INTRODUCTION

1. The DIFC Court of Appeal (“DIFC CA”) in Sandra Holding Ltd. v. Fawzi Musaed Al Salehi^[1] (“Sandra Holding”) caused quite a stir in holding that the DIFC Courts did not have the power to grant freestanding worldwide freezing orders (“WFOs”) in support of foreign proceedings (See our alert on the decision here).

2. Recently, the DIFC CA in Carmon Reestrutura-Engenharia E Serviços Técnios Especiais, (SU) LDA v. Antonio Joao Catete Lopes Cuenda (“Carmon”) overruled Sandra Holding finding that the decision had assumed an unduly restrictive view of the powers of the DIFC Courts in aid of its express jurisdiction. The DIFC CA also reflected upon the precedential value of its decisions and the criteria to be applied in deciding whether to depart from previous decisions.

3. The DIFC CA in Carmon marks an important milestone in the jurisprudential landscape of the DIFC as a commercially forward jurisdiction.

INTRODUCTION

4. This appeal preferred from the DIFC Court of First Instance (“DIFC CFI”) addressed the question of whether DIFC Courts are able to issue WFOs against a respondent in anticipation of a foreign judgment against that respondent which would be enforceable in the DIFC.

5. The underlying dispute arose between Carmon Reestrutura-Engenharia E Serviços Técnios Especiais, a construction company incorporated in Angola (“Appellant”), and its former senior officer (“Respondent”). The Appellant entered into a cooperation agreement with a Chinese entity for the construction of an airport in Angola, for which bank accounts were required in Hong Kong to facilitate project-related transactions. The Respondent was sent to Hong Kong to establish a branch of the Appellant in Hong Kong (“Carmon HK”). The Respondent was appointed its sole director and shareholder and had control over its bank account at DBS Bank as a nominee, while the Appellant claimed beneficial ownership of Carmon HK.

6. The relationship between the parties deteriorated, and the Respondent resigned. Subsequently, the Appellant discovered that the Respondent had changed the login credentials for Carmon HK’s bank account, which had a balance of approximately US$ 23 million. The Appellant commenced proceedings in Hong Kong, obtaining a WFO and a disclosure order. It was found through disclosures that there were transfers from Carmon HK’s account to the Respondent’s personal accounts in multiple jurisdictions, including Emirates NBD Bank PJSC (“ENBD”) in the UAE. The Appellant notified ENBD of the Hong Kong court’s orders, but ENBD stated such orders were not enforceable in the UAE unless recognised by UAE courts. In the meantime, the Respondent had challenged the Hong Kong court’s jurisdiction.

7. Pending the Respondent’s challenge before the Hong Kong courts, the Appellant filed an ex parte application before the DIFC CFI. The DIFC CFI, in support of the Hong Kong proceedings, issued a WFO against the Respondent in respect of funds held in accounts in the Respondent’s name with ENBD for their traceable proceeds. Notably, this decision predates Sandra Holding.

8. After Sandra Holding, the Respondent successfully contested the jurisdiction of the DIFC CFI and the WFO was set aside. The DIFC CA then granted the Appellant permission to appeal the decision of the DIFC CFI on grounds relating to the question of whether the rulings of the Sandra Holding with respect to the jurisdiction of the Court to make freezing orders in support of pending foreign proceedings should not be followed because (a) they were per incuriam; and/or (b) they were wrong.

LEGISLATIVE FRAMEWORK

9. The central issue in determining such a question, stems from the underlying statutory power from which DIFC Courts derive jurisdiction. As the DIFC CA cautioned, the DIFC Courts are statutory courts whose jurisdiction and powers are conferred by the laws of the DIFC or pursuant to powers conferred by such laws. The three key legislations relevant for determining the basis for the jurisdiction and powers of the DIFC Courts are:

