The Pursuit of a Superyacht - Enforcement, Jurisdiction and Freezing Injunctions in the DIFC
The unusual position of the DIFC within the broader structure of the legal system of the UAE and Dubai means that the DIFC Courts are often faced with complex questions regarding enforcement of judgments and conflicts of jurisdiction with “on-shore” Dubai. An excellent example of how these issues are addressed can be found in the case of Akhmedova v (1) Akhmedov (2) Straight Establishment (CA-003-2018). Earlier this year, the DIFC Court of Appeal considered the question of whether a freezing injunction could be made against a third party to the original judgment in the course of enforcement proceedings.
The background to the dispute in Akhmedova stems back to December 2016, when Ms. Akhmedova obtained judgment from the High Court of England and Wales for ￡350 million against her ex-husband in divorce proceedings. Before the trial had even concluded, however, Mr. Akhmedov began to move his assets out of the jurisdiction. In particular, Mr. Akhmedov transferred his superyacht “the Luna” through a series of offshore corporate entities before vesting title in a Liechtenstein “Anstalt” known as Straight Establishment. Mr. Akhmedov’s blatant attempt to frustrate any judgment of the Court was noted by Haddon-Cave J who found that for the most part, these entities were “no more than ciphers and the alter ego” of Mr. Akhmedov, who still exercised considerable control over the assets.
Since the Luna was docked in on-shore Dubai at the time, Ms. Akhmedova applied to the DIFC to enforce judgment and immediately sought an ex parte freezing injunction against Mr. Akhmedov and Straight Establishment. In doing so, Ms. Akhmedova made use of the “conduit jurisdiction” enjoyed by the DIFC Courts, whereby orders “rendered” in the DIFC are mutually enforceable in Dubai.
At the return hearing, Straight Establishment argued that the Court did not have jurisdiction to make a freezing injunction against it, since it was not a party to the original judgment against Mr. Akhmedov. HE Justice Ali Al Madhani decided at first instance that:
“as a matter of fundamental policy, this Court – like any other court of justice – must be in a position to respond to fraud and deliberate evasion. It would deny the Court’s jurisdiction of much of its practical effect if it were possible to avoid the enforcement of a judgment in the DIFC by the simple expedient of placing one’s assets within a corporate entity in an offshore “secrecy” jurisdiction…”
On appeal, Ms. Akhmedova argued that the Court should be flexible in its approach to granting a freezing injunction in order to properly deal with those who would otherwise thwart the enforcement of court orders. She also argued that, following Prest v Petrodel Resources Ltd and Ors [2013] UKSC 34, the Court should disregard the separate legal personality of Straight Establishment where it was being relied upon in an abusive manner to evade or frustrate the law.
Straight Establishment submitted that the judge had confused the concept of the Court’s power to make certain orders (sometimes loosely termed its “jurisdiction”) with the question of its personal, territorial or subject-matter jurisdiction. The doctrine of piercing the corporate veil dealt with remedies and could not be applied to grant the Court jurisdiction where it had none in the first place, since Straight Establishment was a third party to the original judgment.
The Court of Appeal allowed the appeal and held:
“In our view, it is manifest that the jurisdiction of the Court to enforce a foreign judgment is limited to those parties against whom the judgment has been made. Who those parties are will be discernible from the judgment itself. To extend jurisdiction to a party against whom a judgment was not made on the basis that, although he (it) possesses juridical personality, he (it) is to be equiparated with a party against whom the judgment was made, would be a significant development in the law of the DIFC and would be at a variance with the doctrine of obligation that underlies the Court’s jurisdiction to enforce foreign judgments.”
While one might sympathise with Ms. Akhmedova’s battle in the face of her husband’s flagrant disregard for the law (it has been reported that Mr. Akhmedov has dubbed the 2016 High Court judgment “toilet paper”) the DIFC Courts have reiterated that the flexibility of a court’s powers cannot be used to cross the line in terms of its territorial, personal or subject-matter jurisdiction. The Court seems to have exercised caution at a time when the battle for jurisdiction between the DIFC and the Dubai Courts continues before the Joint Judicial Committee Tribunal and the DIFC Courts’ status as a conduit jurisdiction is under threat.
It is worth noting that the Court of Appeal did grant a quia timet freezing injunction pending an application to join Straight Establishment to a party to the proceedings (since they had been joined to the English proceedings in the interim) and on the basis of real concerns that the yacht would be sailed out of Dubai if the freezing injunction were simply lifted.
The case also serves as an essential reminder that with defendants like Mr. Akhmedov, obtaining judgment is never the end of the story. Enforcement proceedings in other jurisdictions can often be more vexatious than the original litigation and when seeking to enforce, it is essential to understand the legal landscape and culture of the jurisdiction where assets are located.
By way of example, and in a further twist, Mr. Akhmedov subsequently referred the case to the Joint Judicial Committee in May 2018, challenging the jurisdiction of the DIFC Courts to hear the claim for enforcement. The Tribunal held in Cassation No. 3/2018 that the Dubai Courts had jurisdiction to hear the claim and the matter was therefore transferred. Thus, the Akhmedova saga continues and will provide further jurisprudence on this fascinating area of law.