DIFC Courts

CA-003-2018: TATIANA MIKHAILOVNA AKHMEDOVA V (1) FARKHAD TEIMUR OGLY AKHMEDOV (2) STRAIGHT ESTABLISHMENT

June 19, 2018 Court of Appeal - Judgments

Claim No: CA-003-2018

 

THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS

In the name of His Highness Sheikh Mohammad Bin Rashid Al Maktoum, Ruler of Dubai

 

 

IN THE COURT OF APPEAL

 

BEFORE JUSTICE SIR DAVID STEEL, JUSTICE SIR RICHARD FIELD AND JUSTICE JUDITH PRAKASH

 

BETWEEN

 

 

TATIANA MICHAHILOVNA AKHMEDOVA

Claimant/Respondent

 

and

 

(1) FARKHAD TEIMAR OGLY AKHMEDOV

First Defendant

(2) STRAIGHT ESTABLISHMENT

         Second Defendant/Appellant

 

 

Hearing:            9 May 2018

 

Counsel:           Vernon Flynn QC assisted by Sharif Shivji instructed by Al Tamimi & Co for the Appellant

 

Michael Black QC assisted by Andrew Holden instructed by Fichte & Co for the Respondent

 

Judgment:         19 June 2018

 

 

 

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JUDGMENT

 __________________________________________________________________________________________________________________________

 

JUDGMENT

 

JUSTICE SIR RICHARD FIELD:

 

Introduction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  1. These are the reasons for the decision announced at the conclusion of the hearing of the appeal by the Second Defendant (“Straight”) that the appeal was to be allowed but a freezing order in the same terms as that continued by HE Justice Ali Al Madhani (the “Judge”) on 21 March 2018 was to be granted against both Defendants, pending the determination of the Respondent’s application to amend her claim against Straight.
  2. The first freezing order made by the Judge against the Defendants was an ex parte Order made on 8 February 2018 until a return date to be fixed. The Order was made in aid of the enforcement in the DIFC Courts of First Instance of a judgment of the High Court of England and Wales given by Mr Justice Haddon-Cave on 20 December 2016 (“the English Judgment”).
  3. At the hearing on the return date of the Respondent’s application to continue the freezing order, the Judge rejected Straight’s challenge to the jurisdiction of the Court to make the order sought. It is the decision of the Judge that the Court had jurisdiction to make the freezing order against it that is appealed by Straight.
  4. The English Judgment was a Financial Remedy Order giving effect to an earlier judgment of Mr Justice Haddon-Cave delivered on 15 December 2016 by which he granted the Claimant ancillary relief in divorce proceedings she had successfully brought against her then husband, the First Defendant. The ancillary relief granted against the First Defendant was in the sum of GBP 453,576,152 comprising 41.5% of the total marital assets. Pursuant to the English Judgment, the First Defendant was ordered, inter alia, to pay the Claimant a lump sum of GBP 50,000,000 and to transfer certain property. Various Panama and Liechtenstein entities (Cotor, Qubo 1 and Qubo 2) that had been joined in as parties to the English proceedings were made jointly and severally liable with the First Defendant for the payment of the lump sum on the basis that Cotor was a nominee and bare trustee for the First Defendant and Qubo 1 and Qubo 2 were no more than ciphers and the alter egos of the First Defendant.
  5. The enforcement proceedings in the DIFC Courts of First Instance were started on 7 February 2018 after it had been discovered that The Luna, a large pleasure yacht that had been acquired by the First Defendant in 2014, was in dry-dock in Port Rashid for maintenance work. By now, the Claimant’s legal team had learned from further evidence given in the English proceedings that the First Defendant had assigned his interest in The Luna in a series of sequential transactions to the following entities: Tiffany, then Avenger, then Stern, then Qubo 2 and then, on 8 March 2017, to Straight, a Liechtenstein Anstalt.
  6. The ex parte freezing order made by the Judge against both the Defendants restrained them from removing any of their assets which were in Dubai up to the value of USD 540,136,876.71 including The Luna until the return date or further order.
  7. The return date hearing was held on 8 March 2018. At this hearing, Straight contended that the Court had lacked jurisdiction to continue that ex parte order because it was not a party to the English Judgment. The First Defendant did not appear at this hearing.
  8. As at 8 March 2018, Straight had not been made a party to the English ancillary relief proceedings. This only occurred on 19 April 2018 about four weeks after the Judge had dismissed Straight’s jurisdiction challenge and continued the freezing order.
  9. The Judge dismissed Straight’s jurisdiction challenge and continued the ex parte freezing order without amendment save that the order was made until further order rather than to a return date.