• Judicial Authority Law, DIFC Law No. 12 of 2004 (“JAL”). Article 5(A)(1)(e) states that the DIFC CFI shall have exclusive jurisdiction to hear and determine any claim or action over which the DIFC Courts have jurisdiction in accordance with DIFC laws and regulations. Further, Article 7 provides that foreign judgments are executable within the DIFC.
• Court Law, DIFC Law No. 10 of 2004 (“Court Law”). Article 19(1) of the Court Law deals with the jurisdiction of the DIFC CFI, and Article 24 deals with the DIFC CFI’s jurisdiction to hear claims for the recognition and enforcement of foreign judgments. Article 20 of the Court Law also confers upon the DIFC CFI the power, in matters over which it has jurisdiction, to make interlocutory orders. Articles 32(b), (c) and (d) of the Court Law encompass the DIFC Courts’ power to grant ex parte freezing orders in aid of the Court’s jurisdiction.
• Rules of the DIFC Courts 2014 (“RDC”). Part 25 of the RDC deals with interim remedies and security for costs. RDC 25.1 encompasses an express power to issue ex parte injunctions. RDC 25.3 provides the DIFC Courts may grant an interim remedy whether or not there has been a claim for a final remedy of that kind. Further, RDC 25.24 provides for the grant of interim remedies where there is no related claim in the DIFC.

PARTIES’ SUBMISSIONS

10. The Appellant framed the issue before the DIFC CA as whether the DIFC CFI had the jurisdiction under the Court Law to make a freezing order in support of the prospective enforcement of a judgment in proceedings pending in a foreign court or whether its jurisdiction is limited to the case where judgment has already been rendered by the foreign court.^[2]

11. The Appellant submitted that several common law jurisdictions, including England and Wales, follow the well-established position in Broad Idea International Ltd v. Convoy Collateral Ltd.^[3] (“Broad Idea”) where it was held that a BVI court may issue freezing orders in support of prospective foreign judgments. The Appellant argued that the position in Broad Idea could not be forsaken, as was done in Sandra Holding, simply because the jurisdiction of the DIFC Court derived from the gateways highlighted in Article 5(A)(1) of the JAL and not from rules on service out of the jurisdiction. In fact, the Appellant submitted that Sandra Holding conflicted with four judgments of the DIFC Courts (referring to Lateef v Leila^[4] Jones v Jones^[5] Global Investment Holdings v Commercial Bank of Dubai ^[6] and Neal v Nadir ^[7]) all of which had drawn upon Broad Idea to conclude that DIFC Courts had the jurisdiction to assist in the enforcement of pending foreign decisions.

12. The Appellant averred that Sandra Holding failed to give effect to the “enforcement principle” which supports granting relief to prevent the dissipation of assets in anticipation of a prospective judgment. Further, that the Court wrongly emphasised the absence of specific wording in the Court Law authorising freezing orders for pending foreign judgments, as such specificity was unnecessary. The Appellant caveated that the jurisdiction was not exorbitant, as it was limited to cases where the claimant could secure a judgment recognised under DIFC law. The Appellant urged the Court to correct this statutory interpretation error, highlighting that freezing orders are a well-established judicial remedy, and leaving the matter to slow legislative processes would perpetuate the issue. The case was presented as an urgent need for the DIFC Court to align with common law courts on this matter.

13. Finally, the Appellant submitted that the DIFC CA, as the most superior court, has the power to overrule its own judgments albeit in limited circumstances

Respondent’s Arguments

14. The Respondent reposed faith in the veracity of Sandra Holding stating that territorial jurisdiction did not arise in respect of a claim to enforce a foreign judgment until there existed a foreign judgment to enforce. The Respondent argued that Sandra Holding reinforced Broad Idea where the court’s power to grant a freezing order was derived from a statutory basis (there, Section 37 of the English Senior Courts Act (1981)) and not from an underlying cause of action.

15. In terms of statutory interpretation, the Respondent asserted that neither Articles 24 of the Court Law nor Article 7(6) of the JAL conferred jurisdiction on the DIFC CFI unless there was already a judgment or award to ratify. The Respondent submitted that where a party seeks to enforce a foreign judgment, the cause of action is the claim on the foreign judgment which falls within Article 24 of the Court Law and Article 7(6) of the JAL.

16. While the Respondent agreed that a superior court in most judicial systems was able to overrule previous decisions it had issued, it argued that in the present case, Sandra Holding only ought to be revisited on more secure footing – Sandra Holding did not confuse its jurisdiction to hear a claim with its jurisdiction to enforce a foreign judgment or to issue a freezing order.

