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CFI 011/2009 – Grounds of Decision

CFI 011/2009 – Grounds of Decision

July 8, 2009

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Claim No: CFI 011/2009

IN THE JUDICIAL AUTHORITY OF THE DUBAI INTERNATIONAL FINANCE CENTRE

IN THE COURT OF FIRST INSTANCE
Before Deputy Chief Justice Michael Hwang

Between

AMARJEET SINGH DHIR Applicant
andWATERFRONT PROPERTY INVESTMENT LIMITED First Respondent
andLINARUS FZE Second Respondent

GROUNDS OF DECISION

26 May 2009
1 June 2009

Judgment reserved

1. On 11 June 2009, I made the following Orders:

(a) The Freezing Order made on 23 April 2009 (“the Freezing Order”) be discharged with immediate effect.
(b) The he Applicant shall pay the First and Second Respondents’ costs in relation to the Freezing Order to be assessed if not agreed.
(c) The Respondents shall have leave to bring an application for an inquiry as to damages pursuant to Schedule B (1) of the Freezing Order.
(d) The Applicant will immediately take all reasonable steps to inform in writing anyone to whom he has given notice of this Order, or whom he has reasonable grounds for supposing may act upon this Order, that it has ceased to have effect.
(e) This Order is stayed in order to give the Applicant time to file a formal application for leave to appeal and a stay pending appeal (the ‘Stay Application’). The Stay Application must be filed by 15 June 2009, failing which this Order will come into effect on 16 June 2009. If the Stay Application is filed, this Order will be stayed until the hearing of the Stay Application and parties should file written submissions by 19 June 2009. The Court will decide any Stay Application filed on the basis of written submissions.

 

2. I now give the reasons for those Orders.

 

3. These Grounds of Decisions will be structured as follows.

 

I. Parties…………….. 3
II. Background………….. 4
III. Parties’ positions…… 10
III. 1 Summary of the Applicant’s position with respect to jurisdiction… 10
III.2 Summary of the Respondents’ position with respect to jurisdiction… 13
IV. Jurisdiction……….. 17
IV.1 Whether Article 5 (A)(1)(a) of the Dubai Judicial Authority Law is applicable… 19
IV.2 Whether Articles 5 (A)(1)(b) & (c) of the Dubai Judicial Authority Law are applicable… 21
IV.3 Whether Article 5 (A)(1)(d) of the Dubai Judicial Authority Law and Article 24(3) of the DIFC Arbitration Law are applicable… 22
IV.4 Whether the DIFC is the seat of the arbitration… 25
IV.5 Sub-conclusion on jurisdiction… 32
V. Merits: whether the Freezing Order should be discharged or continued… 33
V.1 Whether there was a good arguable case… 33
V.2 Whether the Respondents had assets which would be available to satisfy the award against them, if the award was rendered in the Applicant’s favour… 35
V.3 Whether there was a real risk of dissipation… 35
V.4 Whether it was just and convenient to continue the Freezing Order… 40
VI. Whether the extent of the Freezing Order was proportional to the award… 43
VII. Conclusion…………. 46

I. PARTIES
4. The Applicant, Amarjeet Singh Dhir (“Mr Dhir” or “the Applicant”), is an Indian Citizen, having his place of work at Castles Plaza Real Estate at Marina Diamond 5, Shop. No. 2, Dubai Marina, Dubai, United Arab Emirates (“UAE”).

 

5. The First Respondent, Waterfront Property Investment Limited (“WPIL”) is a registered developer with the Real Estate Regulatory Authority (“RERA”) with Developer Identification No. 621. WPIL is the owner of an interest in several plots in the Dubai Waterfront Project, which it originally purchased from Al Burj Real Estate Limited (“Al Burj”).

 

6. The Second Respondent, Linarus FZE (“Linarus”), is a Jebel Ali Free Zone Establishment registered on 14 January 2006 with Registration Number 01258, and its offices are located at Office No. S10122A2023 in the Jebel Ali Free Zone. Dr Bahaa El Din (“Dr Bahaa”), a director of Linarus, has asserted that Linarus does not carry on any business in the property development or construction sector, whether in Dubai or elsewhere in the UAE.

 

7. The Master Developer of the Dubai Waterfront Project is Dubai Waterfront LLC, a wholly owned Nakheel company (“the Master Developer”).

 

8. The present case is one of a pair of related cases against the same Respondents. The other case is CFI 12/2009, Five Rivers Properties LLC and Renaissance Holdings & Developers FZE v Waterfront Property Investment Ltd and Linarus FZE. As the submissions and affidavits in both cases are substantially the same (especially on jurisdiction) and both cases were heard together, the following Grounds of Decision are largely equally applicable to CFI 12/2009 (with necessary changes being made).

 

II. BACKGROUND
9. As these Grounds of Decision deal only with whether the Freezing Order should be continued, it is not necessary to set out the details of the underlying claim in detail. In essence, Mr Dhir purchased a plot of land, Plot C06C2, from WPIL. He alleged that the Respondents’ authorized representatives (Maria Vasylenko and Dr Bahauddin Ahmed Zaib Khairullah (“Dr Bahaa”)) misrepresented to him that any buildings to be constructed on the plots in front of C06C2 facing the sea would be not more than 31 metres high and that any building constructed on plot C06C2 having the height allowed by the Master Developer would have an unobstructed sea view from the top 10 floors and a partial sea view from the lower 10 floors. These representations induced Mr Dhir to purchase plot C06C2, entering into a Memorandum of Agreement (“MOA”) with the First Respondent on 5 September 2008. Unknown to Mr Dhir, prior to the purchase as well as the representations made to him, WPIL had applied for and obtained a height increase (“the WPIL Height Increase”) on 28 April 2008 in respect of certain surrounding plots of land, including the plots in the row in front of Mr Dhir’s plot. This had the effect of reducing the sea view available to any building with the originally designated gross floor area and height on Plot C06C2.

 

10. The MOA was subject to an arbitration clause. However, Mr Dhir applied to this Court on 14 April 2009 without notice to the Respondents for a Freezing Order to freeze the Respondents’ assets in UAE, in particular, six plots of land located in Dubai Waterfront. (“the Applicant’s Application”). The Applicant’s Application was heard without notice on 22 April 2009 by the learned Chief Justice Sir Anthony Evans

 

11. After hearing the Applicant’s Application, the learned Chief Justice granted a Freezing Order and an ancillary Disclosure Order (collectively “the Freezing Order“) against the Respondents on the Applicant’s undertaking that he would commence arbitration pursuant to the MOA and in accordance with Article 1 of the DIFC-LCIA Arbitration Rules (“the DLA Rules”) within 7 days of the Freezing Order. The Freezing Order was sealed on 23 April 2009. The return date on which the Court would consider whether to continue the Freezing Order was fixed for 26 May 2009 (“the Return Date”).

 

12. On 23 April 2009, the Applicant received a sealed copy of the Freezing Order. Following corrections of typographical errors, the Freezing Order and other relevant documents were served on the Respondents, Dubai Waterfront LLC and Emirates Bank.

 

13. On 29 April 2009, the Applicant filed a Request for Arbitration, summarizing his claim as follows:

“20. Respondents have knowingly made misrepresentations to the Claimant which induced the Claimant in paying an inflated price for C06C2.
21. The Claimant has paid a total amount of AED 42,298,134 to the Respondents.

22. As a result of the Respondents’ misrepresentation set out in paragraph 11 above, the Claimant was unable to re-sell C06C2 as planned and suffered further damages for loss of profit.

23. The Claimant is claiming the return of AED 42,298,134 which he has paid to the Respondents and he is further claiming the profits that he has lost in not being able to re-sell the plot of land as planned and was known to the Respondents.

24. The Claimant will also claim costs.”

 

15. On 14 May 2009, the Respondents applied for an order deleting or staying the operation of Paragraph 8 of the Freezing Order. The Applicant responded on 17 May 2009 and the Respondents replied to the Applicant’s response on 18 May 2009.

