Author: afridi-angell

UAE Introduces New Merger Control Thresholds

In January, the United Arab Emirates (UAE) introduced Cabinet Decision 3 of 2025 on the Ratios Related to the Implementation of Federal Decree Law 36 of 2023 Regulating Competition (2025 Decision). The 2025 Decision, set to take effect on 31 March 2025, establishes conditions under which merger control filings must be submitted to the UAE Ministry of Economy (MOE).

 

Key Conditions for Merger Filings

 

Entities involved in mergers, acquisitions, or other forms of Economic Concentration (i.e. any transaction resulting in the full or partial transfer of ownership or usufruct rights in assets, rights, stocks, shares, or obligations, granting an establishment or group of establishments direct or indirect control over another) will be required to file an application with the MOE if either of the following thresholds is met:

 

1.) Turnover Threshold: this threshold was originally included as a trigger for the requirement to make a merger clearance filing pursuant to the introduction of the new Federal Competition Law in late 2023 however, the turnover amount was not at that time clarified. The 2025 Decision now provides that the total annual sales of the relevant entities in the “Relevant Market” within the UAE must exceed AED 300 million (approx. USD 81.7 million and EUR 79.2 million) during the previous fiscal year; or

 

2.) Market Share Threshold: the total market share of the relevant entities exceeds 40% of total sales in the “Relevant Market” within the UAE during the previous fiscal year.

 

The 2025 Decision does not clarify whether an overlap is a requirement or whether one party alone could meet the new turnover threshold. However, it should be noted that the MOE formerly took the position under the old Competition Law that the acquirer alone could meet the market share threshold so it is likely that the same approach will be taken under the new regime.

 

Further, it should be noted that new Implementing Regulations are yet to be issued. These regulations will act to supplement the UAE competition law regime and should also provide clarification on a number of factors including any exemptions available under the new regime together with the definition of “control” as used within the definition of an “economic concentration”.

 

We are currently engaged in discussions with the MOE on a number of practical considerations relating to the filing process and its requirements. At present, we understand from the MOE that substantially the same form will be used as under the former Federal Law in order to make an application for a merger clearance. In addition, it is understood that going forward fees will be levied on the submission of a merger clearance application.

 

The issuance of the 2025 Decision marks a significant development in the UAE’s competition law regime by introducing clearer and stricter criteria for merger control. The 2025 Decision enhances regulatory oversight of market concentration and aims to promote fair competition within the UAE.

 

Going forward, given the mandatory and suspensory nature of the regime, it is imperative that parties and their advisors evaluate early on in the transaction process whether their transaction may trigger a requirement to file for merger clearance in the UAE to ensure compliance with the new regime. ■

The United Arab Emirates’ (UAE) Corporate Tax Regime: Globally Competitive and Business Friendly

Businesses often seek a favourable environment that fosters growth and offers tax savings. In this inBrief, we discuss the UAE’s tax-friendly landscape which stands out globally, drawing entrepreneurs, family offices and businesses that are eager to thrive in a jurisdiction with fewer restrictions and attractive exemptions and reliefs.

 

The UAE has become a major financial hub in the recent few years and is one of the easiest countries in which to do business. With the recent introduction of the Corporate Tax (CT) framework under Federal Decree Law 47 of 2022 (CT Law), the UAE aligned its fiscal policy with international tax standards and best practices, particularly pursuant to the goals of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) project, which further solidifies the UAE’s position as a competitive business centre.

 

Tax Landscape

 

The UAE’s CT structure is designed to levy a modest 9% tax rate on businesses with profits (income after deduction of expenditure incurred wholly and exclusively for the purposes of a taxable person’s business) exceeding AED 375,000. This remains notably low compared to, for instance, Portugal, a traditionally favoured European country, with a 21% CT rate on profits exceeding €25,000 (approximately AED 95,000).

 

Portugal’s tax structure presents a notable contrast to the UAE’s, with implications for businesses. Portugal’s Value Added Tax (VAT) of 23% far exceeds the UAE’s 5%, in addition to levying a 25% withholding tax on dividends, interest, and royalties, adding complexity for businesses involved in cross-border trade. Comparatively, the UAE offers 0% withholding tax. Further, Portugal imposes a capital gains tax of up to 28%, while the UAE’s corporate tax rate is set at 9%.

