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Case No. CFI 030/2019

THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS

IN THE COURT OF FIRST INSTANCE

BETWEEN

LARMAG HOLDINGS BV

Claimant/Applicant

and

(1) FIRST ABU DHABI BANK PJSC

(2) FAB SECURITIES LLC

Defendants/Respondents

RULING OF JUSTICE SIR RICHARD FIELD

JUSTICE SIR RICHARD FIELD:

1. The Applicant contends that it was induced by a fraud practised by a Mr Aljabri and an entity called Elite Holding Group (“Elite”) to sell the bonds to Elite and deliver them by transfer to an account at the Second Defendant (“FAB Securities”) in the name of Elite Holding and/or Mr Aljabri.

2. On 18 July 2019, on the basis that the Applicant had an arguable case that the Court had jurisdiction over the Defendants, the Court granted an injunction over to 4.00 pm on 8 August 2019 restraining the Respondents from disposing of, dealing with or diminishing the value of certain Reditum SA corporate bonds (“the bonds”) held at any time in an account in the direct or indirect control of the Respondents; or any interest paid in respect of the bonds; or any assets received or derived from the bonds.

3. Each of First Respondent (“FAB”) and FAB Securities is incorporated and head-quartered in Abu Dhabi. FAB is licensed by and regulated by the Central Bank of the UAE. It is registered with the DFSA as a “Recognised Member” and as such is one of four “market makers” on NASDAQ Dubai for one share, for DP World Plc, whose shares are the largest and most actively-traded shares on that exchange

4. FAB Securities is a wholly owned subsidiary of FAB. It holds Renewal Certificates in respect its licences granted by Emirates Securities, Securities and Commodities Authority (SCA)a broker licence from the Securities & Commodities Authority and, as a DFSA “Recognised Member”, it is a member of NASDAQ Dubai.

5. The Applicant submitted at the hearing that the recognition of the Respondents by the DFSA as “Recognised Members” means that each is a “DIFC Establishment” and/or a “Licensed DIFC Establishment” for the purposes of the judicial authority law (the “JAL”), with the consequence that the Court had jurisdiction to grant the relief sought under Article 5 (A) (1) (a) of the Judicial Authority Law (the “JAL”).

6. The Respondents disputed the Applicant’s contention. They argued that “registration” and “recognition” by the DFSA are concepts distinct from the mutually distinct concepts of “authorisation” and “licensing” and accordingly an entity that is registered or recognised by the DFSA as a “Recognised Person”is not a “DIFC Establishment” or a “Licensed DIFC Establishment”. Entities such as the Respondents which are recognised by the DFSA are not subject to the usual supervision and regulation in the DIFC that applies to DIFC Establishments and Licensed DIFC Establishments. They are entities that are located outside the DIFC where they provide financial services and are subject to the control and supervision of their home Regulatory Authority to a standard satisfactory to the DFSA. By virtue of being a DFSA “Recognised Member” they can provide financial services in the DIFC to DIFC customers by being members of a DIFC Authorised Market Institution (“AMI”) such as NASDAQ Dubai or the Dubai Metal Exchange (DME). Once granted the status of “Recognised Member”, trading done by these entities as a member of an AMI is not regarded by the DFSA as conducting Financial Services in or from the DIFC in breach of the Financial Services Prohibition imposed by Article 41 of the Regulatory Law 2004. The result is that the Recognised Member is the subject only of light regulation by the DFSA when compared with the regulation to which entities authorised by the DFSA to provide financial services within the DIFC are subject.

7. The order issued by the Court on 18 July 2019 provided that if either the Applicant or the Respondents requested a final determination on the question of the jurisdiction of the Court over the Respondents, the Court would make such a determination and a timetable for the service of submissions and further evidence on this issue was prescribed. Both the Applicant and the Respondents requested such a final determination.