The Judge’s reasons for dismissing Straight’s jurisdiction challenge

 

 

  1. After a number of introductory paragraphs, the Judge recorded the argument advanced by Straight that the Court had no jurisdiction to enforce the English Judgment against it because it was not a party to the English Judgment. Straight also made the point that the Court had no territorial jurisdiction over it. In articulating Straight’s argument, the Judge referred to the statutory provisions relied on by the Respondent for her submission that the Court did indeed have jurisdiction. These provisions were Article 5 (A) (1) (e) and Article 7 (6) of the judicial authority law (Law No. 12 of 2004 [as amended]) and Article 24 (1) of the DIFC Courts Law (Law No. 10 of 2004). These provide as follows:

 

Article 5 (A) (1) (e) of the Judicial Authority Law

The Court of First Instance shall have exclusive jurisdiction to hear and determine

…

(e) Any claim or action over which the Courts have jurisdiction in accordance with DIFC Laws and DIFC Regulations.”

Article 7 (6) of the Judicial Authority Law

The judgments, decisions, orders and ratified Arbitral Awards rendered outside the DIFC by any court other than Dubai Courts shall be executed within the DIFC I accordance with the procedure prescribed in the Rules of the Courts.

Article 24 (1) of the DIFC Courts Law

 

 

  1.  

     

    1.  

       

       

      1. Ratification of Judgments

(1) Pursuant to Article 7(6) of the Judicial Authority Law, the Court of First Instance has jurisdiction to ratify any judgment, order or award of any recognised: (a) Foreign court; (b) Courts of Dubai or the United Arab Emirates; (c) Arbitral Award; (d) Foreign Arbitral Award; or (e) orders for the purposes of any subsequent application for enforcement in the courts of Dubai.”

 

 

 

 

 

  1. The Judge then rehearsed the Respondent’s principal argument on the jurisdiction issue which was that as a matter of fundamental policy and proper statutory construction, the jurisdiction to enforce the English Judgment against the First Defendant extended to enforcement against Straight on the ground that Straight was the First Defendant’s corporate creature and was being used by the First Defendant to evade the English Court’s jurisdiction. The Respondent also submitted that the ex parte Order should be continued in order to hold the ring until the English High Court heard an application to make Straight a party to the English Judgment which was due to come on in under a fortnight.
  2. After paragraphs 44 and 48 of his judgment, the Judge said:

“[44] In my judgment, I agree with the argument put forward by the Applicant 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, see Beatson LJ in JSC BTA Bank v Ablyazov [2014] 1 WLR 1414 [36]”.

“[48] … I am satisfied that the Applicant has a good arguable case to believe that the Vessel Luna, held through Straight, the Second Respondent, was and continues to be owned and controlled by Mr Akhmedov the First Respondent personally which gives this Court the jurisdiction and the power to enforce against it with a view to enforcing a recognised English Judgment.”

Straight’s Case on appeal

 

 

 

 

 

 

  1. Stripped to its bare essentials, Straight’s argument on appeal was that on the true construction of the above-cited statutory provisions, the jurisdiction of the Court to enforce a foreign judgment was limited to enforcing the judgment only against the parties against whom the judgment had been made. Straight was not a party against whom the English Judgment was made and thus the Court had no jurisdiction to make the freezing order it did against Straight. It was submitted that in construing the statutory provisions, the Court should appreciate that the readiness of Common Law courts to enforce foreign judgments such as the DIFC Courts is based on the doctrine of obligation, namely, that the judgment of a foreign court of competent jurisdiction over a defendant imposes a duty or obligation on the defendant to pay the sum for which the judgment was given. Since Straight was not a party to the English Judgment, it was under no such personal obligation to honour the judgment.
  2. Further, the Judge had adopted an erroneous approach by conflating the question of jurisdiction and the power of the court to make effective freezing orders. This was an error because it was essential that these two matters should be kept separate: the power of the court to take a flexible approach in formulating effective ancillary orders could only be exercised if the party so injuncted was subject to the jurisdiction of the Court in the first place; see Belletti & Ors v Morici & Ors [2009] EWHC 2316 (Comm). Further, it was contrary to principle for the doctrine of piercing the veil to be used by the Court in order to establish jurisdiction against an entity that was not a party to the foreign judgment.
  3. Mr Flynn QC who appeared for Straight was at pains to emphasise that he held no brief for the First Defendant. It was his (Mr Flynn’s) case that the freezing order should be discharged quoad He told the Court that if the appeal were allowed and the order discharged against it, Straight would regard itself as free to sail The Luna away from Dubai. Whether, if Straight adopted this course, the First Defendant would be in breach of the order was not something with which Mr Flynn was concerned. That was not a matter that arose on the appeal.