JUDGMENT

17. The DIFC CA considered – (i) whether DIFC Courts had the jurisdiction and the power under Article 5(A)(1)(e) of the JAL; (ii) whether it was able to issue WFOs in anticipation of foreign judgments that would be enforceable in the DIFC; and (iii) whether it was able to overrule its previous decisions. In extrapolating on these three considerations, the DIFC CA overruled Sandra Holding

Jurisdiction and power of DIFC Courts to issue WFOs in anticipation of foreign judgments

18. From the review of the laws and rules, the DIFC CA in Carmon concluded that the DIFC Court has jurisdiction to recognise and enforce foreign judgments but must address two issues: whether this jurisdiction is activated by an application for a freezing order in pending foreign proceedings and whether it has the power to issue such orders in aid of that jurisdiction. The DIFC CA observed that, though blurred by statutory language, a distinction exists between jurisdiction and power. Jurisdiction may be implied from a power to grant remedies when not linked to an express grant of jurisdiction, or alternatively, through powers to grant interim remedies supporting expressly conferred jurisdiction.^[8]

19. The DIFC CA began with the fundamental assertion that the jurisdiction and powers of the DIFC Courts were to be found in statutes and rules expressly and in some cases by implication. Not only does Article 24 of the Court Law confer jurisdiction on the DIFC CFI to “ratify any judgment, order or award of any recognised foreign court” but also Article 7(6) of the JAL empowers it to execute foreign judgments, and Article 32 of the Court Law allows it to issue interim orders. Moreover, by operation of Article 5(A)(1)(e) of the JAL, the Rules of Court fall within the category of ‘DIFC Regulations’ which can be a source of jurisdiction.

20. The DIFC CA asserted that a rule could be a source of jurisdiction and that the question of whether a rule conferred jurisdiction raised a matter of construction. The DIFC CA observed that if a rule conferred procedural power which could not be linked to an express grant of jurisdiction, it may be that the jurisdiction necessary to support the exercise of the power, is to be implied from the grant of the power. It acknowledged that while ordinarily the RDC was not likely to confer jurisdiction, a rule of the RDC may be read to confer jurisdiction, where in its absence, the rule would either be of no effect or might have a lacuna in its operation.

21. The DIFC CA referred to its decision in Nest Investments Holding Lebanon S.A.L. v Deloitte & Touche (M.E.) (“Nest Investment”)^[9] which held that the RDC was a “DIFC Regulation” that such rules can serve as a source of jurisdiction under Article 5(A)(1)(e) of the JAL. Nest Investment emphasised that jurisdiction may be implied from the grant of procedural powers, even if not expressly conferred by statute, as long as the rules are authorised by statute. The DIFC CA had reasoned in Nest Investment that rules contributing to the administration of justice and authorised by legislation can validly create jurisdiction, even if such jurisdiction might not always be recognised internationally.

22. The DIFC CA acknowledged the dictum in Broad Idea, which held that a court with equitable and/or statutory jurisdiction to grant injunctions where it is just and convenient to do so, would have the power to grant a freezing injunction against a respondent over whom the court had personal jurisdiction provided that the applicant had already been granted or had a good arguable case for being granted a judgment or order whether or not through the domestic courts or directly against the respondent for payment of a sum of money enforceable through the process of the domestic court and where the respondent held assets or was liable to take steps that would reduce the value of assets against which a judgment could be enforced.

23. The DIFC CA then went on to analyse the decision in Sandra Holding.^[10] In summary, Sandra Holding concluded that the RDC could not add to nor extend the DIFC Courts’ jurisdictional powers without clear expressive words to confer such powers, holding that the wording of RDC 25.24 provided a general power which the Court might exercise when granting an interim remedy in aid of foreign proceedings, but did not confer jurisdiction. Further, in relation to Articles 22, 24 and 32 of the Court Law, Sandra Holding held that these intended to provide general powers in the creation of the DIFC Courts and not to confer special powers or jurisdictions. The key proposition that emerged from the judgment was that enforcing a foreign order in the DIFC Court requires a pre-existing foreign judgment under Article 7 of the JAL.