The Court’s determination of the jurisdiction issue

8. The determination of the jurisdiction issue involves the interpretation of Article 5 (A) (1)
(a) of the Judicial Authority Law that provides:

(1) The Court of First Instance shall have exclusive jurisdiction to hear and determine: (a) Civil or commercial claims and actions to which the DIFC or any DIFC Body, DIFC Establishment or Licensed DIFC Establishment is a party;

9. Article 2 of the JAL defines “DIFC Bodies”; “DIFC Establishments”; and “Licensed Establishments” as follows:

DIFC Bodies: The bodies established pursuant to Article (3) of the aforementioned Law No. (9) of 2004 [ the Law Concerning Dubai International Financial Centre] and any other body established pursuant to the DIFC Laws or pursuant to approval of the President.

DIFC Establishments: Any entity or enterprise established, licensed, registered or authorised to carry on business or conduct any activity within the DIFC pursuant to DIFC Laws, including Licensed DIFC Establishments.

Licensed DIFC Establishments: Any entity or enterprise licensed, registered or authorised by the Dubai Financial Services Authority to provide financial services, or conduct any other activities in accordance with the DIFC Laws.

10. Put shortly, the Applicant contends that by reason of DFSA’s grant of recognised membership, the Respondents are licensed or authorised (permitted) to carry on business and/or to provide financial services in accordance with DIFC laws. In particular, it is submitted that, following the approach adopted by the DIFC Court of Appeal in Dhir v Waterfront Property Investment Ltd [2009] DIFC CFI-011 at [60]-[66] and Al Khorafi et al v Bank Sarasin-Alpen (ME) et al [2011] DIFC CA 003 at [58], recourse should be had to the original Arabic text of the JAL (a Dubai law) which uses the a word said to mean “permitted” that has a wider meaning than “authorised” which is the word adopted in the English translation of the Arabic word in the JAL.

11. Briefly expressed, the argument of the Respondents is that the words “licensed”, “authorised” “registered” and “recognised” in the JAL connote separate and distinct concepts and are being used with the technical meaning they have in the specific financial services and regulatory context. As a result, the grant of the status of “Recognised Member” to the Respondents allowing them to trade on a limited basis as members of the NASDAQ Dubai with only light on-going regulation and supervision by the DFSA keeps them outside the JAL definitions of “DIFC Establishments” or “Licensed DIFC Establishments”.

12. In support of this argument the Respondents refer to:

The Regulation of Recognised Persons

13. “Recognition” is provided for in Chapter 3 of the Markets Law. Article 37 provides:

14. The Rules made by the DFSA in respect of recognised persons are contained in the DFSA’s Recognition (REC) Module (“REC”). The guidance to Chapter 1, Application of the REC Module, states that Modules (GEN) Chapters 1 and 6 and ENF (Enforcement) apply to Recognised Persons.

15. The recognition criteria for the admission to the list of recognised persons who are recognised members are set out in 2.5 REC as follows:

2.5.1 For the purposes of Article 37(6) of the Law the Recognition Criteria for a Recognised Member are that:

2.5.2 Rule 2.5.1(e) does not prevent a Recognised Member which has a Branch which is an Authorised Firm from carrying on a Financial Service in or from the DIFC through such Branch.

2.5.3 Rule 2.5.1(g) does not apply to: (a) a Recognised Member which is licensed and supervised by a Financial Services Regulator in the UAE; and (b) a Recognised Member which has a Branch which is an Authorised Firm.

16. In 3.2 REC under the heading Supervisory approach, the DFSA’s guidance reads:

The DFSA will rely upon a Recognised Person’s lead Financial Services Regulator to supervise a Recognised Person. The focus of DFSA’s interest will be on the DIFC and on those activities of the Recognised Person that may impact the DIFC.

17. The primary responsibilities of Recognised Persons imposed by the REC Module are:

18. The DFSA guidance, “Recognised Members – Applying for Recognition in the DIFC” states:

“The DFSA does not consider that a person which meets the requirements to be recognised in the DFSA as a Recognised Body or Recognised Member, and which carries on its activities in accordance with the Rules in the Recognition Module, would be conducting Financial Services in or from the DIFC.”

