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Claim No: CFI 054/2018

IN THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS

IN THE COURT OF FIRST INSTANCE

BETWEEN

SBM BANK (MAURITIUS) LTD

Claimant

and

(1) RENISH PETROCHEM FZE
(2) MR HITESHKUMAR CHINUBHAI MEHTA
(3) PRIME ENERGY FZE

Defendants

ORDER OF H.E JUSTICE ALI AL MADHANI

UPON the Claimant’s Claim Form dated 2 August 2018 and amended on 6 August 2018

AND UPON the worldwide freezing order issued on 2 August 2018 (the “WFO”)

AND UPON the order issued on 7 August 2018 continuing the WFO

AND UPON the application of the Third Defendant seeking a variation of the WFO (the “Variation Application”)

AND UPON hearing counsel for the Third Defendant and counsel for the Claimant at the hearing which took place by way of teleconference on 9 September 2020

AND UPON reviewing the relevant documents on the Court’s file

IT IS HEREBY ORDERED:

1. The Variation Application is dismissed.

2. The Third Defendant shall pay the Claimant its costs of the Variation Application, on the standard basis, to be assessed by a Registrar if not agreed.

Issued by:
Nour Hineidi
Deputy Registrar
Date of Issue: 19 November 2020
Time: 9am

SCHEDULE OF REASONS

Introduction

1. The question for determination in this application is whether the worldwide freezing order dated 2 August 2018 (the “WFO”) should be varied so as to include the usual exception that permits a defendant to deal with or dispose of any of his assets in the ordinary and proper course of business notwithstanding that he is injuncted (the “Variation Application”). Currently, [14] of the WFO only permits expenditure on legal advice and representation, unless or until the full contested sum is payed into Court.

2. For the reasons given below, the Variation Application is dismissed.

Background

3. For a detailed background of the matter, my judgment dated 27 September 2020 may be referred to. For the purposes of the Variation Application, the following essential chronology, supplemented by additional details in the discussion, is sufficient.

4. On 2 August 2018, the Court made the WFO ex parte. The Claimant’s (“SBM”) case was that the First Defendant (“Renish”), the Second Defendant and the Third Defendant (“Prime”) had perpetrated a substantial fraud against it. SBM attempted to serve the WFO and the Claim Form by courier on Prime’s registered office and to an email account administered and controlled by Prime.

5. On 7 August 2018, the WFO was maintained at the return date and that order was again attempted to be served by courier on Prime’s registered office and to an email account administered and controlled by Prime.

6. On 1 October 2018, the Fourth Defendant (“NBK”) submitted a reference to the Joint Judicial Committee in respect of the claim. This reference was served by NBK on Prime.

7. On 8 October 2019, Prime’s legal representatives wrote to SBM’s legal representatives on behalf of Prime in respect of the claim.

8. On 17 October 2019, SBM’s legal representatives wrote to those of Prime highlighting Prime’s breaches of the WFO.

9. On 30 June 2020, Prime purported to comply with the WFO.

10. On 12 August 2020, Prime issued the Variation Application.

11. On 9 September 2020, the Variation Application was heard by way of teleconference.

Exceptions to Freezing Orders

12. An example freezing order is set out in Schedule A of Part 25 of the Rules of the DIFC Court (the “RDC”) (the “Example Order”). The WFO was based on the Example Order. [11] of the Example Order concerns exceptions to freezing orders:

[11(1)] and [11(4)] were reflected in the WFO at [14(1)] and [14(2)], respectively. [11(2)] (the “Business Exception”) and [11(3)] of the Example Order were not reflected in the WFO. The Variation Application concerns only the Business Exception.

The Business Exception

13. The cardinal justification for the imposition of a freezing injunction is to stop the injuncted defendant from dissipating or disposing of property which would be the subject of enforcement if the claimant goes on to win the case he has brought: JSC BTA Bank v Ablyazov [2013] EWCA Civ 928 at [34]. Such orders are interim remedies. They are not imposed to give a claimant security for his claim, to impose a pre-judgment penal imposition on the defendant or to give the claimant an unfair advantage in the litigation.

14. In Halifax Pie v Chandler (2001) EWCA Civ 1750, the High Court considered a freezing order that did not contain the Business Exception and commented that “the purpose of a freezing injunction is not to interfere with the defendant’s ordinary business or his ordinary way of life,” before expressly approving the following passage from the leading text, ‘Gee on Mareva Injunctions,’ at [19]:

The court will always be concerned to ensure that a Mareva injunction does not operate oppressively and that a defendant will not be hampered in his ordinary business dealings any more than is absolutely necessary to protect the plaintiff from the risk of improper dissipation of assets. Since the plaintiff is not in the position of a secured creditor, and has no proprietary claim to the assets subject to the injunction, there can be no objection in principle to the defendant’s dealing in the ordinary way with his business and with his other creditors, even if the effect of such dealings is to render the injunction of no practical value.