 

Internationally Competitive and Connected

 

To facilitate and promote cross-border transactions and to continue to grow as a financial hub, the UAE has 137 Avoidance of Double Taxation Agreements and Bilateral Investment Treaties with other countries and the European Union (EU). These agreements are aimed at reducing double taxation and facilitating cross-border businesses. This approach encourages investment flows between treaty partners by reducing or even eliminating withholding taxes.

 

In addition, the UAE offers significant incentives to foreign investors through its 10-year Golden Visa program, which provides individuals with the opportunity to live, work, and invest in the UAE without the need for a local sponsor. The UAE also provides targeted incentives for technology and innovative startups, including funding opportunities, incubator programs, and tax exemptions to foster innovation and business growth.

 

No Personal Income Tax

 

One of the key advantages of the UAE’s favourable tax environment is the absence of personal income tax on wages, earnings, income from real estate investments and other types of investment income. This is in contrast to many European Union jurisdictions, where personal income tax rates often exceed 40% or even 50% for high-earning taxpayers.

 

Tax Relief and Exemptions

 

The CT Law provides for specific exemptions (for instance, the participation exemption), tax groupings for efficiency and preferential rates for qualifying small businesses and businesses engaged in specific sectors (innovation or technology). The aim of these tax exemptions and reliefs is to encourage corporate transactions, reduce the tax burden on emerging businesses and to stimulate economic growth within the UAE.

 

UAE Corporate Tax Law – A Business Attraction Tool

 

The UAE’s 9% CT rate, 5% VAT rate, absence of personal income tax (in most cases), 0% withholding tax rate, certain tax exemptions, international tax agreements and ease of doing business make it an unparalleled and highly competitive destination for multi-nationals, entrepreneurs, investors and family offices. As a result, the UAE CT regime acts as a tool to attract businesses to this highly business-friendly environment, especially in contrast to higher-tax jurisdictions in the EU, North America and Asia. ■

Agents, dealers and service providers beware: UAE regulators to focus on DNFBP’s

Speaking at a recent conference in Dubai, representatives of several of the UAE’s regulatory authorities indicated that they will be significantly increasing their focus on the so-called Designated Non-Financial Business or Profession (DNFBP) sector. Senior members of the Dubai Financial Service Authority (DFSA), the UAE Ministry of Economy, the Securities and Commodities (SCA) and the Abu Dhabi Global Market Financial Services Regulatory Authority (FSRA) were unanimous in their commitment to cracking down on perceived weaknesses in the DNFBP sector, particularly in the context of anti-money laundering (AML) compliance.

 

The UAE is perhaps unusual in the number and variety of regulatory organisations with similar or overlapping remits, and businesses operating in the UAE are required to familiarise themselves with a number of different obligations, depending on where they fall in the regulatory mix. The precise definition of DNFBP therefore varies across the UAE, but broadly captures the following:

 

– Real estate agents;

 

– Dealers in precious metals and/or stones;

 

– Issuers and service providers in the field of virtual assets (crypto, tokens etc);

 

– Legal businesses, including notaries;

 

– Accounting, audit and insolvency firms; and

 

– Corporate service providers.

 

Anyone active in any of the above businesses in the UAE should be aware of their ongoing registration and reporting obligations. This includes all anti-money laundering (AML), Know Your Customers (KYC) and counter terrorist financing (CTF) obligations. The UAE regulators, not unreasonably, consider the DNFBP sector to be particular vulnerable to exploitation by both criminals and terrorist financiers.

 

Companies active in the UAE in any of the above businesses should ensure that they are properly registered where required as a DNFBP, and that their compliance policies and procedures adequately reflect their current obligations. The UAE regulators have expressly stated that they will be taking enforcement action in the sector in the coming months and years. Afridi & Angell can advise and assist in this area. ■

Foreign Investment Review (UAE chapter), Lexology Panoramic

This multi-jurisdictional reference guide features a UAE chapter and provides a view of local insights, including into law, policy and relevant authorities; procedure, including thresholds and timelines; substantive assessment, including interagency and international consultation, remedies and rights of challenge and appeal; relevant recent case law; and other recent trends.

 

Other jurisdictions covered by the guide include Australia, Austria, Belgium, Cambodia, Canada, Denmark, European Union, Germany, India, Indonesia, Italy, Japan, Laos, Malaysia, Mexico, Myanmar, Netherlands, New Zealand, Norway, Saudi Arabia, South Korea, Sweden, Switzerland, Thailand, the United Kingdom, the United States, and Vietnam.

