DIFC Court of Appeal Clarifies Scope of Jurisdiction to Grant Injunctive Relief in Support of Foreign Proceedings
*Reproduced from Practical Law with the permission of the publishers. For further information visit www.practicallaw.com.
This article discusses the recent decision of the Dubai International Financial Centre (DIFC) Court of Appeal in Carmon Reestrutura-engenharia E Serviços Técnios Especiais, (Su) LDA v Antonio Joao Catete Lopes Cuenda [2024] DIFC CA 003. In that decision, the Court of Appeal confirmed the DIFC Courts’ jurisdiction to issue injunctive relief (including worldwide freezing orders) in support of foreign proceedings in circumstances where no judgment had been rendered in those proceedings.
The DIFC Court of Appeal recently issued a landmark ruling in Carmon Reestrutura-engenharia E Serviços Técnios Especiais, (Su) LDA v Antonio Joao Catete Lopes Cuenda [2024] DIFC CA 003 (Carmon), in which it departed from its previous (and controversial) decision in Sandra Holding v Saleh [2023] DIFC CA 003 (Sandra Holding).
The principle established in Sandra Holding was that the DIFC Courts did not have jurisdiction to grant injunctive relief in aid of pending proceedings in foreign courts where none of the five jurisdictional gateways in Article 5(A)(1) of the Judicial Authority Law DIFC Law No. 12 of 2004 had been satisfied.
The Sandra Holding Decision: Restricting the DIFC Courts’ Jurisdiction to Provide Interim Relief
In Sandra Holding, the DIFC Court of Appeal had set aside a worldwide freezing order that had been granted by the Court of First Instance in support of ongoing foreign proceedings in various jurisdictions. The crux of the defendants’ arguments on appeal was that there was no nexus to the DIFC, so the DIFC Courts lacked jurisdiction to grant the freezing order.
The Court of Appeal agreed with the defendants’ position and vacated the freezing order. It held that none of the five jurisdiction gateways set out in Article 5(A)(1) of the Judicial Authority Law was satisfied. These gateways confer exclusive jurisdiction on the DIFC Courts to hear and determine:
- Civil or commercial claims to which the DIFC or its Bodies or Establishments (defined under Article 2) are party.
- Civil or commercial claims arising from a contract concluded or performed in the DIFC.
- Civil or commercial claims arising from an incident or transaction performed within the DIFC.
- Appeals against decisions made by DIFC Bodies.
- Any claim over which the DIFC Courts have jurisdiction in accordance with DIFC Laws and Regulations.
The claimants argued that gateway set out in Article 5(A)(1)(e) was satisfied because the Rules of the DIFC Courts (RDC) confirmed that the DIFC Courts had the power to grant interim remedies. However, the Court of Appeal held that the RDC could not add to or extend the DIFC Courts’ jurisdictional powers without clearly expressed words. The Court of Appeal held that it was therefore necessary for the claimants to establish that another jurisdictional gateway was satisfied. Since the claimants could not do so, the Court of Appeal set aside the decision granting the worldwide freezing order.
Accordingly, the Sandra Holding decision established that the DIFC Courts did not have “freestanding” jurisdiction to grant freezing orders (and other forms of interim relief) in aid of ongoing foreign proceedings.
The Carmon Decision: A Welcome Sea Change
The Carmon decision concerned a worldwide freezing order issued by the DIFC Court of First Instance in support of ongoing proceedings in Hong Kong. The decision to issue the freezing order had been made before the Court of Appeal’s decision in Sandra Holding.
After the Court of Appeal issued the decision in Sandra Holding, the defendant (Cuenda) applied to the Court of First Instance to set aside the freezing order on the basis that, under Sandra Holding, the court had no jurisdiction to grant or maintain the order. Because the Court of First Instance was bound by the Court of Appeal’s decision in Sandra Holding, the Court of First Instance granted the application.
The claimant, Carmon Reestrutura, sought permission to appeal. In granting permission to appeal, the judge, Justice Sir Peter Gross, held that it was arguable that Sandra Holding had been wrongly decided.
On appeal, the DIFC Court departed from its decision in Sandra Holding on the question of the DIFC Courts’ jurisdiction. The Court of Appeal reasoned that the Sandra Holding court wrongly attached importance to the absence of specific wording in the Court Law DIFC Law No. 10 of 2004 conferring jurisdiction to grant freezing orders in support of pending foreign judgments. The Court of Appeal referred to a number of decisions of other common law courts and in particular put emphasis on “the enforcement principle” espoused by Lord Nicholls in Mercedes-Benz AG v Leiduck [1996] A.C. 284 (24 July 1995), where he observed that:
“...the essential purpose of a freezing injunction is to facilitate the enforcement of a judgment or order for the payment of a sum of money by preventing assets against which such a judgment could potentially be enforced from being dealt with in such a way that insufficient assets are available to meet the judgment.”