 

16. On 17 May 2009, the Respondents filed and served their evidence in support of an application to discharge the Freezing Order (“the Respondents’ Application”).

 

17. On 19 May 2009, the learned Chief Justice ordered that the Respondents’ obligation to provide information under Paragraph 8 of the Freezing Order be stayed until 26 May 2009, and that the application be heard at the hearing of 26 May 2009. In its covering email, the Court commented:

“The order does not preclude the parties from placing such further information as they think fit before the Court”.

 

18. On 20 May 2009, the Applicant filed and served his evidence resisting the Respondents’ Application.

 

19. On 25 May 2009, the Parties filed their respective Skeleton Arguments and the Respondents filed a Chronology of Event

 

20. On 26 May 2009 (the Return Date), I heard the arguments of both Parties.

 

21. On 1 June 2009, the Respondents filed a Post-Hearing Note, attaching the case of Mobil Cerro Negro Ltd v Petroleos De Venezuela SA [2008] APP.L.R 03/18.

 

22. On 4 June 2009, the Applicant filed further submissions on various issues, described in Paragraphs 134 to 138 below.

Hearing on 26 May 2009

23. At the hearing (and as confirmed by the Parties after the hearing), the Parties adopted the following positions.

 

23.1 The Respondents sought:

(a) to discharge the Freezing Order;

(b) indemnity costs to be assessed if not agreed;

(c) leave to bring an application for an inquiry as to damages pursuant to Schedule B (1) of the Freezing Order; and

(d) an order that the Applicant would immediately take all reasonable steps to inform in writing anyone to whom he had given notice of this Order, (or whom he had reasonable grounds for supposing might act upon this order), that it had ceased to have effect.

23.2 The Applicants sought:

(a) to dismiss the Respondents’ application to discharge the Freezing Order;
(b) to dismiss the Respondents’ application to vary Paragraph 8 of the Freezing Order;
(c) to lift the stay of Paragraph 8 of the Freezing Order (the text of Paragraph 8 is set out at Paragraph 26 below);
(d) to continue the Freezing Order but modified to limit the assets frozen to a maximum of AED 50 million;
(e) an order that service on the Respondents of the application made on 15 April 2009, the Order made on 22 April 2009 and the Freezing Order as modified in sub-paragraph (d) above be dispensed with;
(f) leave to serve the Freezing Order as modified in sub-paragraph (d) above and any subsequent proceedings out of the jurisdiction of the DIFC Court1;
(g) to reserve the costs of the present application to the Arbitral Tribunal; and
(h) an order that the Parties be at liberty to apply to vary or rescind the Freezing Order as modified in sub-paragraph (d) above on not less than 72 hours notice in writing (including by email) to all Parties.

 

24. At the hearing on 26 May 2009, I reserved judgment and ordered that the Freezing Order and the order of the learned Chief Justice dated 19 May 2009 should continue on the same terms until further order of the Court.

 

25. I also ordered each of the Parties to send drafts of the orders they were seeking in the event that my decision was given in its favour

 

Paragraph 8 of the Freezing Order

26. Paragraph 8 of the Freezing Order provided:

“(1) Unless sub-paragraph (2) below applies, each Respondent shall as soon as possible after service of this Order and to the best of their ability and in any event before the Return Date inform the Applicant’s legal representative of:

(a) all its assets in the UAE whether in its own name or not and whether solely or jointly owned, giving the value, location and details of all such assets;
(b) all of the plots of land in the UAE which are owned by the Respondents, whether in their own name or not and whether solely or jointly owned, giving the value, location and details of ail such assets;
(c) the names, addresses and telephone, fax and mobile numbers, and email address of the beneficial owners of the Respondents;
(d) the name, addresses and telephone, fax and mobile numbers, and email address of the individual(s) who have authority to represent the Respondents.

(2) If the provision of any of this information is likely to incriminate the Respondents, it may be entitled to refuse to provide it, but is recommended to take legal advice before refusing to provide the information. Wrongful refusal to provide the information is contempt of court and may render the Respondents liable to be imprisoned, fined or have its assets seized.”

 

III. PARTIES’ POSITIONS

III. 1 Summary of the Applicant’s position with respect to jurisdiction
27. The key submissions of the Applicant were as follows.

 

28. Article 7 of the DIFC Arbitration Law addressed the scope of the application of the DIFC Arbitration Law. It provided that Parts 1 to 4 and the Schedule would apply where the seat of the arbitration was the DIFC.

 

29. Clause 10.2 of the MOA expressly provided that the DLA Rules should apply to any dispute under the MOA:

“In the event of a dispute on the terms, interpretation, performance or termination of this Agreement, the Buyer and the Seller shall first seek to settle such dispute amicably prior to arbitration however, failing such resolution shall be resolved by the appointment of a single Arbitrator conducted in accordance with the DIFC-LCIA rules of arbitration applicable to the Dubai International Financial Centre ……”

 

 

30. Article 16.1 of the DLA Rules provided that the seat of the arbitration would be the DIFC if the parties failed to agree on the seat in writing.

“The parties may agree in writing the seat (or legal place) of their arbitration. Failing such a choice, the seat of arbitration shall be the Dubai International Financial Centre, Dubai”

 

31. The Parties had not agreed in writing on the seat of the arbitration. Therefore, the DIFC was the seat of the arbitration.

 

32. The Respondents had erroneously presumed that the “place” of the arbitration was interchangeable with the “seat” of the arbitration. A distinction was clearly drawn in arbitration proceedings between the geographical location of the arbitration and the seat of the arbitration. This distinction was reflected in Article 16.2 of the DLA Rules, which provided:

“The Arbitral Tribunal may hold hearings, meetings and deliberation at any convenient geographical place…..and if elsewhere than the seat of the arbitration, the arbitration shall be treated as an arbitration conducted at the seat of the arbitration.”

 

33. Pursuant to Clause 10.3 of the MOA, the Parties had agreed on the geographical location of the arbitration, i.e. where it should “take place”, but had not agreed the seat of the arbitration. Clause 10.3 of the MOA provided that “the arbitration shall take place in the Emirate of Dubai“.

 

34. The DIFC was therefore the default seat under Article 16.1 of the DLA Rules.

 

35. Furthermore, the following provisions in the DIFC Law No. 1 of 2008 (“DIFC Arbitration Law”) were applicable.

 (a) Schedule C (defined terms) defined the “seat” as “the juridical seat which indicated the procedural law chosen by the parties to govern their arbitration as designated in Article 27 of this Law”.

(b) Article 27 provided:

“The parties are free to agree on the Seat of the Arbitration, in the absence of such agreement, where any dispute is governed by DIFC law, the Seat of the Arbitration shall be the DIFC”

The parties can be said to have selected DIFC procedural law to govern the arbitration by stating that the DIFC-LCIA Arbitration Rules (with the inherent reference to a DIFC legal seat) must apply. The seat of the arbitration is the DIFC.

 

36. For the reasons stated above, the seat of the arbitration was the DIFC. Accordingly, the entire text of the DIFC Arbitration Law, including Articles 15 and 24(3), was applicable.

 

 

37. Article 15 of the DIFC Arbitration Law provided:

 “It is not incompatible with an Arbitration Agreement for a party to request, before or during arbitral proceedings, from a Court an interim measure of protection and for a Court to grant such measure”;

 

38. Article 24(3) of the DIFC Arbitration Law provided:

“The DIFC Court shall have the same power of issuing an interim measure in relation to arbitration proceedings, irrespective of whether their place is in the DIFC, as it has in relation to proceedings in courts. The DIFC Court shall exercise such power in accordance with its own procedures.”

 

39. In its written submissions, the Applicant also stated that the DIFC Court could issue an interim order, such as a freezing order, “in accordance with Article 19, 20 and 32 of its Rules” (presumably an erroneous reference to Part 25.1(6) of the DIFC Rules of Court).