The financial services the Respondents are permitted to provide in DIFC as Recognised Members.

19. Since the Respondents are licensed and supervised by a financial services regulator in the UAE, they are permitted under REC Rule 2.5.3(a) to offer services directly to DIFC customers without being restricted to dealing with such customers pursuant to an unsolicited request for execution-only services as provided for in REC Rule 2.5.1 (g). They are therefore permitted to provide the following “financial services” as defined in the DFSA Rulebook, General Module (GEN): (1) trading securities on their own behalf; (2) trading securities on behalf of customers; (3) trading securities as a market maker; and (4) providing custody of securities.

20. In addition, pursuant to Rule 3.4 1(a) of DFSA Rulebook General Module GEN, by reason of being Recognised Members licensed and supervised by a UAE regulator, the Respondents are able to make a Financial Promotion in or from the DIFC notwithstanding the general prohibition against this activity contained in Article 41A of the Regulatory Law 2004.

Examples of financial services currently being provided or having in the past been provided in the DIFC by FAB

21. I conclude from the evidence provided in the affidavit of Mr Keith Lyall Hutchison and the affidavits of Mr Nimer Basbous that FAB provides or has provided the following financial services in the DIFC as a Recognised Member:

Pre-2012 regulation of Recognised Members.

22. Prior to the amendments made to the Regulatory Law 2004 in 2012 and the repeal and re-enactment in 2012 of the Markets Law 2004, Articles 41 and 62 (4) of the Regulatory Law provided as follows:

Article 41

Article 62 (4)

The DFSA shall publish and maintain a register of current and past grants and revocations of recognition of all Recognised Bodies and Recognised Members, in such manner as may be prescribed by the Rules.”

The DFSA Consultation Paper No. 76

23. On 15 June 2011, the DFSA produced a consultation paper (‘Consultation Paper No.76’) entitled ‘Proposed Changes to the Markets Law Regime Part 2 –Recognition and Auditing’. The Background section of the paper included the following:

In summary, the current DFSA Recognition Regime operates as follows:

The persons in (a) and (b) above are defined as “Recognised Persons” and the rationale for the regime is that it permits Recognised Persons to carry on prescribed cross-border activities without the need to be authorised or otherwise licensed by the DFSA. The DFSA considers that to license such persons would impose a disproportionate regulatory burden given that the substantive activities carried on pursuant to their recognition occur outside the DIFC under the laws and supervision of the Financial Services Regulator in their own jurisdiction.

The rationale for recognition is that:

24. As we have seen, at the time of Consultation Paper No. 76, Article 41 of the Regulatory Law expressly exempted Recognised Persons from the Financial Services Prohibition (the “Prohibition”). Consultation Paper No. 76 expressed the DFSA’s view that the activities of a Recognised Person take place outside the DIFC, so that the exemption from the Prohibition was unnecessary and that even where a Recognised Member deals, whether as principal or agent, on an AMI so that there is a resulting transaction under DIFC law and on a DIFC exchange, this does not necessarily mean that such a person is carrying on a Financial Service in or from the DIFC.

25. However, to avoid a situation where a breach of the Prohibition might occur because a Recognised Member deals on an AMI with a customer located in the DIFC, the DFSA proposed to restrict the activities of Recognised Members to dealing with non-DIFC customers and with DIFC customers for whom it deals on an unsolicited request for execution-only services which, as recorded above, is the restriction now found in the REC, Rule 2.5.1(g).

26. As noted in paragraph 15 above, Rule 2.5.1 (g) does not apply to Recognised Members such as the Respondents which are licensed and supervised by a Financial Services Regulator in the UAE.

27. The Consultation Paper also proposed the introduction of the Recognition Criteria, now found in Rule 2.5 REC, in place of the previous requirement of a formal Recognition Notice. The major substantive change in the recognition regime was “to remove from the REC Module criteria that are not relevant for the DFSA in its consideration of a Recognised Person …[f]or example the requirement relating to fitness and propriety of a Recognised Body in current REC Rule 3.2.4.”

