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Limits of the DIFC Court’s jurisdiction to grant worldwide freezing orders clarified

BSA acted for the DIFC Court of Appeal respondents in Sandra Holdings v Saleh and Others, a recent case where the DIFC Court of Appeal has handed down a landmark judgment in favour of the respondents.

This has definitively clarified the limits of the DIFC Court’s jurisdiction to grant worldwide freezing orders to claimants in support of foreign legal proceedings. A worldwide freezing order is a draconian remedy which, if granted, immobilises the assets of a defendant wherever they are located (subject to the local rules of enforcement). A defendant subject to such an order is effectively barred from utilizing its own property pending the outcome of the proceedings.

In Sandra Holdings v Saleh and Others, BSA acted for respondents who had been made the subject of a worldwide freezing order in the DIFC Court of First Instance, in support of various court actions in Kuwait (“Kuwait Actions”) to which they were defendants.

The Kuwait Actions had no connection with the DIFC (or the wider UAE) and the respondents had no assets within the DIFC and were not domiciled in the DIFC or the UAE.

Given this lack of connection, the respondents did not challenge the order within the time limit specified or disclosure the nature and location of its assets to the court as the order required.

However, when faced with an application for contempt of the DIFC Court, the respondents applied to the DIFC Court of First Instance for the order to be set aside.

This was refused by the judge (who had granted the original order). He held that the DIFC Court had jurisdiction to make the order for the reasons that same judge had given in a previous case (Jones v Jones CFI 043/2022), namely that the DIFC Courts have unfettered jurisdiction to grant injunctions, including worldwide freezing orders, without any reference to the jurisdictional “gateways” which would otherwise be necessary to confer jurisdiction on the DIFC Courts.
These “gateways” are set out in Article 5A of the Judicial Authority Law (Dubai Law No. 12 2004- “JAL”). This is the founding law of the DIFC Court system. It gives DIFC Courts territorial jurisdiction over entities based in or licensed in the DIFC, and over contracts performed or partly concluded within the DIFC (Article 5A(1)(a)–(d)). Article 5A (2) and (3) gives the DIFC Courts jurisdiction where parties have agreed to confer jurisdiction on the Courts (opt-in jurisdiction).

In addition to the refusal to set aside the worldwide freezing order, the judge found the respondents to be in contempt of court and imposed significant financial sanctions on the respondent.

The respondents appealed against this decision.

On 6 September 2023 the justices of the DIFC Court of Appeal unanimously allowed the respondents’ appeal in full, setting aside both the freezing order and the findings of contempt and reversing the financial sanctions imposed on the respondents.

This judgment is the new starting point for all issues relating to the jurisdiction of the DIFC Courts generally and specifically in relation to worldwide freezing orders.

In each case, the claimant must first establish that the DIFC Courts have jurisdiction under a statutory gateway. If that is established, injunctive relief should only be granted on discretionary principles (as summarised in Arcelormittal USA LLC v Essar Steel Limited & Others [2019] EWCH 724 (Comm)). On the facts, and applying those principles, the freezing injunction should not have been made.

The DIFC Court of Appeal acknowledged that the DIFC Court’s jurisdiction can be expanded by the Rules of the DIFC Court (“RDC”), by virtue of JAL Article 5A(1)(e). This had been established by the DIFC Courts of Appeal found in Nest Investments v Deloitte & Touch ([2018] CA 011).

The kernel of the decision in Jones v Jones lies in RDC r.25.24. That provision states:

“25.24 Where a party wishes to apply for an interim remedy but: (1) the remedy sought is in relation to proceedings which are taking place, or will take place, outside the DIFC…Any application must be made in accordance with Part 8”.