III.2 Summary of the Respondents’ position with respect to jurisdiction

40. The key submissions of the Respondents were as follows.

 

41. The DIFC Court had no jurisdiction to grant the Freezing Order because the seat of the arbitration was in Dubai pursuant to Clause 10.3 of the MOA (see paragraph 42 below). As the Dubai courts were the courts of the seat, the DIFC Court had no jurisdiction to grant interim measures in support of the arbitration, particularly as the present dispute and the Parties had no other connection with the DIFC.

 

42. Clause 10 of the MOA provided:

“10.1 This Agreement shall in all respect be governed by and be construed, interpreted, and will take effect in accordance with the Laws of the Emirate of Dubai

10.2 ….such resolution shall be resolved by the appointment of a single Arbitrator conducted in accordance with the DIFC-LCIA rules of arbitration applicable to the [DIFC]

10.3 The arbitration shall take place in the Emirate of Dubai

 

43. It was trite law that the place of an arbitration was a reference to its sea

 

44. The dispute resolution procedure found in Clause 10 of the MOA was logically set out. Clause 10.1 identified the governing law, Clause 10.2 provided for (a) negotiation (b) arbitration (c) a sole arbitrator and (d) DLA Rules. Logically, the only outstanding issue to be provided for thereafter was the seat – which Clause 10.3 of the MOA provided for in well understood terms.

 

45. The suggestion that the Parties had failed expressly to provide for the seat of the arbitration but chose instead to provide for its venue was improbable. Clause 10.3 of the MOA referred to the arbitration. Had it been intended to refer to only parts of the arbitration it would have specifically referred to those parts, i.e. to hearings, meetings and deliberations.

 

46. Furthermore, the reference at the end of Clause 10.3 of the MOA to the arbitration being final and binding confirmed that Clause 10.3 of the MOA was intended to have legal effect rather than a purely practical effect.

 

47. The DIFC Court should give the word “place” its conventional arbitral meaning. The DIFC Court should not be persuaded, against the evidence and common sense that, having agreed all other necessary terms of their arbitration agreement, the Parties omitted identifying the seat of the arbitration, preferring instead to leave the identification of the seat ultimately to the LCIA Court pursuant to Article 16.1 of the DLA Rules.

 

48. To establish that the DIFC Court had jurisdiction to grant interim relief in support of a “foreign” arbitration, the Applicant would have to establish that the DIFC Court had original jurisdiction under the jurisdiction provisions of the DIFC Court Law (DIFC Law No. 10 of 2004) (“the DIFC Court Law”)- specifically Article 19(1).

 

49. Article 19(1)(d) of the DIFC Court Law provided that the DIFC Court had original jurisdiction to hear any application over which the DIFC Court had jurisdiction in accordance with the DIFC Laws and Regulations.

 

50. The DIFC Court’s jurisdiction and power to grant interim remedies in support of an arbitration (whether imminent or current) with its seat in the DIFC arguably arose under Article 24(3) of the DIFC Arbitration Law – notwithstanding that this article appeared under the heading “power of Arbitral Tribunal to order interim measures.” Article 24(3) did not actually use the term “jurisdiction”, but rather gave the DIFC Court “power” to grant interim measures in support of any arbitration, no matter where its place might be. However, pursuant to Article 7(2) of the DIFC Arbitration Law, Article 24(3) (which appeared in Part 3, Chapter 4 of the DIFC Arbitration Law) did not apply to arbitrations where the DIFC was not the seat. Thus, absent any other ground of jurisdiction under Article 19(1) of the DIFC Court Law (or any other DIFC Law or Regulation), the DIFC Court would not have jurisdiction.

 

51. Article 15 of the DIFC Arbitration Law, which provided: “it is not incompatible with an Arbitration Agreement for a party to request ……and for a Court to grant [interim measures]”, did not confer original jurisdiction on the DIFC Court. It merely provided that, where the DIFC Court had jurisdiction, a request that the DIFC Court exercise that jurisdiction would not constitute a breach or waiver of the arbitration agreement.

 

52. The problem of whether or not the DIFC Court had jurisdiction and power to grant interim measures of relief in support of foreign arbitrations might depend on how the DIFC Court interpreted Article 15 of the DIFC Arbitration Law. Article 7(2) specifically identified Article 15 of the DIFC Arbitration Law as applicable even where the seat was not the DIFC. Article 15 repeated Article 9 of the 1985 UNCITRAL Model Law.

 

53. The DIFC Court might be tempted to decide that its jurisdiction and power to grant interim remedies in support of both DIFC and foreign arbitration proceedings actually stemmed from Article 15 of the DIFC Arbitration Law.

 

54. However, such an interpretation was problematic, first because it appeared to contradict the combined effect of Article 24(3) and Article 7(2) of the DIFC Arbitration Law (i.e. it permitted what the latter did not permit — the granting of interim remedies where the seat was foreign) and second, because the more natural meaning of Article 15 was that, where the DIFC Court already had original jurisdiction to grant interim remedies in support of an arbitration, it would not be offensive to the arbitration agreement for the DIFC Court to grant such interim relief as it was permitted.

 

55. The DIFC Court might feel that (notwithstanding the widely accepted decision in Heydon’s Case), it could not or should not assume the responsibility of deciding whether the statutory mischief arising in this case had been caused by the accidental omission from Article 7(2) of any reference to Article 24(3)) or, alternatively, by the accidental inclusion within Article 24(3) of the words “irrespective of whether their place was in the DIFC“. If that was the Court’s view, the apparent anomaly in the DIFC Arbitration Law would need to be cured by a clear and deliberate legislative amendment.

 

56. In the event of the DIFC Court determining that it had jurisdiction and power to grant interim relief where the seat of an arbitration was not in the DIFC, the Respondents pointed to the recent case of Mobil Cerro Negro v Petroleos De Venezuela SA [2008] APP.L.R 03/18 (which will be discussed in Paragraphs 124 to 129 below.

 

ANALYSIS

IV. JURISDICTION
57. During the hearing, Counsel for the Applicant accepted that the DIFC Court’s jurisdiction to grant a freezing order must derive from Article 19(1) of the DIFC Court Law.

 

58. Indeed, as I indicated to Counsel during the hearing, the English case of Fourie v Le Roux [2007] 1 WLR 330 UKHL 1 stands for the proposition that a court has jurisdiction to grant an injunction where it has in personam jurisdiction over the person against whom it is sought. Whether the applicant actually needs to start a claim in the court from which it is seeking an injunction is debatable, and it is noteworthy that Singapore has differed from the English courts in this respect.2 However, both the English and Singapore courts are agreed that the respondent must at least be amenable to the court’s jurisdiction before an injunction can be granted. I find this principle persuasive, and have proceeded on that basis.

 

59. It is next necessary to examine whether the DIFC Court has jurisdiction under Article 19(1) of the DIFC Court Law

 

60. Article 19(1) of the DIFC Court Law itself is almost identical to Article 5(A) of Dubai Law No. 12 of 2004 in respect of the Judicial Authority at Dubai International Financial Centre (“the Dubai Judicial Authority Law”), except that Article 5(A) of the Dubai Judicial Authority Law uses the words “exclusive jurisdiction” rather than “original jurisdiction”. Both the DIFC Court Law and the Dubai Judicial Authority Law were enacted on the same day.

 

61. Although both Counsel consistently cited Article 19 of the DIFC Court Law, I consider Article 5(A) of the Dubai Judicial Authority Law (being a Dubai Law) to be the operative provision that confers jurisdiction upon the DIFC, rather than Article 19 of the DIFC Court Law (which is a DIFC Law). The significance of the distinction is that Article 5(A) of the Dubai Judicial Authority Law was originally drafted in Arabic.

 

62. I set out below the provisions of Article 5(A) of the Dubai Judicial Authority Law (in its unofficial English translation):

 

(A) The Court of First Instance:

 

(1) Without prejudice to paragraph 2 of this Article, the Court of First Instance shall have the exclusive jurisdiction over:

(a) civil or commercial cases and disputes involving the Centre or any of the Centre’s Bodies or any of the Centre’s Establishments.

(b) civil or commercial cases and disputes arising from or related to a contract that has been executed or a transaction that has been concluded, in whole or in part, in the Centre or an incident that has occurred in the Centre.