Prime submits that there is no precedent in support of the current “onerous and abusive terms” imposed upon Prime by the WFO which prevents it from any and all commercial dealings. Prime says that for the reasons expounded in Halifax, the absence of the Business Exception is wrong as a matter of principle.

15. Following on from this contention, Prime submits that SBM’s evidence at the ex parte hearing of the application which resulted in the granting of the WFO was improper. In particular, Prime says that, pursuant to its duty to give full and frank disclosure, SBM should have clearly highlighted to the Court that it proposed to exclude the Business Exception before outlining the case law which supports the proposition that the exception should be included. Where there has been a failure to give full and frank disclosure in an ex parte application, the starting point is to impose the Court’s penal jurisdiction and to set aside the order improperly obtained. Prime says, however, that it does not go so far as to seek this relief. Instead, Prime is content to having the alleged failure remedied by way of the variation sought in this Application.

Was the Business Exception optional?

16. In SBM’s submission, the Business Exception is an optional provision to be included in a freezing order insofar as is appropriate in the circumstances. SBM highlights the fact that, in the Example Order, the Business Exception appears in square brackets, unlike all the other suggested exceptions.

17. In Prime’s submissions, this argument is “vacuous” and that the presence of the square brackets in the Example Order is wholly proper for the following two reasons.

18. First, where an interim proprietary injunction is sought and ordered – which only ever relate to specific assets – it is appropriate to exclude the Business Exception in as much as, Prime says, a defendant company will not have been prevented from trading entirely by means of the proprietary injunction.

19. Second, Prime submits that where a freezing order is imposed post-judgment, different considerations apply. It says that it is well-established that the Business Exception is usually inappropriate as such orders are ordinarily granted in aid of execution of a final court order: see Mobile Telesystems Finance SA v Nomihold Securities Inc [2011] EWCA Civ 223 at [34].

20. Prime contends that, given the WFO is an interim order, the only justification for the exclusion of the Business Exception would be if SBM had sought and obtained a proprietary injunction, while it had not. It follows, in Prime’s submission, that it was improper for the Business Exception to be left out of the WFO.

21. To deal first with the question of whether an inference can be drawn from the square brackets in which the Business Exception appears in the Example Order, in my view, SBM’s position – that the Business Exception is an optional provision to be included insofar as is appropriate in the circumstances – is to be preferred. Square brackets are used in several places in the Example Order and the common theme appears to be “appropriate in the circumstances” rather than considerations related to the type of injunction sought or the stage at which one is sought. By way of example, [9(1)] of the Example Order states:

22. It is probably the case that questions of appropriateness in the particular circumstances of a case will to a large extent be determined by the type of injunction sought, and the Business Exception strikes me as a good example of a provision that will usually – perhaps nearly always – be appropriate in the circumstances whenever an interim freezing order is sought. But in as much as the inclusion or exclusion of the Business Exception ultimately comes down to a question of appropriateness, it is necessary, in my judgment, to look at the circumstances of a case in order to be able to decide whether there was anything reprehensible about the Business Exception not being included in a particular freezing order. If an injuncted defendant conducts business, the Business Exception will prima facie be appropriate, while if he does not, such a provision would be irrelevant. And so on.

23. It is with the circumstances of the case in mind that SBM submits it would have been “nonsensical” to include the Business Exception in the WFO. In particular, SBM relies on the following two considerations. First, it says that the evidence before the Court on which SBM relied when applying for the WFO was to the effect that Prime had abandoned its offices and ceased any business activity. Second, and as pleaded in its Particulars of Claim, it was SBM’s case that Prime held sums received from SBM on constructive trust and, accordingly, that the sums are in fact the property of SBM.

24. I agree with SBM. For me, the exclusion of the Business Exception was consistent with SMB’s case. And insofar as this exclusion was inappropriate, [16] of the WFO afforded Prime the power to unilaterally seek to have this remedied:

Anyone served with or notified of this order may apply to the Court at any time to vary or discharge this order (or so much of it as affects that person)…

25. There is disagreement between the parties about when Prime became aware of the WFO. Prime’s legal representatives wrote to those of SBM in respect of the claim on 8 October 2019. There is, therefore, no dispute that Prime was aware of the WFO by that date. Pursuant to RDC r. 23.16, Prime was required to make any applications it thought necessary or desirable as soon as such became apparent to it. It was only on 12 August 2020, however, that Prime issued the Variation Application; indeed, the Business Exception is a provision that one would expect a business, where the provision was absent from a freezing order that injuncted it, to immediately request to be included without needing a procedural rule to compel it.