The judge at First Instance found that this provision expanded the DIFC Courts’ jurisdiction beyond the Article 5A(1)(a)-(d) gateways because otherwise it would, according to the judge, have no purpose. As he said in Jones v Jones,:

“it is hard to see that this Rule can have any application in the absence of a power to grant such a remedy in the circumstances envisaged by the Rule which refers to “proceedings which are taking place or will take place” and not simply to the situation where a judgement has already been issued by a foreign court or the Dubai Court.”

The Court of appeal disagreed. It held that clear and expressive words were required to expand the DIFC Court’s jurisdiction.

None of the provisions of the RDC give the DIFC Courts jurisdiction to act outside the established gateways and the judge’s finding in Jones v Jones was wrong. Whilst RDC 25.24 refers to applications for interim relief in relation to proceedings taking place or which will take place outside the DIFC, that does not expand the DIFC Courts’ jurisdiction under the “gateways” set out in the JAL: it merely relates to procedure.

Jones v Jones had proceeded on a mistaken assumption that where the jurisdictional gateways can be established the DIFC Courts decide the substantive claim. The DIFC Courts applies established forum non conveniens principles and it is perfectly possible for a claim falling within the Article 5A(1)(a)-(d) “gateways” to be heard elsewhere. An obvious example is a claim against a DIFC entity under a contract which has an exclusive jurisdiction clause in favour of a different court. Such a claim would properly be brought in the court in whose favour the parties had agreed the jurisdiction clause and a claim brought in the DIFC Courts on that contract would be stayed, notwithstanding the fact that the DIFC Courts had prima facie jurisdiction over the DIFC entity. However, the DIFC Courts could properly be asked for injunctive relief against the DIFC entity, and RDC 25.24 states (and only states) that such an application should be made by Part 8 of the RDC. Once that mistaken assumption in Jones v Jones has been corrected, the decision falls away.

As the Court of Appeal has now firmly established, the DIFC Courts are a creature of statute, without inherent jurisdiction. It is therefore wrong to permit judge made expansions of its jurisdiction. If it is felt that it is desirable for the DIFC Courts to have wider jurisdiction, perhaps akin to that enjoyed by the English Courts under s.25 of the Civil Jurisdiction and Judgments Act 1982 – and that is a perfectly sensible proposal – the JAL should be amended appropriately.

The corollary is that if the decision at first were correct, the DIFC Courts would have jurisdiction over any foreign proceedings anywhere in the world. That must be wrong.

Additionally, the Court of Appeal considered the further points that had been argued.

Whilst the DIFC Courts may act as a conduit enforcement jurisdiction in appropriate circumstances, that does not mean that they can grant interim relief in aid of anticipatory foreign judgments: it is key that the judgment or award has in fact been issued. Furthermore, on the facts, the claimants had no good arguable case.

As regards the respondents’ tardiness in making its application to the Court of First Instance, the Court of Appeal held that a failure to dispute jurisdiction in time does not confer jurisdiction. The respondents had failed to file an acknowledgment of service or applied to dispute jurisdiction within the 14 day time limit set out in RDC r.12.4. The claimant argued that that failure gave the Court jurisdiction under RDC r.12.5, which states that where an application disputing jurisdiction is not made, the respondent “is to be treated as having accepted that the Court has jurisdiction to try the claim“. However, that provision only applies where the Court has prima facie jurisdiction. Where, the DIFC Court has no jurisdiction, RDC r.12.5 cannot create that jurisdiction.

The Court of Appeal also considered the respondents’ alleged contempt of court. It held that the Judge should have permitted the respondents to argue all points on why the freezing injunction should not have been made. The claimant had argued that the principle that an order made by a court of unlimited jurisdiction must be obeyed unless and until it has been set aside by the court, set out for example in PWC v Saad [2014] UKPC 35, should apply to DIFC proceedings. The Court of Appeal held that the DIFC Courts are not of unlimited jurisdiction and therefore that principle does not apply. Since the freezing injunction should not have been made, the findings of contempt, and the sanctions, were set aside.

These points were sufficient to allow the appeal in full.

Published on 4 October, 2023

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