(c) objections filed against decisions made by the Centre’s Bodies, which are subject to objection in accordance with the Centre’s Laws and Regulations.

(d) any application over which the Courts have jurisdiction in accordance with the Centre’s Laws and Regulations;

(2) Parties may agree to submit to the jurisdiction of any other court in respect of the matters listed under paragraphs (a), (b) and (d) of this Article.

 

IV.1 Whether Article 5 (A)(1)(a) of the Dubai Judicial Authority Law is applicable
63. During the hearing, Counsel for the Applicant raised the possibility that the DIFC Court might have jurisdiction under Article 19(1)(a) of the DIFC Court Law (the equivalent of Article 5 (A)(1)(a) of the Dubai Judicial Authority Law) because the dispute “involved” the DIFC-LCIA Arbitration Centre which was a “Centre’s Establishment”

 

64. The word “involving” in “civil and commercial cases involving the Centre, Centre’s Bodies and Centre’s Establishment” should be read narrowly to mean the Centre, Centre’s Bodies and Centre’s Establishment as a party because:

(a) Article 8 of The Law of the Dubai International Financial Centre (“Dubai Law No.9 of 2004“) provides (in its unofficial English translation):

“Unless otherwise provided by the Centre’s Laws, the Centre’s Courts shall have exclusive jurisdiction to hear and determine any claims in which the Centre, the Centre’s Establishments or any of the Centre’s Bodies is party to and also to hear and determine any dispute, arising out of any transaction carried out in the Centre or an incident which took place therein. The President may also establish such juristic committees and arbitration panels as are necessary.
Article 8 of Dubai Law No. 9 of 2004 should be read harmoniously with Article 5 (A) of the Dubai Judicial Authority Law. Article 8 of Dubai Law No. 9 of 2004 (enacted 13 September 2004) preceded Article 5(A) of the Dubai Judicial Authority Law (enacted 29 December 2004) by about only three months, and Article 5(A) was clearly drafted based on Article 8 of Dubai Law No. 9 of 2004. It is unlikely that the drafters of Article 5(A) of the Dubai Judicial Authority Law overlooked Article 8 of Dubai Law No. 9 of 2004 because, at that time, Dubai Law No. 9 of 2004 was virtually the only Dubai law specifically applicable to the DIFC, none of the DIFC laws having yet been enacted.

(b) The actual Arabic version of Article 5A(1)(a) of the Dubai Judicial Authority Law is as follows:

The Arabic text is in fact more accurately translated as follows:

“Without prejudice to paragraph 2 of this Article, the Court of First Instance shall have the exclusive jurisdiction over:
(a) civil or commercial cases and disputes if the Centre or any of the Centre’s Bodies or any of the Centre’s Establishments is a party” (emphasis added)

(c) Furthermore, Article 5(A) of the Dubai Judicial Authority Law gives the DIFC Court exclusive jurisdiction, and it would not be sensible to adopt an interpretation that would confer exclusive jurisdiction on the DIFC Court in all cases involving the Centre, Centre’s Bodies and Centre’s Establishments without any requirement for those institutions to be a party to such litigation.

 

65. Considering that the Dubai Judicial Authority Law was originally drafted in Arabic, the English word “involving” in the unofficial English translation of Article 5(A)(1)(a) of the Dubai Judicial Authority Law does not seem to reflect its true legislative intent, especially taking into account the clearer wording of Article 8 of Dubai Law No. 9 of 2004 (also a translation from the Arabic version).

 

66. Accordingly, I consider that Article 5(A)(1)(a) of the Dubai Judicial Authority Law does not apply in this case as the DIFC-LCIA Arbitration Centre is not a party to the dispute and there is no evidence that the Centre or any Centre Body or Centre Establishment is a party to the present dispute.

 

IV.2 Whether Articles 5 (A)(1)(b) & (c) of the Dubai Judicial Authority Law are applicable
67. The Applicant did not seriously argue that Articles 5(A)(1)(b) and (c) of the Dubai Judicial Authority Law were applicable in this case. Accordingly, I do not have to decide this question.

 

68. Article 5(A)(1)(b) deals with the jurisdiction of the Centre in geographical terms. In the context of international arbitration and the New York Convention, it is generally accepted that the supervising court (usually that of the seat) will have jurisdiction over the arbitration. Other courts where the physical place of hearing is held or where the administering institution is located rarely interfere with matters within the realm of the supervising court’s jurisdiction on the sole basis of such geographical factors unless their arbitration laws expressly confer such powers.

 

69. In my judgment, the DIFC Arbitration Law was designed to be self-contained and to be consistent with the general practice in international arbitration that the court of the seat has sole supervisory powers over the arbitration. Accordingly, it would not usually be just and convenient for the DIFC Court to use Article 5(A)(1)(b) of the Dubai Judicial Authority Law to impose a draconian relief such as a freezing order in a case which has no other link to the DIFC save for minor geographical links (for example, the Request for Arbitration being mailed to the DIFC-LCIA Arbitration Centre), especially when no cause of action arises in the DIFC Court, the Applicant is seeking no substantive relief in the DIFC Court and the seat of the arbitration is not in the DIFC.

 

IV.3 Whether Article 5 (A)(1)(d) of the Dubai Judicial Authority Law and Article 24(3) of the DIFC Arbitration Law are applicable
70. Accordingly, the only question is whether Article 5(A)(1)(d) of the Dubai Judicial Authority Law applies. Article 5(A)(1)(d) of the Dubai Judicial Authority Law provides that the DIFC Court has exclusive jurisdiction over “any application over which the Courts have jurisdiction in accordance with the Centre’s Laws and Regulations“.

 

71. The Applicant contends that this Court has jurisdiction under Articles 15 and 24(3) of the DIFC Arbitration Law. However, I agree with the Respondents’ arguments at Paragraphs 50 and 51 above that, by virtue of Article 7 of the DIFC Arbitration Law, Article 24(3) of the DIFC Arbitration Law only applies where the DIFC is the seat of the arbitration. Accordingly, Article 15 of the DIFC Arbitration Law does not confer jurisdiction on the DIFC Court to grant an interim measure where it would otherwise have none.

 

 

72. Article 24(3) of the DIFC Arbitration Law expressly confers power on the DIFC Court to issue interim measures in relation to arbitration proceedings where the seat is the DIFC. Article 24(3) provided:

“24(3) The DIFC Court shall have the same power of issuing an interim measure in relation to arbitration proceedings, irrespective of whether their place is in the DIFC, as it has in relation to proceedings in courts. The DIFC Court shall exercise such power in accordance with its own procedures.”

 

 

73. Article 24(3) of the DIFC Arbitration Law expressly confers power on the DIFC Court to issue interim measures in relation to arbitration proceedings where the seat is the DIFC. Article 24(3) provided:

“24(3) The DIFC Court shall have the same power of issuing an interim measure in relation to arbitration proceedings, irrespective of whether their place is in the DIFC, as it has in relation to proceedings in courts. The DIFC Court shall exercise such power in accordance with its own procedures.”

 

74. At first sight, one may mistake the word “place” used in Article 24(3) of the DIFC Arbitration Law to refer to the seat. However, there is a distinction between the word “place” and “seat” of arbitration in the context of the DIFC Arbitration Law.

 

 

75. The term “seat” is defined in the DIFC Arbitration Law (Schedule, Section C) as:

“the juridical seat which indicates the procedural law chosen by the parties to govern their arbitration as designated in Article 27 of this Law”.

The term “place” is not defined in the DIFC Arbitration Law.

 

 

76. Article 7 of the DIFC Arbitration Law provides:

7. Scope of application of Law

(1) Parts 1 to 4 and the Schedule of this Law shall all apply where the Seat of the Arbitration is the DIFC.

(2) Articles 14, 15, Part 4 and the Schedule of this Law shall all apply where the Seat is one other than the DIFC.