International Capital Markets (UAE Chapter), Lexology In-Depth

This multi-jurisdictional reference guide features a UAE chapter, authored by Rahat Dar (partner), and provides an incisive overview of the legal and regulatory frameworks governing the capital markets in major jurisdictions worldwide. It offers practical guidance on a range of key issues, including the regulators’ recent enforcement activities, prospectus requirements and other mandatory disclosures, tax considerations and much more.

The New Netting Law

A new netting law was published on 1 October 2024 as Federal Decree-Law No. 31 of 2024 on Netting (the Netting Law) and came into effect on 2 January 2025, repealing Federal Decree-Law 10 of 2018 on Netting (the Old Law). The Netting Law provides further clarification on both the legal recognition and enforceability of various financial contracts, and the ability to implement close-out netting (i.e., netting of obligations following an event of default or termination event), particularly following the insolvency of the UAE counterparty. The Netting Law applies to all qualified financial contracts, netting agreements and related collateral arrangements entered into by a person or entity in the UAE (other than persons and entities located in financial free zones, being the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM), which have their own netting regimes). As with the Old Law, the Netting Law is closely modelled on the 2006 and 2018 ISDA Model Netting Acts (as published by the International Swaps and Derivatives Association (ISDA)).

 

Why is netting important?

 

Close-out netting is essentially the process where, following a default under a contract (usually a master agreement, such as an ISDA Master Agreement), the non-defaulting party can request the termination of all transactions between the parties under the contract. The parties then determine the value of the unperformed obligations under all “open” transactions and then aggregate the obligations owed by each party to the other, resulting in a net sum (or close-out amount) owed by one party to the other. Effective close-out netting (particularly in post-insolvency situations) can provide a clear and reliable mechanism for parties to settle payments and/or obligations (including collateral transfers) across multiple transactions, thereby minimising the overall credit and settlement risk and, in the case of financial institutions, reducing the amount of collateral required to secure the counterparty’s obligations under contracts.

 

Financial institutions relay on close-out netting as a key tool for managing and mitigating credit risk associated with a variety of financial contracts, particularly over-the-counter derivatives trading. Financial institutions will use post-insolvency risk of a counterparty to set credit limits, thus if the counterparty is in a jurisdiction where the insolvency laws recognise netting arrangements then the credit limit will be calculated on the basis of net exposure, whereas, if the counterparty is a jurisdiction where the insolvency laws do not recognise netting arrangements (a non-netting jurisdiction), the credit limit will be based on gross exposure.

 

Therefore, entering into financial contracts with a counterparty in a non-netting jurisdiction can result in the financial institution becoming subject to very high capital adequacy requirements and increase the costs and collateral requirements for the counterparty.

 

Whilst the UAE Bankruptcy Law (Federal Decree-Law No. 51 of 2023 Promulgating the Financial Reorganisation and Bankruptcy Law) recognises the set-off on a net basis, this is limited to agreements and arrangements under the Old Law. Consequently, it is not clear whether the adoption of the Netting Law means that the UAE is currently a non-netting jurisdiction.

 

Key Concepts Under the Netting Law

 

Netting

 

The Netting Law allows parties to enter into netting agreements for the purposes of netting off their payment and delivery obligations under qualified financial contracts (netting). A netting may include the following features:

 

a.) any termination, liquidation and/or acceleration of payment/delivery rights or obligations under qualified financial contracts entered into under a netting agreement or to which a netting agreement applies;

 

b.) calculation, estimation or adoption of an index of close-out or termination value, market value, liquidation value or any other relevant value, which may arise from a party’s failure to enter into or perform a transaction under a netting agreement, where the rights and/or obligations of the parties under such netting agreement have been terminated, liquidated and/or accelerated under point (a) above;

 

c.) conversion of the values calculated or estimated under point (b) above into a single currency;

 

d.) determination of the net balance of values calculated under point (b) above to be paid or in respect of which an obligation may arise, as converted under point (c) above, whether by exemption, replacement or otherwise; and

 

e.) entry into an arrangement whereby the net amount calculated under point (b) above becomes payable directly or as part of either the (i) consideration for a specific asset or (ii) damages for non-performance of such transaction.