The Court of Appeal also considered the decision in PT Bayan Resources TBK v BCBC Singapore Pte Ltd, (2015) 258 CLR 1, where the Australian High Court held that the Supreme Court of Western Australia could issue a freezing order on an ex parte application by a party that was a claimant in proceedings pending in the High Court of Singapore. The Australian High Court held that the lower Australian court had power to make orders as appropriate to prevent the abuse or frustration of process. The DIFC Court of Appeal quoted from the High Court’s judgment, which stated that a freezing order is “the paradigm example of an order to prevent the frustration of a court’s process” and that “even where a court makes a freezing order in circumstances in which a substantive proceeding in that court has commenced or is imminent, the process which the order is designed to protect is a prospective enforcement process”.
The DIFC Court of Appeal in Carmon stated that the same logic applies to the scope of the DIFC Courts’ power to issue freezing orders. Because the DIFC Courts unquestionably had jurisdiction to recognise and enforce foreign court judgments, they could therefore use other powers to prevent that jurisdiction from being thwarted, for example, if the potential judgment debtor were permitted to move assets out of the jurisdiction of the court. Therefore, the DIFC Courts’ enforcement jurisdiction was engaged by the application, and the powers that the court was being invited to employ were intended to prevent that jurisdiction from being thwarted.
There would always be a question of discretion as to whether a freezing order could be granted and, if granted, whether it should be limited to assets within Dubai.
Court’s Discretion to Issue Injunctive Relief and Depart from Precedent: Lie of the Land
The Court of Appeal’s decision in Carmon will be welcomed by many in the legal community and is one of real significance. It reaffirms that the DIFC Courts can issue injunctive relief to prevent the dissipation of assets of defendants in foreign proceedings where a judgment has yet to be rendered against them.
In coming to this conclusion, the Court of Appeal appeared cognisant of the DIFC Courts’ position as an international centre for dispute resolution. In making its decision, the Court of Appeal referred to the aim of the DIFC Courts, which is to “promote the Emirate as an International Centre for dispute resolution and settlement,” as set out in Article 4 of Dubai Law No. 5 of 2021 Concerning the Dubai International Financial Centre. The Court of Appeal also referenced the ease and speed with which money and financial assets can be moved around the world, which it tied to public policy considerations. The court noted that public policy weighs heavily in favour of the DIFC Courts having the power to grant injunctive relief because it aids in the administration of justice. The DIFC Courts could not function effectively in a global commercial context if they did not have such powers.
However, Carmon does not give the DIFC Courts freedom to issue freezing orders in support of foreign proceedings in every circumstance. The Court of Appeal highlighted that the decision to grant injunctive relief (such as a freezing order) is an exercise of the court’s discretion, and that “in many cases it would be expected that such a freezing order would be limited to assets within Dubai.” Future cases are likely to test the limits of the court’s discretion and provide additional guidance as to the relevant factors that the DIFC Courts may consider when determining if it is appropriate to grant interim relief.
The Carmon decision is also significant due to the Court of Appeal’s discussion regarding its ability to depart from previous Court of Appeal decisions. The DIFC Courts apply a doctrine of precedent, departing from previous decisions only in very limited circumstances. Therefore, the Court of Appeal outlined certain principles that are relevant to the question of when the DIFC Courts could depart from their own previous decisions, relying on jurisprudence from other common law jurisdictions. In deciding to depart from the precedent established by Sandra Holding, the Court of Appeal emphasised the following:
- It is open to the Court of Appeal to reach a conclusion that one of its earlier decisions embodied an error of law that could impede the effective administration of justice and that this can justify revisiting such a decision.
- The decision in Sandra Holdings might, if it stood, result in the DIFC Courts’ enforcement jurisdiction being thwarted.
- The decision of Sandra Holding had not been made “upon a principle carefully worked out in a significant succession of cases.”
- The outcome of Sandra Holding itself would not have been different, as the freezing order was set aside on other grounds.
- The Court of Appeal contrasted the circumstances to a situation where a prior decision “found the existence of a jurisdiction and powers upon which parties and lower courts had subsequently acted.” Overturning a decision in those circumstances could be disruptive.