 

77. Article 24(3) is located in Part 3 of the DIFC Arbitration Law and will only apply where the seat of the arbitration is the DIFC. The word “place” in Article 24(3) of the DIFC Arbitration Law must therefore be construed to refer to the physical place of hearing.

 

 

78. The DIFC Arbitration Law must be examined in its entirety to see if it confers jurisdiction upon the DIFC Court pursuant to Article 5(A)(1)(d) of the Dubai Judicial Authority Law. Article 24(3), read with Articles 10 and 11 of the DIFC Arbitration Law, contemplates the DIFC Court’s jurisdiction over arbitrations where the seat is in the DIFC. Articles 10 and 11 of the DIFC Arbitration Law state:

“10. Extent of court intervention

In matters governed by this Law, no DIFC Court shall intervene except to the extent so provided in this Law.

11. Authority of the DIFC Court to perform functions of arbitration assistance and supervision

The functions referred to in Articles 19(3), 24(2), 34, 41, 42, 43 and 44 of this Law shall be performed by the DIFC Court, while the functions referred to in Articles 14, 17(3), 17(4), 17(5), 20(1), 21(2), 23(3) and 39(5) shall be performed by the DIFC Court, subject to any process agreed between the parties in the Arbitration Agreement.”

 

79. The phrase “irrespective of whether their place is in the DIFC” in Article 24(3) appears to contemplate an extension of the DIFC Court’s jurisdiction pursuant to Article 5(A)(1)(d) of the Dubai Judicial Authority Law in cases where the seat of the arbitration is the DIFC. The intent of the phrase “irrespective of whether their place is in the DIFC” is to give the Court jurisdiction to grant interim measures where the seat is the DIFC even when the arbitration is not physically held in the DIFC and does not fulfill any other limb of Article 5(A) of the Dubai Judicial Authority Law. Also, while Article 11 of the DIFC Arbitration Law does not specifically refer to Article 24(3), it does envision that the DIFC Court will have the authority to perform functions of assistance to and supervision of the arbitration tribunal where the DIFC has been named as the seat. The scheme of the DIFC Arbitration Law therefore conforms with the supervisory jurisdiction of the courts of the seat as generally recognized in international arbitrations. Accordingly, if the seat of this arbitration is the DIFC, the DIFC Court would have jurisdiction to grant a freezing order by virtue of Article 24(3) of the DIFC Arbitration Law.

 

IV.4 Whether the DIFC is the seat of the arbitration
80. Is the DIFC the seat of the arbitration?

 

81. This is essentially a question of contractual interpretation to determine what the Parties (objectively) intended by the arbitration agreement they have entered into.

 

82. This is essentially a question of contractual interpretation to determine what the Parties (objectively) intended by the arbitration agreement they have entered into.

 

 

83. The DIFC-LCIA Arbitration Centre model arbitration clause itself equates the seat with “legal place“:

“Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the Arbitration Rules of the DIFC-LCIA Arbitration Centre, which Rules are deemed to be incorporated by reference into this clause. The number of arbitrators shall be [one/three]. The seat, or legal place, of arbitration shall be [City and/or Country]. The language to be used in the arbitration shall be [ ]. The governing law of the contract shall be the substantive law of [ ].” (emphasis added)

 

84. The choice of the seat could have been clearer if the Parties had specified whether the applicable arbitration law was to be that of Dubai or the DIFC. However, in the absence of such a specification, it falls to this Court to consider, as a matter of objective contractual interpretation, what the Parties meant by the “Emirate of Dubai“.

 

85. There is a close connection with Dubai in the present case (the property is in Dubai, the governing law is Dubai law and the agreement is expressed to be executed in Dubai). In contrast, there is no significant connection with the DIFC because the DIFC-LCIA Arbitration Centre can administer an arbitration with a seat outside of the DIFC. (see Paragraphs 89 to 91 below) I therefore find that the Parties intended Dubai to be the seat.

 

86. Additionally, the remainder of the MOA refers to Dubai in several places but makes specific reference to the DIFC in only one place, namely within Clause 10.2 of the MOA in selecting “the DIFC-LCIA rules of arbitration applicable to the Dubai International Financial Centre“. It is therefore difficult to accept the Applicant’s argument that “Dubai” in Clause 10.3 of the MOA was intended by the Parties to mean the DIFC.

 

87. Furthermore, if the Parties had wanted to stipulate the seat as the DIFC, they could have said so expressly. The Parties are not strangers to the various autonomous zones within the Emirates. Mr Dhir was involved in the negotiations for the land transaction in the related case of CFI 012/2009, and one of the Applicants (Renaissance) in that case is incorporated in the Sharjah Airport International Free Zone. Linarus FZE (Respondent in both cases) is a Jebel Ali Free Zone Company. It would be surprising if the Parties did not know that different laws applied in the DIFC or that they were content to describe the DIFC as simply “the Emirate of Dubai“. The DIFC is within the Emirate of Dubai but the two terms are clearly not synonymous or interchangeable.

 

88. During the hearing, Counsel for the Applicant argued that one should first determine the procedural law, followed by the seat. He contended that the selection of the DLA Rules entailed a selection of the procedural law.

 

89. The DLA Rules are no different from ICC or LCIA Rules which merely choose an institutionally administered form of arbitration, leaving the Parties free to select the seat of arbitration, which may well be different from the place where the institution is located. It is significant that none of the model clauses recommended by the major arbitration institutions (ICC, LCIA, ICDR, HKIAC, SIAC) name a specific city or country as the seat. In other words, every arbitration institution is prepared to administer an arbitration seated in any jurisdiction.

 

90. Choosing the procedural rules of a particular arbitration institution does not ipso facto necessitate a choice of the procedural law of the country in which that institution is located. The best example of this is the ICC Rules which governs arbitrations seated in many different countries with only a minority of cases seated in France, the country where the ICC is located. The choice of the DLA Rules does not automatically mean that the DIFC Arbitration Law applies. The normal rule is that the curial law is that of the seat. The Parties should have known that the DIFC and Dubai have two different arbitration laws and, given the wording of Clause 10.3 of the MOA, I find that they have chosen the arbitration law of Dubai rather than that of the DIFC.

 

91. There is therefore no question of “de-coupling” the DIFC-LCIA Arbitration Centre from the DIFC Court; the two are not Siamese twins. There is no inexorable or symbiotic link between the DIFC-LCIA Arbitration Centre and the DIFC leading to the result that choice of either the DIFC-LCIA Arbitration Centre or the DLA Rules would mean that the DIFC Arbitration Law would apply and/or that the DIFC Court would have jurisdiction.

 

92. The moral of this case is that, if parties want the DIFC Arbitration Law to apply and the DIFC Court to have jurisdiction over an arbitration, they should expressly select the DIFC as the seat in their arbitration agreement.

 

93. I do not rule out the possibility that there can be overriding indications in an arbitration agreement that the parties intended the DIFC to be the seat even if they expressly provide for another seat. Counsel for the Applicant cited the English case of Braes v Doune Windfarm (Scotland) v Alfred McAlpine Business Services [2008] EWHC 426 (“Braes“) as one such example.

 

Braes

94. Braes was a case where the English court found that the seat was in England, despite the parties expressly providing that the seat should be in Glasgow. In Braes, the arbitration clause provided:

“(c) This arbitration agreement is subject to English Law and the seat of the arbitration shall be Glasgow, Scotland. Any such reference to arbitration shall be deemed to be a reference to arbitration within the meaning of the Arbitration Act 1996 or any statutory re-enactment.”

 

95. Clause 1.4.1 of the relevant contract in that case gave the courts of England and Wales “exclusive jurisdiction” to settle disputes.

 

96. Braes was an unusual case because, even though the parties expressly stipulated that the “seat” would be Glasgow, Scotland, the court held that, since the English court was given exclusive jurisdiction to settle disputes, the Parties had really meant that the “seat” was the physical place of hearings (Glasgow) and the curial law would be English law, because of the express selection of the English Arbitration Act 1996. The court took into account the fact that the Scottish courts would have very limited power in the circumstances, and meaning had to be given to the express agreement that the courts of England and Wales had exclusive jurisdiction to settle disputes. Furthermore, if the seat was Scotland, the English Courts would have no jurisdiction to entertain an application for leave to appeal against the award, which would then render the jurisdiction clause meaningless.

