A Global Guardian: DIFC Court of Appeal Confirms Freestanding Jurisdiction to Grant Injunctive Relief

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

Summary

• The DIFC Court of Appeal has overturned its previous decision in Sandra Holding, confirming that the DIFC Courts have freestanding jurisdiction to grant interim relief in support of foreign proceedings, even if there is no nexus to the DIFC.
• The Court of Appeal relied on the fact the DIFC Courts have express jurisdiction to ratify and enforce foreign judgments. It would thwart this express jurisdiction if the DIFC Courts could not grant relief to protect assets that a future judgment creditor may seek to enforce against, through a future recognition and enforcement application to enforce a foreign judgment before the DIFC Courts.
• The DIFC Court of Appeal reiterated the importance of the Court supporting transnational trade and commerce. Key to the Court's decision was the finding that it would be inimical to the rule of law in trade and commerce, domestically and transnationally, if the DIFC Courts could not exercise the power to prevent defendants in foreign proceedings from avoiding future enforcement through the dissipation of assets.
• This decision has other positive implications. The effects of this decision could go beyond confirming the Courts' jurisdiction to grant freezing orders in support of foreign proceedings. For example, based on the reasoning in Carmon Reestrutura, it may be asserted that Norwich Pharmacal orders are also available through the DIFC Courts absent a nexus to the DIFC.
• It is not, however, expected that this decision will result in the DIFC Court taking an overly liberal approach to the granting of interim relief (or other orders, such as Norwich Pharmacal orders). We expect that considerations of judicial comity will remain at the forefront of judicial decision making. The DIFC Court of Appeal observed 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 will 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 will be dissipated if an order is not granted.

Introduction

On 26 November 2024, the DIFC Court of Appeal handed down its eagerly awaited judgment in the Carmon Reestrutura case – ruling 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: (i) the parties to the proceedings; (ii) or the relevant facts and circumstances.

In its decision, the Court of Appeal overturned its own decision from September 2023 in Sandra Holding Ltd v Al Saleh & Ors [2023] DIFC CA 003, finding that the Court in Sandra Holding had "taken a wrong turn in an unduly restrictive view of the powers of [the] Court".

We consider the broader implications of the Carmon Reestrutura decision in this briefing.

The decision in Sandra Holding

The earlier decision of the Court of Appeal in Sandra Holding was the focus of the appeal in Carmon Reestrutura. The appellant (Carmon Reestrutura) was granted permission to appeal on grounds relating to whether the decision in Sandra Holding that the DIFC Court lacked jurisdiction to make freezing orders in respect of pending foreign proceedings, was made per incuriam and/or wrong.

In Sandra Holding, legal proceedings were brought by the claimants in Kuwait, France and the United States (although various proceedings had been dismissed by the time the case came on for hearing in the DIFC Courts) 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.

In this case, the claimants made an application to the DIFC Courts for a WFO to prevent the dissipation of the defendants' assets. The WFO was granted and the defendants 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 agreed with the defendants.

The thrust of the Sandra Holding decision was that the relevant Rules of the DIFC Courts (the 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 (No. 12 of 2004) (the JAL) . Therefore, in order for the Court to have jurisdiction, it was necessary to establish one of the other gateways in Article 5(A) of the JAL and these gateways generally require a nexus to the DIFC. Thus, it found that the Court did not have freestanding jurisdiction to grant interim relief in support of foreign proceedings. Sandra Holding created a distinction between the English Courts and the DIFC Courts in this regard, because the English Courts have a codified power to grant injunctions in support of foreign proceedings under the Civil Jurisdiction and Judgments Act 1982.

However, in little over one year since it was issued, the Sandra Holding decision has now been overturned. We now consider the Court's latest decision on jurisdiction as regards granting interim relief in support of foreign proceedings, and what ought to be the end of the road in settling this question.

Carmon Reestrutura: the DIFC Court confirms its freestanding jurisdiction

In the Carmon Reestrutura case, the Appellant (Carmon Reestrutura) alleged that the Respondent had misappropriated USD 20 million and that some of those funds had been transferred to onshore UAE bank accounts. The Appellants sought a WFO over the Respondent's onshore bank accounts from the DIFC Courts.

The WFO was initially granted, but later set aside due to lack of jurisdiction (following the Sandra Holding decision). Justice Sir Peter Gross granted the Appellant permission to appeal on the basis that it was arguable the Sandra Holding case has been wrongly decided. His Honour also said there were important policy issues that arose from the Sandra Holding decision that warranted consideration. This included considering whether it was right to limit the power of the Courts to grant freezing orders in circumstances where such relief was crucial to avoid the dissipation of assets and potential frustration of enforcement efforts.