 

Netting Agreements

 

Under the Netting Law, netting agreements include:

 

a.) any agreement between two parties for netting of present or future rights to or obligations for payments or delivery, or transfer of title arising in connection with one or more qualified financial contract between the parties (a master agreement) or between parties to whom the agreement applies;

 

b.) any agreement providing for the netting of amounts due under two or more master netting agreements (a master netting agreement);

 

c.) any collateral arrangements such as credit support annexes or documents relating to or forming part of a master netting agreement or master agreement;

 

d.) any Shari’ah compliant agreement or arrangement which is intended to have a similar effect as the agreement or arrangements under points (a) through (c) above or any other netting agreement; and

 

e.) any agreements, contracts or transactions which fall within the definition of a qualified financial contract.

 

A netting agreement and all qualified financial contracts to which it applies will constitute a single agreement.

 

Qualified Financial Contracts

 

The Netting Law currently identifies 26 categories of agreements as qualified financial contracts (which create either a right to receive or an obligation to make a payment or delivery or to transfer title to assets/commodities for consideration) including (a) all types of swaps (in relation to currencies, interest rates, basis rates or commodities), forward rate agreements, currency or interest rate futures, currency or interest rate options, derivatives (relating to bonds, energy, bandwidth, freight, emissions and property index), securities contracts, collateral arrangements, commodities related contracts, (b) derivatives, agreements, contracts or digital asset transactions of the types under the other categories of qualified financial contracts, (c) any voluntary carbon credit derivatives, agreements, contracts or transaction or other types of carbon credit from the types of transactions under the other categories of qualified financial contracts, and (d) any Shari’ah compliant arrangement having an equivalent of the type of agreements and transactions under the other categories of qualified financial contracts.

 

The list of qualified financial contracts under the Netting Law may be reduced or expanded by the UAE Central Bank. This is a change from the Old Law, which contemplated the establishment of a Committee for Designation of Qualified Financial Contracts which would, amongst other things, determine the type of transactions that would constitute qualified financial contracts.

 

Collateral Arrangements

 

The Netting Law recognises collateral arrangements, including title transfer collateral arrangements (such as under repo transactions). Collateral arrangements are identified as mechanisms whereby collateral (including cash, securities, guarantees, letters of credit, repayment obligations and any other assets that are commonly used as security in the UAE) as security relating to or forming part of a netting agreement or qualified financial contracts including (a) security interest over collateral, (b) a collateral title transfer arrangement or (c) any obligation to provide collateral, letter of credit or repayment from one party to another party under a qualified financial contract.

 

The Netting Law provides that:

 

a.) Any sale, acquisition or liquidation of collateral under a collateral arrangement shall be enforceable without the need for any notice or consents from any person unless (i) the parties have agreed to such notice or consent requirements or (ii) UAE requires the sale, acquisition or liquidation to be effected in a fair commercial manner. The Netting law provides no guidance on what constitutes “fair commercial manner”.

 

b.) Any direct transfer of collateral under a collateral title transfer arrangement shall be concluded in accordance with its terms and shall not be characterised as an insurance arrangement.

 

No Ghurar

 

Under UAE law, futures, margin trading and derivatives transactions were often viewed as potentially unenforceable due to perceived gharar, an unacceptable level of risk or uncertainty that undermines contract formation. In the past, UAE courts had held in some instances, that derivatives are unenforceable “contracts of risk,” even when used to manage risk (as in hedging contracts) rather than to create risk or to speculate. Even for Shari’ah compliant hedging products in the market (for example, the ISDA/IIFM Tahawwut Master Agreement), which are supported by fatwas confirming that such products are Shari’ah compliant and free of gharar, there was no certainty on how the courts would hold. The Old Law had minimised, if not entirely eliminated, these uncertainties by providing that qualified financial contracts shall not be void, unenforceable, or not final by reason of gharar under the UAE Civil Code – the Netting Law has retained this earlier position. Further, under the Netting Law if a party pledges that a qualified financial contract or any agreement relating to a qualifying financial contract is Shari’ah compliant, then the pledging party cannot refuse to perform its obligations under such qualified financial contract, on the basis that the qualified financial contract is no longer Shari’ah compliant, whether on account of a change in the interpretation of Shari’ah rules and principles or otherwise. This provision may have been added as a consequence of recent cases in the UAE, where issuers of Shar’ah compliant financial products (mostly Sukuk) refused to perform their obligations on the basis that these products (or the transitions thereunder) were no longer Shari’ah compliant.