 

97. Braes is readily distinguishable from the present case and should be confined to its exceptional facts for the following reasons.

 

98. First, the choice of the DLA Rules is not a choice of a curial law, unlike the choice of the English Arbitration Act 1996. Article 16.1 of the DLA Rules envisions that the Parties are free to choose the seat. In this case, the Parties have chosen the seat to be Dubai as set out in Clause 10.3 of the MOA.

 

99. Second, in the present case, there is no exclusive jurisdiction clause in favour of the DIFC Courts, nor is there any indication that the Dubai courts would have limited power to intervene. In Braes, it was also clear that the English court was concerned that the parties should have a right to appeal against the award that was applicable through their expressly chosen curial law, the English Arbitration Act 1996.

Naviera Amazonica Peruana SA v Compania Internacional De Seguros del Peru

 

100. The Respondents cited the case of Naviera Amazonica Peruana SA v Compania Internacional De Seguros del Peru [1988] 1 Lloyd’s Rep 116 (“Naviera“). In that case, Article 1 of the General Conditions provided that, in the event of conflict between the printed and typed stipulations, the latter were to prevail. Article 31 provided that the City of Lima was to have jurisdiction over all disputes. The typed endorsement contained an arbitration clause which provided “Arbitraje bajo las Condiciones y Leyes de Londres“, the working translation being “Arbitration under the conditions and laws of London“.

 

 

101. The court in Naviera stated:

“Prima facie, ie in the absence of some express and clear provision to the contrary, it must follow that an agreement that the curial or procedural law of an arbitration is to be the law of X has the consequence that X is also to be the “seat” of the arbitration. The lex fori is then the law of X, and accordingly X is the agreed forum of the arbitration. A further consequence is then that the Courts which are competent to control or assist the arbitration are the Courts exercising jurisdiction at X.
….
E. There is equally no reason in theory which precludes parties to agree that an arbitration shall be held at a place or in country X but subject to the procedural laws of Y. ….,, Thus, at any rate under the principles of English law, which rest upon the territorially limited jurisdiction of our Courts, an agreement to arbitrate in X subject to English procedural law would not empower our Courts to exercise jurisdiction over the arbitration in X …… Similarly, in the Black Clawson case at p 453 Mr Justice Mustill emphatically rejected the possibility of any jurisdictional split on these lines between two systems of law. In the context of an agreement which provided for arbitration in Zurich pursuant to the Arbitration Act 1950 he said:

Commonsense suggests this provision cannot have been intended to apply the whole of the 1950 Act to an arbitration which was from the outset designed to take place abroad. For otherwise the arbitrators would have been obliged to state a special case from their Zurich arbitration to the English Court; and the latter Court would have had power to set aside or remit the award, and to make interlocutory orders for discovery, security for costs, interim preservation and so on; all in potential conflict with the powers exercisable by the local Court. Such a result would be absurd.” (emphasis added)

 

102. In Naviera, the court concluded that the parties’ true intention was to have arbitration in London.

 

Analysis of Braes and Naviera
103. Naviera and Braes both discuss the situation where a procedural law different from the seat was expressly chosen. This situation does not arise in the present case because the Parties have not chosen a procedural law different from the seat.

 

104. Moreover, Naviera makes reference to the supervisory jurisdiction of the court of the seat. Even if (hypothetically), the DIFC Arbitration Law were applicable but the seat was not the DIFC, Naviera suggests that the courts of the seat would still have supervisory jurisdiction and it would not be apt for the DIFC Court to interfere. However, it would be unusual for parties to create such a scenario as it would invariably be a recipe for confusion and litigation.

 

105. Furthermore, the ultimate result in Naviera and Braes turned on the court’s interpretation of the true intention of the parties. In Naviera, the court decided that the true intent was that arbitration was to be held in London, despite the exclusive jurisdiction of Lima courts. In Braes, the court decided the opposite: the true intention was reflected by the exclusive jurisdiction clause as well as the selection of the Arbitration Act 1996, and the parties only intended Glasgow to be the physical place of hearing despite calling it “the seat“.

 

106. As I have found in Paragraphs 82 to 87 above, the true intention of the parties in Clause 10.3 of the MOA is that the seat of the arbitration should be in Dubai, excluding the DIFC.

107. This would mean that the arbitration, although conducted in accordance with the DLA Rules, would be subject to the law in Dubai governing arbitration, including for example, any default time limits to render an award in the absence of any specification in the arbitration agreement of a date for the issue of the award. I raise this point only as a reminder to the Parties, and do not purport to opine on the law in Dubai governing arbitration.

 

IV.5 Sub-conclusion on jurisdiction
108. I therefore concluded that the DIFC Court did not have jurisdiction to grant a Freezing Order in this case because the seat of the arbitration was not the DIFC and Article 5(A) of the Dubai Judicial Authority Law was not satisfied.

 

V. MERITS: WHETHER THE FREEZING ORDER SHOULD BE DISCHARGED OR CONTINUED
109. As the Applicant has given notice of its intention to appeal against my decision, I set out my findings on the merits of the Respondents’ Application on the basis that (contrary to my earlier findings) the DIFC Court does have jurisdiction.

 

 

110. In Ithmar Capital Ltd v 8 Investment Inc and 8 Investment FZE (“Ithmar”), CA 1/2008 (17 March 2008) the DIFC Court of Appeal rehearsed the applicable law at paragraphs 21-26 of its judgment. At paragraph 25 of the Ithmar judgment, the DIFC Court of Appeal stated:

“The four main requirements of a claim for Mareva style relief can be summarised as follows. The Applicant must produce evidence which satisfies the Court:

(1) that it has a “good arguable case”;

(2) that the Defendant has or may have assets which will be available to satisfy the judgment against him, if judgment is given in the Claimant’s favour;

(3) that there is a real risk that the judgment will not be satisfied by reason of an “unjustifiable” disposal of those assets; and

(4) that in all the circumstances it is “just and convenient” to make the Order sought.

Moreover, the Applicant making an ex parte application is under a strict duty to disclose to the Court “all material facts” including expressly any defences which the Defendant has asserted or which, on an objective assessment of the facts may be open to him.

 

V.1 Whether there was a good arguable case
111. The Applicant submitted affidavits attesting to misrepresentation. The Applicant also submitted an affidavit of an expert attesting to the merits of the case under UAE law.

 

112. At this stage, for the purposes of considering whether an injunction should be granted, I was prepared to accept that the Applicant might have a good arguable case against the First Respondent (“WPIL”) on the basis that the First Respondent’s agents, Ms Maria Vasylenko and Dr Bahaa, made misrepresentations to Mr Dhir.

 

113. However, I would not have been prepared to find that there was a good arguable case against the Second Respondent, Linarus, because the evidence showed that there was doubt whether there was a proper arbitration agreement between the Applicant and Linarus.

 

114. There did not appear to be any express agreement to arbitration between the Applicant and the Second Respondent. Linarus was described in the MOA as the Seller’s Trustee, but had not assumed any significant contractual obligations towards Mr Dhir, save for the issue of the Security Deposit by way of post-dated cheques (see Paragraphs 121 to 122 below). Clause 10.2 of the MOA (the arbitration agreement) referred specifically to “the Buyer and the Seller“, making no mention of Linarus, which was only the Seller’s Trustee. In any event, the Applicant did not allege that there was any dispute with Linarus in its own right on the terms, interpretation, performance or termination of the Agreement.

 

115. In view of the lack of an arguable case that Linarus was bound to arbitrate with the Applicant, I would have declined to continue any Freezing Order against Linarus even if I had the jurisdiction to grant it.

 

116. I accepted that there was a proper arbitration agreement between WPIL and the Applicant. However, as will be shown in later parts of these Grounds of Decision, the Applicant’s failure to show a real risk of dissipation and the fact that the seat was not the DIFC militated against the continuance of the Freezing Order.