26. In my view, the fact that Prime did not make such a request until 10 months after it indisputably had notice of the WFO – and it should be noted that at that time Prime had reputable legal representation, well familiar with the procedure rules of this Court – suggests that Prime itself did not consider the inclusion of the Business Exception necessary or desirable. I think SBM was entitled to have taken the same position when it applied for the WFO ex parte.

Full and frank disclosure

27. In my finding, the Business Exception is optional, its exclusion in the present matter was consistent with SBM’s case and Prime’s conduct after it had notice of the WFO suggests that SBM was, at least at that time, correct in its conclusions. It follows, in my view, that questions of material non-disclosure do not arise.

Prime’s breaches of the WFO

28. Nor is it helpful to Prime’s case that it seeks the Court’s indulgence by way of a variation to the the WFO in circumstances where it has not yet properly complied with it. The terms of the WFO are clear and unambiguous. For present purposes, the following provisions are important. By [9], Prime was required within two days of service of the WFO to inform SBM’s solicitors to the best of its ability of its worldwide assets exceeding USD 10,000 in value and what had become of the sums transferred into the Prime’s account. By [10], Prime was required to verify the above information by an affidavit, implicitly to be sworn and witnessed in the ordinary way.

29. SBM has submitted six examples of Prime’s failure to provide complete information in accordance with the terms of the WFO. Moreover, it says that such evidence as has been provided is self-contradictory. The examples are as follows.

30. First, SBM says that neither of the affidavits of Prime’s principals, Mr Ali Sadr and Mr Abdul Hadi Farhang have been properly sworn or witnessed.

31. Second, SBM submits that the evidence of Mr Farhang – that he delegated day-to-day conduct of Prime’s operations to Mr Sadr – is apparently at odds with [9]-[10] of the Defence, which avers that that Mr Farhang was at all times the sole director and that Mr Sadr was retained merely as a “non-exclusive consultant.”

32. Third, where he is the sole director and shareholder of Prime, SBM contends that it is unsatisfactory for Mr Farhang to give no direct evidence based on his own knowledge of Prime’s assets and what has become of the sums paid into the Prime’s account.

33. Fourth, no details are provided in respect of Prime’s Euro account with NBK other than to identify the existence of such an account, and the information provided in respect of other accounts is, SBM says, incomplete. Moreover, no evidence is given of any attempt to obtain such information from NBK beyond a bare assertion.

34. Fifth, SBM says it appears that Prime has been operating a number of other accounts unbeknownst to SBM during the course of 2019 in flagrant breach of the WFO and at a time when, on Prime’s pleaded case, it had ceased its business operations.

35. Sixth, SBM submits that no satisfactory explanation has been given for why Prime has failed to make available records relating to transactions carried out by it. This is notwithstanding Mr Sadr’s evidence that “the day-to-day operation of the bank account and record keeping was carried out by Prime.”

36. Whatever the precise extent of Prime’s breaches of the WFO, in circumstances where there have been breaches of it and those breaches continue, I think the Court should be reluctant to entertain any application by Prime to vary the WFO until it has purged itself of them and has offered an adequate apology to the Court.

Prime’s business activity

37. In my view, there are a few further difficulties for Prime in respect of the Variation Application. These can be mentioned succinctly under the following three subheadings: assets, business and ordinary and proper course of business. In short, by its Variation Application, Prime ask the Court to include in the WFO the standard form wording of the Business Exception i.e. the exception as it appears in the Example Order, namely: “This order does not prohibit the Respondent from dealing with or disposing of any of his assets in the ordinary and proper course of business.” But for me, the standard form wording itself poses problems for Prime in respect of its Variation Application.

Assets

38. First, on Prime’s case, “it has no assets of note.” The assets it said it had in the Variation Application were around AED 35,000 AED, USD 10,000 and EUR 3,000 (“c. USD 23,000”) held in several bank accounts as well as “a very large number of receivables.” On Prime’s own case, therefore, it has no assets of note which it could deal with or dispose of in the ordinary and proper course of business. Of course this does not mean that it is impossible for Prime to conduct business with the c. USD 23,000 it had disclosed and any other funds it might be able to obtain, but in such circumstances I would have expected evidence as to what Prime’s current and proposed trading activity consists of, especially considering that the figure of c. USD 23,000 appears to be altogether insignificant when compared to transactions Prime has mentioned in its Defence and which are presumably indicative of the type of business it conducted, including purchases of oil cargos for USD 11,729,339 and USD 14,434,187.