24. In Carmon then, the issue was whether the Court’s jurisdiction to enforce foreign judgments includes the power to grant interim remedies to prevent the dissipation of a prospective judgment debtor’s assets, ensuring the jurisdiction’s effectiveness.

25. Sandra Holding had followed Akhmedova v Akhmedov ^[11] (“Akhmedova”) where it held the jurisdiction of DIFC Courts to enforce a foreign judgment was limited to those parties against whom the judgment had been made. In Akhmedova the DIFC CA dismissed an injunction application on the basis that the DIFC CFI’s jurisdiction relating to the enforcement of a foreign judgment only extended to enforcement against parties to those judgments [59]. The DIFC CA ultimately granted quia timet relief by continuing existing orders until the application for permission to amend the claimant’s case as against a non-party. The DIFC CA in Carmon found this significant because it indicated its own preparedness to grant such relief against a party who was not a party to a judgment which could be enforced by the Court, but was likely to become liable under such a judgment. Moreover, the DIFC CA found that Akhmedova necessarily implied the existence of a power on part of the Court to grant such relief by continuing a freezing order against a party in prospect of a judgment against that party which might be enforced in the DIFC.

26. The DIFC CA appreciated that Sandra Holding referred to Nest Investment that when considering whether a provision in a DIFC Law or Regulation gives jurisdiction under Article 5(A)(1)(e), the Court must be satisfied that there is a sufficiently clear conferral of jurisdiction by that provision – in Nest Investment, this was the basis under which Article 43 of the Arbitration Law was read to have conferred jurisdiction. Carmon reiterated the need to consider the expansive approach informed by public policy, as adopted in Nest Investment, when determining whether the RDC conferred jurisdiction. It found that such a public policy consideration was relevant to the question whether the Court can be found to have jurisdiction and associated power to issue a freezing order in relation to a potential judgment debtor in proceedings in a foreign court whose judgment would be capable of recognition by the DIFC Court.

27. The DIFC CA concluded that it took a wrong turn in Sandra Holding, preferring an unduly restrictive view of the powers of this Court which may be deployed in aid of its express jurisdiction. The DIFC CA noted that Sandra Holding involved the proposition that there was a want of power to issue a freezing order where there was no foreign judgment to be recognised or enforced – this was different from a case in which a court found the existence of a positive jurisdiction and power which was then invoked in subsequent cases. The DIFC CA affirmed that the correct analysis in Sandra Holding ought to have been whether the court had had the power and the ancillary jurisdiction to issue a freezing order in respect of a prospective foreign judgment in order to avoid the thwarting of its undisputed express jurisdiction to recognise and enforce a foreign judgment.

Issuance of WFOs in anticipation of foreign judgments that would be enforceable in the DIFC

28. Having elucidated the conceptual distinction between jurisdiction and power, the DIFC CA observed that the first resort in determining whether it could issue WFOs in anticipation of foreign judgments subsequently enforceable in the DIFC, was whether the express grant of jurisdiction in relation to foreign judgments carries with it the jurisdiction to grant interim relief during the pendency of foreign proceedings to prevent pre-emption by dissipation of the prospective judgment debtor’s assets.

29. The DIFC CA specifically found that were a defendant in proceedings in a foreign court, whose judgment could be enforced in the DIFC; to dissipate its assets to defeat execution of an apprehended judgment in the foreign jurisdiction and in the other enforcing jurisdictions, it would entirely negate the jurisdiction and powers of an enforcing court. The DIFC CA found that permitting a defendant to pre-emptively strike against the enforcement of any judgment would be inimical to the rule of law domestically and transnationally.

30. To that end, the DIFC CA found that Article 24 of the Court Law conferred such jurisdiction as necessary to prevent its pre-emption by a dissipation of the assets of a prospective judgment debtor in proceedings in a foreign court whose judgment could be recognised and enforced in the DIFC Court. Moreover, the DIFC CA found that RDC Part 25, in providing for interim freezing orders, and read with the express grant, could also be viewed as a source of the requisite protective jurisdiction. On the basis that RDC 25.24(1) confers expansive powers on the DIFC CFI to award remedies in relation to proceedings taking place outside the DIFC, the DIFC CA concluded that the DIFC Court have both the jurisdiction and power to award a freezing order in respect of the assets of a potential judgment debtor in proceedings in a foreign court whose judgment may be amenable to recognition and execution by the DIFC CFI.