V.2 Whether the Respondents had assets which would be available to satisfy the award against them, if the award was rendered in the Applicant’s favour

117. It was clear that the First Respondent had substantial assets in Dubai which would be available to satisfy a judgment against it. The quantum or value of such assets was uncertain, but so was the quantum or value of the Applicant’s claim for damages although the Applicant had been willing to limit its claim to AED 50 million for the purpose of the present application (see Paragraphs 134 to 135 below). The fact that the Respondents had not been shown to have any assets within the DIFC will be discussed further at Paragraph 132 in relation to the “just and convenient” ground.

V.3 Whether there was a real risk of dissipation
118. In any event, I would not have continued the Freezing Order because I did not consider that there was a real risk of dissipation.

 

119. Ms Maria Vasylenko and Dr Bahaa (the Respondents’ witnesses, who represented the Respondents in all transactions relevant to the present case) filed affidavits, giving evidence that they were merely agents of the Respondents. Since Ms Vasylenko was only an agent, whether she was in Dubai or overseas was immaterial to the issue of whether the Respondents were likely to dissipate their assets. The true controlling interest behind the Respondents was unknown. However, the Applicant failed to establish that the Respondents were taking steps to liquidate their assets because of these proceedings.

 

120. The lack of information about the Respondents did not of itself mean a risk of dissipation of assets. Furthermore, the Applicant knew that WPIL was a BVI company at the time of transaction, and could have made inquiries about its ownership structure at the time of the transaction.

 

121. Before the learned Chief Justice, the Applicant stated that a cheque for AED 10 million by Linarus had been dishonoured. The Applicant argued that, as the Second Respondent was apparently the trustee of the First Respondent (and was therefore likely to control all its funds in the UAE), it appeared that the First Respondent had no liquid funds in the UAE.

 

122. However, the affidavit of Ms Vasylenko explained that the cheque had been given as a security deposit and was to be returned on 10 September 2008 to Linarus pursuant to Clause 3.2 of the MOA. Contrary to the terms of Clause 3.2, Mr Dhir failed to return the cheque on 10 September 2008, but instead attempted to deposit it on 4 March 2009. At the last page of Dr Bahaa’s affidavit, Dr Bahaa attached a letter signed by Mr Dhir apologizing for the attempted deposit of the cheque. The Applicant’s response was that the incident was recounted in Mr Dhir’s affidavit only to demonstrate that the Respondents had a lack of funds in Dubai. In my view, this was not the necessary interpretation to put on the dishonour of an AED 10 million post-dated cheque. Dishonour could have been for a number of reasons, including shortage of a few dirhams in the account, or a lack of sufficient funds in the account on a day when Linarus had no reasonable expectation that the cheque would be presented.

 

123. The Applicant also submitted that the Respondents had asked for an extension to file their answer to the Request for Arbitration without stating any reasons for the extension on 27 May 2009, and that this was an additional factor that the Court should objectively take into account in considering the risk of dissipation. I did not agree that a request for an extension was “clear evidence of the Respondents’ intention to prevaricate, delay and frustrate the arbitration process and … …any further award.

 

124. The case of Mobil Cerro Negro Ltd v Petroleos de Venezuela SA [2008] APP.LR 03/18 (“Mobil“), cited by the Respondents in their Post Hearing Note, lays out the test in relation to determining whether a real risk of “dissipation of assets” exists. The English Commercial Court in Mobil stated:

“The expression ‘dissipation of assets’ focuses on the conduct of the defendant as regards the defendant’s assets and the question is whether a particular course of conduct in relation to assets by the defendant, actual or feared, is conduct which should or may lead the court to conclude the grant of a freezing order is just and convenient.
……
A second principle is that the risk of “dissipation” must involve a risk of impairing the claimant’s ability to enforce a judgment or award

Third, the mere fact that the actual or feared conduct would risk impairing the claimant’s ability to enforce a judgment or award does not in every case mean that a freezing order should be granted…The conduct in question must be unjustifiable……. The principle was put in a similar way by the Court of Appeal in Mediterranean Feeders v Berndt Meyering Schiffarts (June 1997, unreported)
‘there must be a risk that it [the asset] will be used otherwise than for normal and proper commercial purposes’

In the course of argument, Mobil gave examples of matters which may be relevant when the court is assessing whether there is a real risk of ‘dissipation of assets’.” [same as the factors set out in Paragraph 128 below]

 

125. In Mobil, the court accepted that most of the respondent’s assets were in Venezuela or in countries perceived to be friendly to the present Venezuelan government. The court also accepted that the assets of the respondent were easily transferable from one jurisdiction to another, at least for some assets of the Respondent’s subsidiaries. The court stated that it was obvious that commercial subsidiaries could readily transfer funds, and shares in joint ventures might be transferable depending on the terms of the joint venture. The court was of the opinion that there was nothing unusual about any of this.

 

 

126. As stated by Lord Bingham in Fourie v Le Roux [2007] 1 WLR 322, citing Gee, Commercial Injunctions, 5th ed (2004) (“Gee”), p77-83:

“Mareva (or freezing) injunctions were from the beginning, and continue to be, granted for an important but limited purpose: to prevent a defendant dissipating his assets with the intention or effect of frustrating enforcement of a prospective judgment. They are not a proprietary remedy. They are not granted to give a claimant advance security for his claim, although they may have that effect. They are not an end in themselves. They are a supplementary remedy, granted to protect the efficacy of court proceedings, domestic or foreign.” (emphasis added)

 

 

127. The same point is also made by Mobil:

“A fundamental principle is that freezing orders are not granted in order to provide security for a claim. By procuring an order that assets are frozen an applicant is not put in a better position than any other creditor. The mere fact that a defendant’s creditworthiness is in doubt does not justify the making of a freezing order. (emphasis added)

 

 

128. Gee also states that:

” [12.033]
….The test is an objective one of assessment of the risk that a judgment may not be satisfied……

In Canada, the Court of Appeal in Ontario referred in Chitel v Rothbart to the judgment of Lord Denning M.R. in Third Chandus Shipping Corporation v Unimarine and said:

“…… The applicant must persuade the court by his material that the defendant is removing or there is a real risk that he is about to remove his assets from the jurisdiction to avoid the possibility of a judgment, or that the defendant is otherwise dissipating or disposing of his assets, in a manner clearly distinct from his usual or ordinary course of business or living, so as to render the possibility of future tracing of the assets remote, if not impossible in fact or in law.”

[12.037-8]
….In assessing the risk of dissipation the court is concerned with the risk of dissipation which, if it were to take place would be “unjustifiable”, not the overall risk of whether the asset will be preserved intact until judgment in the action, including the risk of proper expenditure.

What is ‘unjustifiable’ depends upon the purpose of the injunction. What is justifiable before judgment may become unjustifiable once there is a judgment and the judgment creditor is entitled to be paid.
……
[12.039]

The claimant must adduce “solid evidence” to support his assertion that there is a real risk that the judgment or award will go unsatisfied. Since each case depends on its own facts it is impossible to lay down any general guidelines on satisfying this evidential burden, but some of the factors which may be relevant are as follows:

“(1) the nature of the assets which are to be the subject of the proposed injunction, and the ease or difficulty with which they could be disposed of or dissipated;…

(2) The nature and financial standing of the defendant’s business…

(3) The length of time the defendant has been in business……

(4) The domicile or residence of the defendant…..

(5) If the defendant is a foreign company, partnership, or trader, the country in which it has been registered or has its main business address and the availability or non-availability of any machinery for reciprocal enforcement of ……arbitration awards in that country……

(6) The defendant’s past or existing credit record

(7) Any intention expressed by the defendant about future dealings with his assets [in and outside the jurisdiction]

(8) Connections between a defendant company and other companies which have defaulted on arbitration awards or judgments….