 

Bankruptcy

 

Effective close-out netting can limit a party’s exposure to the insolvency of its counterparty, thus allowing sums owing to an insolvent party to be netted-off against sums owed by the insolvent party to the other party. Under the UAE Bankruptcy Law, a debtor and creditor may only set off obligations (i) if the conditions for exercising the setoff are satisfied before initiating procedures under the UAE Bankruptcy Law, (ii) if conducted as part of the implementation of a preventative settlement or restructuring procedure or (iii) as approved by the court.

 

The Netting Law provides that the provisions of a netting agreement shall be deemed final and enforceable (including against a third-party security provider, even if such third party becomes insolvent), even following the insolvency and/or bankruptcy of one of the parties thereto. The arrangements under a netting agreement may not be suspended, delayed or made conditional merely by the appointment of a liquidator or the initiation of bankruptcy proceedings or under any other law applicable to insolvent parties. Insolvency and/or bankruptcy proceedings will not affect the netting arrangements under a netting agreement or a qualified financial contract (or any other financial contract) to which a netting agreement applies. Similarly, the provisions of a netting agreement shall not be affected by any limitations on setoff or netting imposed under any insolvency or bankruptcy laws.

 

In case of procedures under the UAE Bankruptcy Law, the liquidator or trustee of a party to a netting agreement (the insolvent party) may annul, stop or refuse the performance of a transaction constituting a preference to a non-insolvent third party (the third party). For example, such a transaction could be the transfer of cash, assets, property or collateral from the insolvent party to the third party under a netting agreement. However, the liquidator or trustee may do so only on the basis of clear and convincing evidence that such third party entered into the transaction with the intention to prevent, hinder, delay debt recovery by a current or future creditor of the insolvent party or defraud the creditors of the insolvent party or any party that becomes a creditor as a result of the relevant netting agreement or qualified financial contract. There is no definition of “clear and convincing evidence” (a term that has no antecedent in UAE law), but the concept would appear to present a higher hurdle than a mere preponderance of evidence. Significantly, there are no other grounds in the netting law for a liquidator or trustee to fail

 

Multi-branch netting

 

In line with the 2018 ISDA Model Netting Act and Guide, the Netting Law has recognised multi-branch netting agreements (the MBNA) as netting agreements between two or more parties, one of whom must be a foreign party (i.e., a party that is established, registered or regulated outside the UAE) under which a party can enter into qualified financial contracts through its home office (i.e., the office in the country where it is established, registered or regulated (home country)) and one of its branches or agencies in countries other than its home country.

 

In the event of the insolvency of a foreign party’s branch/agency (the branch), its liability (or the liability of its liquidator in the UAE) to the non-insolvent counterparty (the solvent counterparty) shall be calculated on the date of the termination of the qualified financial contract under the MBNA and limited to the lesser of (i) the foreign party’s net payment obligations (as adjusted by any payments to the solvent counterparty and the fair market value of any collateral provided by the foreign party under the MBNA) or (ii) the branch’s net payment obligation. The foreign party’s net payment entitlement from the solvent counterparty (as adjusted by any payments made to the liquidator of the foreign party and the fair market value of any collateral provided by the solvent counterparty under the MBNA) shall be netted against the solvent counterparty’s net payment entitlement from the foreign party. The solvent counterparty may liquidate any collateral (provided under, and in accordance with the terms of, the MBNA) and apply the proceeds against settlement of sums due from the foreign party under any related qualified financial contracts. Any excess collateral shall be returned.

 

Conclusion

 

The Netting Law is a sign of the UAE’s continued desire to participate fully in international markets for financial services. The addition of agreements relating to digital asset transactions and carbon credit derivatives as qualified financial contracts also demonstrates the UAE’s commitment to stay at the forefront of market developments and allow UAE counterparties to take advantage of the full range of financial products available in the international markets.

 

Whilst the Netting Law provides that it shall override any conflicting laws, it remains to be seen how the Netting Law will be implemented by the courts in certain circumstances, including the sale or title transfer of collateral under a collateral arrangement, where the relevant collateral is subject to a conflicting security interest in favour of a third party (including security interest perfected through registration on the EIRC movables security register or otherwise). We will continue to report as these and other issues are addressed in the coming years. ■

DIFC Court of Appeal overrules Sandra Holding in part and reaffirms itself as an international commercial court

“When you make a wrong turn you must make two right turns: one to correct the wrong turn and one just for growth.”

