Carmon Reestrutura: DIFC Court of Appeal confirms jurisdiction to grant interim injunctive relief

The precedent: Sandra Holding

 The case of Sandra Holding concerned a Worldwide Freezing Order (“WFO”) granted by the DIFC Court of First Instance on 10 November 2021, in respect of assets that the Claimant alleged the Defendants had misappropriated from a Cayman entity.  The WFO was granted in support of proceedings initiated by the Claimants in Kuwait and France to prevent the Defendants from dissipating assets, even though the Defendants did not have any connection with (nor held any assets in) the DIFC.  

Upon the Defendants’ appeal, the DIFC Court of Appeal unanimously overturned the decision and set aside the injunction.  The Court deemed that the crucial issue was its lack of express statutory pre-emptive jurisdiction to grant interim injunctive relief where no foreign judgment or final remedy has yet been obtained.  Finding that the DIFC Courts’ jurisdiction arose from Article 5A of the Judicial Authority Law (known as the “gateways”), the Court of Appeal found that nothing within the JAL or the Rules of the DIFC Courts (“RDC”) granted the DIFC Courts jurisdiction to act outside of the gateways, which did not expressly provide for jurisdiction for interim relief pending a final judgment from a foreign court. 

The Court of Appeal also specifically rejected the idea that the DIFC Court might issue injunctions in support of foreign proceedings without establishing jurisdiction through the JAL, stating that this “would ultimately lead to the prospect of the DIFC Courts having jurisdiction over any foreign proceedings anywhere in the world.”¹

For further information on the background to Sandra Holding and our comment on the judgment, please see our previous case update.  

Background to Carmon Reestrutura

Carmon Reestrutura also concerned a WFO, which was granted by the DIFC’s Court of First Instance against the Respondent (Mr Cuenda) prior to the Sandra Holding judgment.  The injunction was granted in support of proceedings in Hong Kong, in which the Appellant (Carmon Restrutura, an Angolan construction company) alleged that the Respondent had misappropriated USD 20 million and that some of those funds had been transferred to bank accounts in onshore UAE (but notably, not the DIFC).  

Following the handing down of the Court of Appeal’s decision in Sandra Holding, the Respondent successfully applied to have the WFO set aside on jurisdictional grounds.    Applying the Court of Appeal’s reasoning in Sandra Holding, the judge concluded that absent an applicable gateway under the JAL, he was bound to follow the precedent and find that: (i) the DIFC Courts had no freestanding jurisdiction to grant freezing orders in support of the prospective enforcement of foreign proceedings in which judgment had not been entered; and (ii) accordingly, had no jurisdiction to grant the WFO.  

However, at the same hearing, the Appellant was granted leave to seek permission to appeal the decision on grounds relating to whether the decision in Sandra Holding should not be followed because the decision was per incuriam and/or wrong. The Appellant was subsequently granted permission to appeal on the basis there was an “arguable case [Sandra Holding] was wrongly decided”.²  Allowing the appeal Justice Sir Peter Goss noted that a number of important policy issues were at play, namely:

1. “The power of the DIFC Courts, established (inter alia) to assist international trade, to grant freezing orders in circumstances where such relief could be crucial to avoid the dissipation of assets; 
2. The need to guard against the assertion to the DIFC Courts of an exorbitant jurisdiction; and 
3. The proper limits of judicial (as distinct from legislative) development of the law by the DIFC Courts, whose jurisdiction is based on statute.”³

Reversal of the Court of Appeal’s decision

Overturning its decision in Sandra Holding, the Court of Appeal considered the function and purpose of the DIFC Courts, which it described as “statutory courts integral to the operation of the DIFC as a Financial Free Zone”.⁴ From this starting point, the Court of Appeal assessed the nature of its jurisdiction and powers arising from that purpose, finding that:

1. By virtue of various provisions of the JAL and the Court Law, the Court of First Instance had the power to ratify and execute foreign judgments, and to issue interim or interlocutory orders in proceedings before it.  Specifically, in the Court of Appeal’s assessment, Article 24 of the Court Law conferred jurisdiction to entertain pre-emptive applications for relief to prevent dissipation of assets by a prospective judgment debtor in foreign proceedings.  In addition, RDC 25.24(1) gave the Court of First Instance expansive powers to award interim remedies, including in proceedings which “will take place outside the DIFC”.  
2. Read together, these statutory provisions supported the proposition that the Court has the power to award a WFO in respect of the assets of a potential judgment debtor in foreign proceedings, where such judgment could subsequently be recognised and executed by the Court of First Instance.  
3.  The express statutory grant of jurisdiction in relation to interim relief in support of a foreign judgment was the “first resort”.  However, “jurisdiction may be conferred by a rule where, in its absence, the rule would be of no effect or would have a lacuna in its operation”.⁵
4.  If a defendant to proceedings in a foreign court were able to dissipate its assets to defeat execution of a judgment that might otherwise be enforced in the DIFC, that would render the DIFC Courts’ jurisdiction and powers as the enforcing court futile.
5.  Whether such a jurisdiction and power should be exercised is a matter of discretion, which should not be exercised lightly and should not be more expansive than is necessary for the purposes of the case in point.

Taking these points together, the Court of Appeal held that, as a natural consequence of its power to recognise and enforce foreign judgments, the DIFC Courts have jurisdiction to grant interim relief in support of foreign proceedings to prevent its enforcement jurisdiction from being thwarted.  Accordingly, it allowed the Appellant’s appeal and reinstated the WFO, noting that “considerations of policy” were “overwhelmingly in favour of granting the injunction”.⁶

With regard to the revisiting of its decision in Sandra Holding, the Court of Appeal stated that the DIFC Courts apply a doctrine of precedent and that the Court of Appeal “will generally follow its own prior decisions but may depart from them in limited circumstances”.⁷ Declining to set out such circumstances, the judgment noted that it may be required to depart from precedent “If this court reaches the conclusion that one of its earlier decisions embodied an error of law that may impede the effective administration of justice”.⁸ To this end, the Court found as follows, in relation to the Sandra Holding judgment:

“It is the respectful opinion of this Court that the Court in Sandra Holding took a wrong turning in an unduly restrictive view of the powers of this Court which may be deployed in aid of its express jurisdiction…it is clear with the benefit of full and further consideration, that the past decision was legally incorrect. Further, a refusal to follow the legal principle enunciated in Sandra Holding would not be disruptive. It appears that on the merits the case for a WFO was not established — that suggests that the result would have been the same even had Sandra Holding found there to be jurisdiction and power to make the order sought.”⁹

Significance of the decision

In our previous article, we observed that the judgment in Sandra Holding was disappointing to “those who had been keen to see the DIFC Court exercise its jurisdiction in an expansive manner…”.¹⁰ This was particularly for those who had been keen to include the DIFC Courts as part of a wider litigation strategy.

The Carmon Reestrutura decision, however, restores the previous position and should give confidence to prospective judgment creditors that interim relief pending a foreign judgment will now be available from the DIFC Courts in appropriate circumstances, noting the Court of Appeal’s comment about the careful exercise of discretion.  The decision also brings the DIFC Courts’ jurisdiction on the grant of interim relief in line with that of other common law jurisdictions, thereby helping to strengthen the DIFC Courts’ role within the international sphere of enforcement action in cross-border disputes and fraud claims.