DIFC Court of Appeal confirms freestanding jurisdiction to grant injunctive relief

The DIFC Court of Appeal ruled, on 26 November, that the DIFC Courts have freestanding jurisdiction to issue Worldwide Freezing Orders (WFOs) in support of foreign proceedings, even where there is no jurisdictional nexus between the DIFC and the parties to the proceedings or the relevant facts and circumstances.

In Carmon Reestrutura-engenharia E Serviços Técnios Especiais (Su) LDA v Antonio Joao Catete Lopes Cuenda [2024] DIFC CA 003, the appellant Carmon Reestrutura alleged that the respondent had misappropriated USD20 million of its funds and there was evidence that some part of those funds had been transferred to two accounts held at Emirates NBD Bank (ENBD).

The Courts in Hong Kong had issued a Worldwide Mareva Injunction, freezing the funds, including the specific ENBD accounts. ENBD had informed the DIFC Courts that it was not bound by the injunction issued in Hong Kong.

Under Rule 25.24(1) of the Rules of the DIFC Courts (RDC) – application for an interim remedy where there is no related claim – the DIFC Courts had jurisdiction to issue the orders sought in connection with the proceedings in Hong Kong. There was a risk of dissipation of the funds held with ENBD if the freezing orders were not granted.

The appellants sought a WFO over these accounts from the DIFC Courts. Initially granted on 24 July 2023, the WFO was later set aside due to lack of jurisdiction on 27 December following the Court’s own decision of 6 September 2023 in Sandra Holding Ltd v Al Saleh & Ors [2023] DIFC CA 003.

In Sandra Holding, legal proceedings had been brought by claimants in Kuwait, France and the UK following an alleged breach of a shareholders’ agreement in respect of Cayman Island registered companies. There was no connection to the DIFC either in respect of the parties or the underlying facts and circumstances.

The claimants in Sandra Holding had applied to the DIFC Courts for a WFO to prevent the dissipation of the defendants’ assets. A WFO was granted, and the defendants then applied for it to be set aside. On appeal, the defendants submitted that the DIFC Courts lacked jurisdiction to grant a WFO, because there was no connection or nexus to the DIFC.

The DIFC Court of Appeal found for the defendants on the grounds that the relevant RDC relating to grant of interim remedies did not, on their proper construction, expressly confer jurisdiction on the DIFC Courts for the purposes of Article 5(A)(1)(e) of the Judicial Authority Law (JAL) No. 12 of 2004.

For the Court to have jurisdiction, it held, it was necessary to establish one of the other gateways in Article 5(A) of the JAL and these gateways generally required a nexus to the DIFC. It therefore found that the DIFC Court did not have freestanding jurisdiction to grant interim relief in support of foreign proceedings. This judgment created a distinction between the DIFC Courts and the English Courts, which have a codified power to grant injunctions in support of foreign proceedings under the Civil Jurisdiction and Judgments Act 1982.

In the Carmon Reestrutura case, on 2 April 2024 Justice Sir Peter Gross had granted the appellant permission to appeal on the basis that it was arguable the Sandra Holding case has been wrongly decided and there were important policy issues arising. These included consideration of whether it was right to limit the power of the DIFC Courts to grant freezing orders in circumstances where such relief was crucial to avoid the dissipation of assets and potential frustration of enforcement efforts.

In overturning the Sandra Holding decision, the DIFC Court of Appeal confirmed that the Courts’ jurisdiction and powers were found in statutes and the RDC both expressly and, in some cases, by implication. The relevant statutes conferring jurisdiction were the JAL and the DIFC Court Law (No. 12 of 2004). By operation of Article 5(A)(1)(e) of the JAL, the RDC fell within the category of ‘DIFC Regulations’, which could be a source of the Courts’ jurisdiction.

However, whether a particular provision of the RDC carried with it a grant of jurisdiction was a matter of construction. Jurisdiction might, for example, be impliedly conferred by a provision of the RDC where, in the absence of jurisdiction, that provision would be of no effect or would have a lacuna in its operation.

If a defendant in proceedings in a foreign court were able to dissipate its UAE assets with impunity to defeat potential execution of a future judgment of that foreign court in the DIFC, that would thwart the jurisdiction of the DIFC Courts to recognise and enforce foreign judgments.

The DIFC Court of Appeal therefore found that the DIFC Court did have jurisdiction, as a necessary incident of its jurisdiction to recognise and enforce foreign judgments, to grant interim relief in support of foreign proceedings to prevent its enforcement jurisdiction from being “thwarted”. This would enable judgment creditors to protect assets they may, in the future, seek to enforce against through the DIFC Courts, regardless of whether there is any underlying connection to the DIFC.

In justifying departing from the precedent established by Sandra Holding, the Court of Appeal emphasised that its ruling had not been decided on the basis of an established principle developed over a significant number of cases. In doing so, it had “taken a wrong turn in an unduly restrictive view of the powers of the Court”.

It also found that a refusal to follow the legal principle set out in Sandra Holding would not be disruptive given the short timeframe since that decision was handed down and given that overturning it would simply restore jurisdiction that it had found did not exist.

The Court of Appeal acknowledged that the DIFC Courts were part of a growing network of international commercial courts and referred to the objectives underlying the establishment of the DIFC. It reiterated the importance of the Court supporting transnational trade and commerce and found that it would be inimical to the rule of law if the DIFC Courts could not exercise the power to prevent defendants in foreign proceedings from avoiding future enforcement through the dissipation of assets.

The Court also made it clear that the grant of interim relief was subject to the Courts’ discretion. It noted that: “In many cases it would be expected that such a freezing order would be limited to assets within Dubai”. Further, in respect of freezing orders, parties would still need to demonstrate, to the required standard, 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 would be dissipated if an order was not granted.