31. The DIFC CA observed that the powers of DIFC Courts to grant interim remedies, including freezing orders, under RDC Part 25 were available precisely to prevent the DIFC Courts jurisdiction from being thwarted. The DIFC CA appreciated that its jurisdiction would be thwarted if a party to a foreign proceeding sought to dissipate its assets in advance of an apprehended judgment which might be susceptible to recognition and enforcement in the DIFC.

32. The DIFC CA affirmed that the correct analysis in Sandra Holding ought to have been whether the court had had the power and the ancillary jurisdiction to issue a freezing order in respect of a prospective foreign judgment in order to avoid the thwarting of its undisputed express jurisdiction to recognise and enforce a foreign judgment.

DIFC CA’s ability to overrule its previous decisions

33. An important aspect of Carmon relates to the DIFC CA’s clarification on precedents in the DIFC. The DIFC CA acknowledged that despite the general application of the doctrine of precedents in the DIFC, it was nonetheless permitted to depart from its previous decision in limited circumstances. While it did not outline the exact contours of these circumstances it identified three helpful guidelines that assist DIFC Courts in this regard.

34. First, turning to English law, it relied on a lecture delivered by Lord Reed, President of the UK Supreme Court on 20 January 2023, on the 1966 Practice Statement which formulated the exception to departing from the doctrine of precedent in England and Wales. The DIFC CA reiterated the observations that: (i) where the Supreme Court could depart from previous decisions where it is right to do so, it would remain circumspect in invoking the 1966 Practice Statement; (ii) the Supreme Court would likely be slower in reconsidering detailed questions of construction of legislation or other documents which were often matters of impression rather than broader questions of legal principle; and (iii) the Supreme Court would also consider whether any suggested change in the law was so complex or carried potential injustices or wider implications that it was more appropriately left to the legislature.^[12]

35. Second, relying on the observations of Lord Burrows delivered at the Lord Toulson Memorial Lecture 2024, the DIFC CA reiterated the two major criteria proposed in considering the 1966 Practice Statement: (i) how clear it appeared with the benefit of hindsight that the past decision was legally incorrect and (ii) how disruptive the overruling of such decision might be given that common law operated by retrospective overruling ^[13]

36. Third, the DIFC CA turned to the four considerations set forth by the High Court of Australia in John v Federal Commissioner of Taxation,^[14] being: (i) whether or not the precedent decision rested upon a principle carefully worked out in a significant succession of cases; (ii) whether there were differences in the reasoning that led to the precedent decision; (iii) whether a precedent decision had achieved no useful result but considerable inconvenience; and (iv) whether or not a precedent decision had been independently acted on in a manner which militated against reconsideration.^[15]

37. The DIFC CA found that neither did Sandra Holding rest upon a principle carefully worked out in a significant succession of cases nor was there evidence that it had been independently acted on in a manner which militated against its reconsideration. In fact, in specifically applying Lord Burrows’ criterion, the DIFC CA asserted that a conclusion that Sandra Holding was wrong, so far as it rested upon a finding as to the jurisdiction of the CFI, would not appear to be disruptive.

ANALYSIS AND CONCLUSION

38. The DIFC CA in Carmon has strengthened the position of the DIFC as a uniquely conducive jurisdiction for the savvy judgment creditor to seek enforcement of a judgment in its favour pending judgment in foreign proceedings. The ‘nuclear weapon’ of a well-worded WFO, as once described in Bank Mellat v Nikpour,^[16] can now be wielded against the wiliest of respondents in the DIFC to prevent them from evading enforcement. It is imperative for commercially-minded parties to be aware of the potential consequences of enforcing and recovering their judgment or award debt.

39. Well-established as a landmark judgment on the efficacy of freestanding WFOs, Carmon represents the DIFC’s evolving jurisprudence and reflects a sophisticated alignment with common law, while still reinforcing the independent authority of the DIFC court system. Indeed, as the DIFC CA succinctly summarised, where DIFC Courts find “their jurisdiction and powers are amenable to constructions supporting the rule of law in transnational trade and commerce, such constructions should be preferred.”

Authors: Priyanshi, Natasha