 

This ancient, Native American proverb still holds true today – at least, it seems, according to the eagerly-awaited decision in Carmon Reestrutura-Engenharia E Serviços Técnios Especiais, (SU) LDA v Antonio Joao Catete Lopes Cuenda [2024] DIFC CA 003 (Carmon v Cuenda).

 

The DIFC Court of Appeal in Carmon v Cuenda has overturned, in part, its own decision in Sandra Holding Ltd and others v Fawzi Musaed Al Saleh and others [2023] DIFC CA 003 (Sandra Holding), holding that the Court does have the jurisdiction to make freezing orders in support of foreign court proceedings. This landmark decision, issued by Justices Robert French, Sir Peter Gross and Rene Le Miere, is also the first time that the DIFC Court of Appeal has considered the circumstances under which it may depart from its own previous decisions.

 

Background

 

On 24 July 2023, Afridi & Angell, acting on behalf of the Claimant (an Angolan construction company), sought and obtained from Justice Wayne Martin (as he then was), sitting as the DIFC Court of First Instance, an ex parte freezing order together with an order for specific disclosure in support of proceedings in Hong Kong in which it was alleged that the Defendant had misappropriated in excess of USD 23 million of Carmon’s money.

 

The High Court of Hong Kong had already issued both a proprietary injunction over the funds, and their traceable proceeds, and a worldwide freezing order. A banker’s book order revealed that the Defendant had transferred the funds to other jurisdictions including Switzerland and the UAE.  Justice Martin’s Order accordingly restrained the Defendant’s bank accounts in onshore Dubai to prevent any further dissipation and required the disclosure of balances in those accounts.

 

Following a heavily-contested return date hearing, Justice Martin reserved judgment pending the Defendant’s compliance with his previous order for disclosure and, on the morning of 7 September 2023, ruled that the freezing order should continue – not least because new evidence revealed that the Defendant had, in apparent breach of the Hong Kong High Court orders, dissipated and/or transferred-on most of the funds in the UAE bank accounts.

 

The Wrong Turn: the CA decision in Sandra Holding

 

On the afternoon of 6 September 2023, the Court of Appeal handed down judgment in Sandra Holding which held that the DIFC Court of First Instance had no jurisdiction to make a freezing order in support of the prospective enforcement of a judgment in proceedings pending in a foreign court unless the Court had such jurisdiction established through one of the pathways specified in Article 5(A) of the JAL.

 

The Defendant then, relying on Sandra Holding, applied to set aside Justice Martin’s order for want of jurisdiction.  Justice Martin, accepting that he was bound to follow the decision of the Court of Appeal, discharged his own orders while staying the operation of the discharge (i.e., maintaining the freeze over the Defendant’s accounts) pending the decision of the Court of Appeal. Justice Martin also gave permission to appeal his order on limited grounds. Carmon then sought further permission to appeal from the Court of Appeal as to whether the recent decision in Sandra Holding was wrong in law and should, to that extent, be overruled.

 

The First Right Turn:  Correcting the Law

 

In a legal first for the DIFC Courts, on 4 April 2024, Justice Sir Peter Gross sitting as a single judge of the Court of Appeal, also gave leave to appeal in respect of Carmon’s further grounds, holding that there was “an arguable case that Sandra Holding was wrongly decided” and identifying a number of important policy issues which arose:

 

“(1) The power of the DIFC Courts, established (inter alia) to assist international trade, to grant freezing orders in circumstances where such relief could be crucial to avoid the dissipation of assets.

 

(2) The need to guard against the assertion by the DIFC Courts of an exorbitant jurisdiction.

 

(3) The proper limits of judicial (as distinct from legislative) development of the law by the DIFC Courts, whose jurisdiction is based on statute.”

