets in or any other allegiance to the DIFC, the DIFC Courts may no longer assume jurisdiction to grant interim reliefs.
Authors: Adhiraj Malhotra, Divya Krishnan, and Rohit Bhattacharya
 

[i] Dhir v Waterfront, [2009] CFI 011; Nest Investments v Deloitte and Touche [2018] CA 011

[ii] DNB Bank v Gulf Eyadah Corporation, [2015] CA 007

[iii] Jones v Jones, [2022] CFI 043