The approach to be adopted when construing Articles 2 and 5(A)(1)(a) of the JAL

28. As has been often said, when construing legislation the Court is concerned to give effect to the legislator’s intention as revealed by the words he or it has used. If the plain and ordinary meaning of those words is readily apparent, effect will be given to that meaning unless to do so would be manifestly absurd or fundamentally inconsistent with another part of the statute. Where, as is often the case, and is the case here, the plain and ordinary meaning of the words is not readily apparent, the Court must have regard to the purpose of the law and should favour a construction that promotes that purpose; see Asif Hakim Adil v Frontline Development Partners Limited [2016] DIFC CA 006 at [30]-[33] and Elseco Ltd v Pierre-Eric Daniel Bernard Lys [2016] DIFC CA 011 at [62]-[63].

29. It has also been said by the Court of Appeal (Sir Anthony Colman DCJ, Sir David Steel and HE Ali Al Madhani) that in construing Article 5(A) of the JAL, “it is necessary to keep very clearly in mind that the ultimate and dominant text is in Arabic and that this court is using a translation to arrive at the true meaning and intent of that Arabic text. In this correction it is to be remembered that Arabic may not lend itself to as precise a facility of expression of legal phraseology as English. Thus translation may result in what appears to be a very precise expression in English but which too narrowly defines the meaning of the original Arabic text. That is why it is important when construing DIFC legislation such as Law 16 not by a literalist construction of the English to lose sight of the legislative purpose underlying the text.” (Al Khorafi et al v Bank Sarasin-Alpen (ME) Ltd [2011] DIFC 003 at [58])

30. In Al Khorafi the Court did not hear argument on the meaning of the Arabic text of the JAL. Instead, the Court was careful not to adopt a literalist construction of the English translation and thereby lose sight of the legislative intent of the provision.

31. In the present case the parties have advanced rival meanings of the Arabic word that is translated in the English version as “authorised”. However, no expert evidence is proposed to be called on the meaning of the original Arabic text and without such evidence I conclude that it will be quite impossible for the Court to decide what meaning is to be given to the Arabic word that has been translated as “authorised”. I shall therefore not attempt to decide which of the rival meanings of the Arabic word in question is the correct meaning but shall instead adopt the approach prescribed in Khorafi of not allowing a literalist construction of the English translation to result in losing sight of the legislative purpose underlying Articles 2 and 5(A)(1)(a) of the JAL

32. I must also approach the construction of Article 5(A)(1)(a) having in mind these words of Sir John Chadwick CJ in Corinth Pipeworks SA v Barclays Bank Plc [2011] DIFC CA 002

Once it is shown that the party by or against whom the civil or commercial claim is brought is an entity or enterprise licensed, registered or authorised by the DFSA to provide financial services or to conduct any other activities in accordance with the DIFC Laws, the requirement under paragraph (a) is met. The jurisdiction exists ad hominem: there is no further “transaction-based” requirement, comparable to those imposed under paragraphs (b) and (c) of Article 5(A)(1).

33. The Applicant submits that the Court should adopt a step by step approach when construing Article 5(A)(1)(a) of the JAL and the definitions in Article 2. The first step is look first at Articles 41 and 62 of the Regulatory Law as they existed before they were amended in the wake of Consultation Paper No.76. In the Applicant’s submission, it is plain that by virtue of these original Articles in the Regulatory Law, even if a narrow and technical interpretation of the relevant provisions in the JAL is adopted, Recognised Members would have been “registered” and/or “authorized” by the DFSA to provide financial services within the definitions of DIFC Establishment and Licensed Establishment. The Applicant’s proposed last step is for the Court to look at the post 2012 regime and conclude that in substance Recognised Members continue to be “permitted/authorized” and/or “registered/listed to provide financial services on a DIFC exchange.