Business

39. Aside from questions concerning the assets Prime has that it might deal with or dispose of in the course of business is the more fundamental question of whether Prime can properly be considered in business at all. As counsel for SBM stated, the premise of the Variation Application is that a variation is necessary to enable Prime to carry on its business. However, that premise is contradicted by Prime’s pleaded case to the effect that it has ceased all of its operations, business or otherwise, as a result of alleged losses caused to it by Renish and/or its agents in July 2018.

40. Counsel for SBM argued that, unless the information contained in the Defence is false, the Variation Application does not, therefore, get off the ground. I think that SBM makes a pertinent point. Where there is no evidence that Prime has any continuing business, there is naturally concern – according to the premise of the good arguable case – that Prime will seek to exploit the proposed variation in order to dissipate assets, while I do not think that Prime has remedied this concern in the Variation Application. In any event, the extent to which the Business Exception is relevant in circumstances where the injuncted defendant has itself said it is not conducting business is questionable.

Ordinary and proper course of business

41. Finally, it has not been established by way of evidence that Prime has ever conducted ordinary and proper business. Apart from the fact that there is presently no sworn evidence in support of Prime’s case, the pleadings it has made in its Defence describe an unusual approach to commerce to say the least. By way of example, despite Prime and Renish allegedly concluding very high-value contracts with each other – worth values like AED 67,651,501.93 and USD 10,060,600 – Prime says that “[t]he parties never entered into formal written contracts” and “[a]ccounts, books, … debit/credit notes and other records of the payments between Renish and Prime were kept by Renish’s operatives electronically in servers located at Renish’s office in Dubai,” that is, only.

Conclusion

42. As such, even if it is correct that the Business Exception will nearly always be appropriate in the circumstances whenever an interim freezing order is sought, it seems that the instant matter – at least as it is in its current form – is one of those rare cases where it is not. For me, Halifax is distinguished on the basis that there is no evidence of ordinary business dealings on the part of Prime which the WFO might hamper or otherwise interfere with.

Dubai Courts Judgment

43. In its skeleton argument for the Variation Application, Prime noted in respect of the receivables mentioned in [38] above that “[b]oth of these sums are contested.” And in reference to this point along with Prime’s bank accounts’ balances, Prime submitted:

44. It transpired after the Hearing, however, that on 23 April 2020, judgment had already been given by the Dubai Commercial Court in proceedings Prime had issued against the National Bank of Fujairah on 4 May 2019. The Dubai Court had ordered the bank to pay Prime AED 4,172,376.60 together with interest and costs. This judgment debt, then, worth over AED 4 million, was one of Prime’s assets described by it as not being of note or, alternatively, suggested by it to not be an asset inasmuch as the debt was contested.

45. SBM’s legal representatives communicated this revelation to me by way of letter dated 13 September 2020. Prime’s legal representatives followed this letter by one of their own the next day, saying, amongst other things:

Prime’s representatives, therefore, invited the Court to find that SBM’s representatives had mislead the Court by not informing it that the Dubai Courts judgment was being appealed, without apparently applying the logic it thereby deployed on itself and conceding that it might have mislead the Court by not mentioning the judgment in the first place.

46. Insofar as the non-disclosure of the existence of the Dubai Court judgment was the result of an oversight by Prime’s representatives, it has come at an unquestionably unfortunate time – when the Variation Application was pending – and, needless to say, the fact of the non-disclosure lends itself to SBM’s case against Prime. Alternatively, information given about the receivables may have been contrived. Whatever the correct position, I am not in a position to draw inferences from this most recent development in the case, not least because the matter has not been the subject of comprehensive pleadings by the parties. I do think, however, that insofar as inclusion of the Business Exception was arguable up until the hearing of the Variation Application, the Dubai Court judgment revelation has now put such an argument to rest.

47. This case involves an allegation of substantial and sophisticated fraud and I think the Court should accordingly be cautious. In this case, in my view, and with the Dubai Court judgment in particular in mind, cautiousness requires me to leave the WFO in its current form and not include the Business Exception.

Conclusion

48. For the reasons given above, the Variation Application is dismissed.

Costs

49. Pursuant to RDC r. 38.7(1), the general rule in respect of costs is that the unsuccessful party will be ordered to pay the costs of the successful party. SBM is the successful party. Prime is, therefore, ordered to pay it its costs of the Variation Application on the standard basis, to be assessed by a Registrar if not agreed.