(9) The defendant’s behaviour in response to the claimant’s claims: a pattern of evasiveness, or unwillingness to participate in the litigation or arbitration, or raising thin defences after admitting liability, or total silence, may be factors which assist the claimant. (emphasis added)

 

129. In the present case, I regarded the last factor as the most important, in the absence of other information relating to the First Respondent and in view of the fact that the Applicant had chosen to deal with the First Respondent knowing it was a BVI company. The Respondents procured their agents to file affidavits and instructed Counsel to respond to the present application. Counsel for the Respondents also stated that the Respondents would be contesting the arbitration. The Applicant did not adduce any evidence of any unjustifiable conduct amounting to a “dissipation of assets”. The fact that the properties which the First Respondent owned in Dubai might be sold in the ordinary course of its business as a property developer was insufficient to show unjustifiable conduct amounting to a real risk of dissipation. In the absence of stronger evidence indicating that the Respondents were likely to dissipate their assets, I would not have assumed that the Respondents (in particular the First Respondent) were likely to do so merely because they were corporate vehicles.

 

V.4 Whether it was just and convenient to continue the Freezing Order

130. In Mobil, the English Commercial Court was faced with a situation where there was no connection between the defendant and England and Wales and the English court did not have in personam jurisdiction over the defendant. The English court accepted that, as a matter of discretion, it was not ordinarily right for the court to exercise its powers in aid of a foreign arbitration in the absence of such a connection. It considered that, in certain cases, there might be strong factors justifying the grant of such injunction (usually involving fraud) or where the defendant had substantial assets in England which could be relied upon as demonstrating a sufficiently strong link with the forum, an injunction in aid of foreign litigation or arbitration might be granted in an appropriate case. The cases considered in Mobil involved:

(a) a case where an injunction was granted because solicitors in England had the information as to where embezzled funds might be located (Republic of Haiti v Duvalier [1990] 1 QB 202);
(b) another case where the courts of the forum of the foreign litigation (‘the foreign forum’) could not make a worldwide freezing order over a particular respondent because he was domiciled in England (Credit Suisse Fides Trust v Cuoghi [1998] QB 818); and
(c) a third case where the courts of the foreign forum had already expressed very strong views against the defendants and one of the defendants had substantial assets within England (Motorola Credit Corporation v Uzan (No. 2) [2004] 1 WLR 113 (“Motorola Credit“)).
In Motorola Credit, the court discharged the orders against the other defendants on the basis that they were neither resident in the jurisdiction nor had any assets in England.
In the present case, there are no such strong factors justifying the grant of a Mareva injunction in the absence of jurisdiction over the Respondents.

 

 

131. In the Mobil case, the court decided that the onus was on the plaintiff to seek relief in Venezuela, the country which was the defendant’s home and where the bulk of its assets were located. He considered that:

“it runs strongly counter to considerations of comity for Mobil to come to this country for an order affecting assets in Venezuela when it has not even attempted to seek the assistance of the courts in Venezuela……”

 

132. Likewise, the Respondents in the present case did not show any link to the DIFC. None of the Parties were incorporated in the DIFC and the properties which were the subject matter of the dispute were located in Dubai. The properties that were the subject of the Freezing Order were also in Dubai and the Applicant had not offered any evidence that any assets of the Respondents were held in the DIFC. As concluded in earlier sections of this judgment, there was no in personam jurisdiction over the Respondents.

 

 

133. Accordingly, assuming the DIFC Court had jurisdiction to grant a Freezing Order, I did not consider it just and convenient to continue the Freezing Order for the following reasons.
(a) There was serious doubt whether Linarus, the Second Respondent, had agreed to enter into an arbitration agreement with the Applicant.

(b) There was no credible evidence that the Respondents had been guilty of any unjustifiable conduct amounting to a “dissipation of assets”.

(c) The seat of the arbitration was not in the DIFC, and there was no evidence showing any exceptional features such as fraud or that substantial assets of the Respondents were located in the DIFC which might exceptionally justify an injunction.

 

VI. WHETHER THE EXTENT OF THE FREEZING ORDER WAS PROPORTIONAL TO THE AWARD
134. In a further submission dated 4 June 2009, the Applicant stated that an open offer had been made to the Respondents on 1 June 2009 that the Applicant would accept a sum of AED 50 million as security for the Applicant’s claims pending a final award by the DIFC-LCIA Arbitral Tribunal. The Respondents had not responded to this offer.

 

135. The Applicant stated that his primary claim was for AED 50 million (return of monies paid under the MOA) and his supplemental claim for loss of profits amounted to AED 20 million. Strictly for the purposes of the Application before the DIFC Court, the Applicant stated that he agreed to the Respondents’ assets subject to the Freezing Order being limited to the amount of the primary claim without prejudice to his rights to pursue the supplemental and other claims before the Tribunal.

 

136. With respect to the claim for lost profits, the Applicants’ expert, Mr Haider bin Haider, submitted that UAE law allowed a contract to be cancelled and compensation, including the loss of profits, to be awarded to the person misled by the misrepresentation if the contract was concluded by “gross cheat”. On the other hand, the Respondents’ expert, Mr Essam Al Tamimi, submitted that a claim for an award of loss of profits under UAE law was extremely difficult to prove and was, in his opinion, not a claim that could be sustained by the Applicant on the present facts.

 

137. The Applicant submitted that Paragraph 5 of the Freezing Order should be amended to limit the amount of the Respondents’ assets to be frozen up to the sum of AED 50 million, being the purchase price paid by the Applicant to the Respondents together with a reasonable sum for future interest and legal costs.

 

138. The Applicant enclosed a valuation report showing that the market value for plot C06C2 was AED 25.73 million. The Applicant submitted that the security for the undertaking not to resell plot C06C2 without permission of the DIFC Court would be sufficient security in circumstances where the sum subject to the Freezing Order was being effectively limited to the contract price.

 

139. Even assuming that the DIFC Court had jurisdiction and the merits of the Applicant’s Application justified a freezing order, the third hurdle the Applicant would have to overcome would be the proportionality of such freezing order. I would have pursued an inquiry into the actual value of the land at the time of the contract taking into account the height increase granted for the First Respondent’s plots of land. I would most likely have been prepared to grant an injunction limited to the difference between that actual amount and the purchase price. I would not have granted an injunction for the amount equivalent to the full refund of the monies because the Applicant was still the owner of plot C06C2, which was worth at least AED 25.73 million. I would also have considered the value of the six plots of land which had been frozen under the Freezing Order, and assessed the need for all six plots to be frozen, considering that the Applicant was agreeable to limit its claim to only AED 50 million. However, I would only have made such findings limiting the extent of the Freezing Order if the Applicant had surmounted the first two hurdles on jurisdiction and the merits.

 

140. For the purposes of considering what monetary limit should have been imposed on the Freezing Order (had I been inclined to grant such a remedy), the contradictory expert reports on UAE law meant that the Applicant had not prima facie established his entitlement to his claim for loss of profits under UAE law based on the evidence available before this Court. Given that the Applicant’s rights to claim for lost profits was uncertain, and since the Applicant had agreed to limit any order sought to the primary claim, I would have excluded the Applicant’s AED 20 million claim for alleged lost profits from my calculation of the monetary cap on the Freezing Order.

 

141. Finally, I did not believe that the security for the Undertaking given by the Applicant in respect of the Freezing Order should be limited to an undertaking not to resell Plot C06C1. A freezing order is a draconian order, and any applicant must be prepared to be responsible for any losses caused to the respondent by the imposition of the freezing order. Moreover, the Applicant in the present case had submitted a claim for AED 70 million and requested for six plots of land to be subject to the Freezing Order. The value of the assets frozen by the Freezing Order clearly exceeded the value of Plot C06C2. Even after limiting its claim to AED 50 million, the value of assets that the Applicants requested to be subject to the Freezing Order was almost double the value of Plot C06C2. If I had been prepared to continue the Freezing Order, I would have maintained all the undertakings in Schedule B of the Freezing Order.

 

VII. CONCLUSION
142. I therefore made the Orders set out in Paragraph 1 above.

 

Michael Hwang
Deputy Chief Justice
Date of Issue: 8 July 2009

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