34. I decline to adopt this approach. In my judgment, when construing the definitions in Article 2 and Article 5(A)(1)(a) of the JAL, the Court should have regard to the background financial services regulatory regime as it exists at the time the construction exercise is being undertaken and should not conduct a process of comparison between former and current regulatory backgrounds. That said, I reject the Respondents’ contention that the Article 2 definitions are to be construed strictly in the light of a narrow, technical meaning to be given to the wording of the background regulatory regime. I do so having regard to the legislative intent underlying Article 5(A)(1)(a) of the JAL which I hold to be to render those entities which are formally permitted by the DIFC regulatory authorities to provide financial services to customers in the DIFC, or otherwise carry on business or conduct any activity in the DIFC, susceptible to the jurisdiction of the DIFC Courts.

35. Accordingly, I propose to abstain from construing the definitions in Articles 2 and the wording in Article 5(A)(1)(A) by taking a literalist approach to the background regulatory regime and instead I shall look at the substance of the component parts of the regime, all the time keeping in mind the purpose and intent of Article 5(A)(1)(A).

36. Adopting this approach, I conclude that, by virtue of the DFSA entering the names of the Respondents in its list of “Recognised Members” thereby entitling them to trade on NASDAQ Dubai as members of that exchange with DIFC customers free of the limitation contained in REC, Rule 2.5.1 (g), each of the Respondents is authorised and/or registered by the DFSA to provide financial services in accordance with DIFC laws and is therefore a DIFC Licensed Establishment.

37. It is unclear whether to satisfy the definition of DIFC Licensed Establishment the authorisation and registration of the entity must be in accordance with DIFC laws or the entity’s conduct of financial services or business and any activity must be in accordance with DIFC Law. Whichever of these scenarios is correct, the requirement of accordance with DIFC laws is satisfied in this case. The DFSA’s power to grant the status of Recognised Member (authorise) on the Respondents and enter the Respondents’ names in the list of recognised members maintained by the DFSA (register) is conferred by Article 37 of the Markets Law. The DIFC law in accordance with which the Respondents’ permitted financial services must be conducted is the Regulatory Law under which the requirements of REC are issued.

38. I do not think that the view expressed by the DFSA in its guidance document on Recognised Members that a person who meets the requirements to be recognised by the DFSA as a Recognised Body or Recognised Member and carries on its activities in accordance with REC would not be conducting financial services in or from the DIFC stands prevents me from reaching the conclusion I have come to on the construction of Article 5(A)(1)(a). First, by reason of their status of Recognised Members, the Respondents are entitled to undertake financial services by making use of DIFC regulated AMIs in order to trade with DIFC customers and that is enough for the purposes of the definition of Licensed DIFC Establishments. Second, to the extent it might be relevant whether the Respondents are conducting financial services in or from the DIFC, this is a question to be decided by the Court and I take the view that the exercise of the entitlement to trade on the NASDAQ Dubai with DIFC customers free of the restrictions contained in REC Rule 2.5.1 (g) plainly constitutes the conduct of financial services in or from the DIFC.

39. I am not to be taken as deciding that all “Recognised Members” are Licensed DIFC Establishments and as such are susceptible to the jurisdiction of the Court. My decision relates only to Recognised Members which are licensed and supervised by a financial services regulator in the UAE. How many such entities there are on the list of recognised members maintained by the DFSA I know not.

40. As has been noted in previous cases, the party jurisdiction conferred by Article 5(A)(1)(a) is capable of being regarded as exorbitant and in a range of circumstances another court with jurisdiction over the party in question might be a more appropriate forum for the determination of the dispute. Where the other court is outside Dubai but within the UAE, as in this case, the defendant can apply to the Union Supreme Court to decide which court should hear the case.

Overall Conclusion

41. For the reasons given above, I hold by way of final determination that this Court has jurisdiction over the Respondents in respect of the Applicant’s claim herein.

Issued by:

Nour Hineidi

Deputy Registrar

Date of issue: 4 August 2019

At: 12pm