The Respondent’s case on appeal

 

 

 

 

  1. The principal argument presented by Mr Black QC for the Respondent was that the test as to whether jurisdiction against Straight was established was one of “good arguable case” and the Judge’s finding in paragraph 48 of his judgment that the Respondent had established such a case was not susceptible to successful challenge. That the test was one of good arguable case was clear, submitted Mr Black, from para 11-147 of Dicey, Morris and Collins, The Conflicts of Law (15 ed) and from the DIFC Courts of Appeal’s decision in Khorafi et v Bank Sarasin [2011] DIFC CA 003 where each postulated basis of jurisdiction was decided by applying that test. Mr Black submitted that there was a sound evidential basis for the Judge’s conclusion that Straight was merely the alter ego of First Defendant and had been interposed by the First Defendant between himself and the Respondent in order to evade his liabilities. The decision of the UK Supreme Court in Prest v Petordel Resources Ltd et [2013] UKSC 34 that the court may disregard the corporate veil where a person is under an existing legal obligation which he deliberately evades by interposing a company under his control was therefore directly applicable.
  2. In short, Mr Black submitted that Straight was to be equiparated with the First Defendant and therefore, just as the First Defendant is a judgment debtor under the English Judgment and as such is susceptible to the jurisdiction of the Court, so too is Straight to be treated as a judgment debtor under that judgment and subject to the Court’s jurisdiction.

Discussion and reasons for decision

 

 

  1. The adoption of the good arguable test when deciding whether there is jurisdiction under a jurisdiction gateway is a reflection of the fact that: (i) often the question is one of mixed fact and law; and (ii) an interlocutory hearing is generally not suitable for a final determination of the issue. However, where the question is solely one of law and the court has the necessary background evidence to determine it, the normal approach is for the court to get on and determine the question. Convincing authority for this proposition is the last sentence of para 11 -147 of Dicey, Morris and Collins (15ed) and the observation made by Lord Collins himself in para 81 of AK Investment CJSC v Kyrgyz Mobil Tel Ltd [2011] UKPC 7.

“But if the applicability of PD6B, para 3.1 [an English jurisdiction gateway] depends on a question of law or construction, there is no room for the application of the test of good arguable case: the court must decide the question on the application to set aside.”

[ Dicey, Morris and Collins para 11-147]

“A question of law can arise on an application in connection with service out of the jurisdiction, and, if the question of law goes to the existence of jurisdiction, the court will normally decide it, rather than treating it as a question of whether there is a good arguable case: Hutton (EF) & Co (London) Ltd. v Mofarrij [1989] 1 WLR 488, 495 (CA); Chellaram v Chellaram (No 2) [2002] EWHC 632 (Ch), [2002] 3 All ER 17, [136].”

[ AK Investment CJSC v Kyrgyz Mobil Tel Ltd [2011] UKPC 7 at [81]]

 

 

 

 

 

 

 

 

 

 

 

  1. In our judgment, this was the approach that the Judge should have adopted when dealing with Straight’s jurisdiction challenge and it is the approach that this Court should take in deciding this appeal.
  2. The jurisdiction of the DIFC Courts of First Instance is exclusively statutory. It follows that whether the Court had jurisdiction over Straight involves an exercise in interpreting Article 5 (A) (1) (e) and Article 7 (6) of the Judicial Authority Law (as amended) and Article 24 (1) of the DIFC Courts Law in the context of proceedings to enforce a foreign judgment.
  3. 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 variance with the doctrine of obligation that underlies the Court’s jurisdiction to enforce foreign judgments; see Barclays Bank plc et v Essar Global Fund Ltd [2016] DIFC CFI 036 at para 21. We are accordingly of the opinion that, if the legislative intention had been to extend jurisdiction in this way, the legislation would have clearly so provided and in the absence of an amendment to the legislation, the Court does not have jurisdiction over a party like Straight who is not a party against whom a foreign judgment was made.
  4. Ever since the Respondent came to know about the transfer of The Luna into the name of Straight it was open to her to apply to the English Court to have Straight joined as a party against whom the judgment for the payment of £350,000,000 would be made, thereby establishing jurisdiction over Straight in the DIFC Courts. This indeed is what she proceeded to do, with the result that on 19 April 2018 Mr Justice Haddon-Cave ordered that Straight be joined as a party to the English ancillary proceedings so as to make Straight directly liable on the English Judgment. It therefore only remains for the Respondent to obtain the leave of the DIFC Courts to amend her pleadings to reflect the fact that Straight has been made a party to the English Judgment for jurisdiction to be established over Straight in accordance with the relevant legislative provisions concerned with the enforcement of a foreign judgment.
  5. As recorded above, Mr Flynn frankly informed the Court that Straight would regard itself as free to sail The Luna away from Dubai if the Judge’s order against his client were discharged. In these circumstances, the Court was of the view that, notwithstanding Straight’s success on its appeal, it was appropriate to grant quia timet relief by continuing the order of the Judge against Straight pending the determination of the Respondent’s application for permission to amend her case against Straight.

Post script

 

 

  1. Since the hearing of this appeal, all proceedings in this case have become subject to an administrative stay and thus no action can be taken for the time being on the Court of Appeal’s earlier decision made at the conclusion of the hearing.

DEPUTY CHIEF JUSTICE SIR DAVID STEEL:

 

 

  1. I agree with the abovementioned judgment and have nothing further to add.

JUSTICE JUDITH PRAKASH:

 

 

  1. I agree with the abovementioned judgment and have nothing further to add.

 

Issued by:

Ayesha Bin Kalban

Assistant Registrar

Date of Issue: 19 June 2018

At: 4pm