 

In last week’s landmark judgment, the Court expressly held in summary: [1]

 

“It is the respectful opinion of this Court that the Court in Sandra Holding took a wrong turning in an unduly restrictive view of the powers of this Court which may be deployed in aid of its express jurisdiction ….. it is clear with the benefit of full and further consideration, that the past decision was legally incorrect ….. Further, it can be said to have generated inconvenience in the sense that the absence of the power to issue a freezing order in respect of a prospective foreign judgment may result in the jurisdiction of this Court to recognise the foreign judgment ultimately issued being thwarted. The correct analysis, in our respectful view, is whether the Court had power (and if it be necessary to say so, ancillary jurisdiction) to do so in order to avoid the thwarting of its undisputed express jurisdiction to recognise and enforce a foreign judgment. We are clear that the answer is Yes. We would add that considerations of policy for this Court are overwhelmingly in favour of granting the injunction. So too, are all discretionary considerations. The appeal should be allowed.” [2]

 

The Second Right Turn:  For Growth – the DIFC as an international court

 

The significance of the decision of the Court of Appeal in Carmon v Cuenda cannot be overstated.

 

First, it lays a strong foundation for the continued economic growth of the region and the promotion of the Emirate as an international centre for dispute resolution and settlement: [3]

 

“The ability of a potential judgment debtor in a commercial dispute to make a pre-emptive strike against enforcement of any judgment against it would be inimical to the rule of law in trade and commerce, domestically and transnationally. The DIFC Courts are part of a growing network of international commercial courts in a number of jurisdictions around the world. Where their jurisdiction and powers are amenable to constructions supporting the rule of law in transnational trade and commerce, such constructions should be preferred. In our opinion, Article 24 of the Court Law properly construed confers jurisdiction to entertain proceedings by way of an application for such relief as may be necessary to prevent its pre-emption by a dissipation of the assets of a prospective judgment debtor in proceedings in a foreign court whose judgment can be recognised and enforced in the DIFC Courts…..”

 

Second, the Court of Appeal provided carefully-considered guidance as to how in the future the question of whether the DIFC Court Rules confer jurisdiction on the DIFC courts in a particular case should be resolved.  Adopting what it termed an “expansive” approach “informed by public policy”, the Court ruled that “regard must be had to the function and purpose of the DIFC Courts, which are statutory courts integral to the operation of the DIFC as a Financial Free Zone”.

 

Third, an important conceptual distinction was made between the existence of a jurisdiction and the powers that may be exercised in aid of it.  Critically, it was said that jurisdiction may be implied from the grant of a power. [4]

 

Accordingly, the Court of Appeal held in Carmon v Cuenda that the grant of a jurisdiction to recognise and enforce a foreign judgment must encompass, if only by implication, the grant of power necessary to prevent that jurisdiction from being thwarted. The DIFC Court has express jurisdiction to recognise and enforce foreign judgments, and that jurisdiction would be thwarted if a defendant to a foreign proceeding which may yield such a judgment could dissipate its assets, whether within the DIFC or otherwise.

 

Finally, having been asked for the first time to overrule one of its own previous decisions, the Court of Appeal concluded that if one of its earlier decisions embodied an error of law that impeded the effective administration of justice then it would review the case having regard to the four considerations set out by the High Court of Australia in John v Federal Commissioner of Taxation[5], namely:

 

  • whether or not the precedent decision rested upon a principle carefully worked out in a significant succession of cases;

 

  • whether there were differences in the reasoning that led to the precedent decision;

 

  • whether a precedent decision had achieved no useful result but considerable inconvenience; and

 

  • whether or not a precedent decision had been independently acted on in a manner which militated against reconsideration.

 

The decision is also growing evidence of the progress of the DIFC Courts’ longer term mission to develop its own distinctive body of jurisprudence by broadening the base beyond its traditional roots in English common law. ■

 

Afridi & Angell successfully represented Carmon throughout the proceedings and instructed Zoe O’Sullivan KC of Serle Court Chambers for the set aside application and the appeal.

 

–

[1] Extracted from [204] and [205]

[2] The Carmon Court also found that the case for a WFO was not established on the merits in Sandra Holding Ltd and the result would therefore likely have been the same even had the court found there to be jurisdiction and power to make the order sought in that case

[3] Extracted from [154] – [155]

[4] See [31], [38] and [58].

[5] (1989) 166 CLR 417

Mergers & Acquisitions (UAE Chapter), Lexology In-Depth

This multi-jurisdictional reference guide features a UAE chapter, authored by Danielle Lobo (partner), Abdus Samad (partner) and Alexander Grant (associate), and provides a practical overview of global M&A activity and the legal and regulatory frameworks governing M&A transactions in major jurisdictions worldwide. With a focus on recent developments and trends, it examines key issues, including the relevant competition, tax, and employment law considerations; financing; due diligence; and much more.