The Court of Appeal overturned Sandra Holding. Relevantly, the Court of Appeal has now confirmed the following in respect of the Courts' jurisdiction (in the context of WFOs):

• The Courts' jurisdiction and powers are found in statutes and the RDC both expressly and, in some cases, by implication. The relevant statutes conferring jurisdiction are the JAL and the DIFC Court Law (No. 12 of 2004) (the Court Law).
• By operation of Article 5(A)(1)(e) of the JAL, the RDC fall within the category of ‘DIFC Regulations’ which can be a source of the Courts' jurisdiction.
• However, whether a particular provision of the RDC carries with it a grant of jurisdiction will be a matter of construction. For example, jurisdiction may 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, in order 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.

Taking the above into consideration, the Court of Appeal found that the Court has jurisdiction, as a necessary incident of its jurisdiction to recognise and enforce foreign judgments, to grant interim relief in support of foreign proceedings in order to prevent its enforcement jurisdiction from being "thwarted".

Significance of the Court of Appeal's decision

The decision in Carmon Reestrutura clarifies an important issue for parties seeking interim relief through the DIFC Courts in support of foreign proceedings. In short, it is now settled that the DIFC Courts have freestanding jurisdiction to grant interim relief in support of foreign proceedings, absent a nexus to the DIFC. This allows 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.

Commentary on the Courts' ability to depart from its own precedent

The Court of Appeal also provided some useful insights into when it is appropriate for the DIFC Courts to depart from its own precedent. The decision in Sandra Holding was rendered on 6 September 2023 and it was overturned only 14 months later.

In justifying departing from the precedent established by Sandra Holding, the Court of Appeal emphasised that Sandra Holding was not decided on the basis of an established principle developed over a significant number of cases. Furthermore, the Court of Appeal found that a refusal to follow the legal principle enunciated in Sandra Holding would not be disruptive given the short timeframe since that decision was handed down and bearing in mind that this was a decision asserting a lack of jurisdiction (and therefore overturning it would simply restore jurisdiction that was found not to exist).

As the body of DIFC Court precedent continues to develop, it remains to be seen whether the principles outlined in Carmon Reestrutura will form the basis of a more established doctrine regarding the circumstances in which the DIFC Court of Appeal may depart from a previous decision.

The broader implications of Carmon Reestrutura

The Court of Appeal's decision is nothing short of commercial and acknowledges the purpose and positioning of the DIFC Courts in the international sphere. The Court acknowledged that the DIFC Courts are part of a growing network of international commercial courts and referred to the objectives underlying the establishment of the DIFC. Therefore, where matters of construction arise (including in respect of the Courts' jurisdiction), there may be powerful policy considerations to prefer a construction supporting the rule of law in transnational trade and commerce.

The Carmon Reestrutura decision also forms part of a wider trend of the DIFC Courts showing a willingness to support foreign proceedings, where it has discretion to do so. For example, in July 2024, the DIFC Courts found that they had jurisdiction to grant a Norwich Pharmacal order (NPO) in support of English proceedings brought by the Danish tax authority. Although there was a nexus to the DIFC in that case (as one of the Parties was a DIFC entity), it is certainly arguable that the Court also has a freestanding jurisdiction to grant NPOs absent a nexus to the DIFC.

Notwithstanding the encouraging signs emerging from the Carmon Reestrutura and SKAT cases, we do not think there is a risk that the DIFC Courts will now take an excessively liberal approach to the granting of interim relief. We expect that considerations of judicial comity will also remain at the forefront of judicial decision making, and of course, parties will still have to demonstrate 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.

The Court of Appeal in Carmon Reestrutura also made it clear that the grant of interim relief is subject to the Courts' discretion. It is yet to be seen, but in many cases, the DIFC Courts may limit the jurisdictional reach of its orders to granting freezing injunctions in respect of assets in Dubai or the UAE (rather than extending the reach of the orders to all assets worldwide, as occurred in Carmon Reestrutura).

Considerations of judicial comity will be of particular concern where parties are seeking interim relief in the DIFC Courts in support of onshore UAE Court proceedings. The jurisdictional divide in Dubai (between the onshore Dubai Courts and the DIFC Courts) is embarking on a new chapter, with the recently formed 'Conflicts of Jurisdiction Tribunal' tasked with navigating jurisdictional conflicts between the two jurisdictions. In view of these recent changes, the DIFC Courts may be mindful to avoid any assertion of jurisdictional overreach vis-à-vis the onshore UAE Courts. It follows, we expect applications for interim relief in the DIFC Courts, in support of onshore UAE proceedings, will be subject to careful calibration between the enforcement principle and considerations of comity.