Author: afridi-angell

On 2 April 2024, the DIFC Court of Appeal granted permission to appeal to determine whether the recent case of Sandra Holding [2023] DIFC CA 003 (6 September 2023) was wrongly decided. Permission was granted to appeal on the question of:

“…whether the rulings of the Court of Appeal in Sandra Holding with respect to the jurisdiction of the Court to make freezing orders in support of pending foreign proceedings should not be followed because:

(a)        [They] were per incuriam; and/or

(b)        They were wrong.”

In Sandra Holding, the Court of Appeal held that the DIFC Court does not have jurisdiction to grant a freezing order in support of proceedings which are pending before a foreign court unless it has jurisdiction over the defendant under Article 5A(1)(a) to (e) of the Judicial Authority Law (JAL).

The appeal arises from a judgment of the DIFC Court of First Instance which held (when determining an application to set aside a freezing order) that it was bound by the decision of Sandra Holding. The Court of First Instance, while allowing the defendant’s set-aside application, stayed the operation or effect of the set-aside application and granted permission to appeal its own decision on the following grounds:

1 – The meaning and effect [of] paragraph 99 of the decision of the Court of Appeal in Sandra Holding.

2 – Whether the rulings of the Court of Appeal in Sandra Holding with respect to the jurisdiction of the Court to make freezing orders in support of pending foreign proceedings were obiter dicta and therefore not binding on judges at first instance.

The Court of First Instance also granted the claimant leave to apply to the Court of Appeal for permission to appeal on the additional ground as to whether Sandra Holding was wrongly decided and/or per incuriam.

Justice Sir Peter Gross, in his reasons for granting permission, noted that a number of important policy issues arise from the appeal:

• “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.

• The need to guard against the assertion by the DIFC Courts of an exorbitant jurisdiction.

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

Justice Sir Peter Gross also highlighted the potential general importance of the appeal to the jurisdiction and jurisprudence of the DIFC Courts, together with the development of DIFC law in this area, as reasons for granting permission to appeal and directed that the Court would benefit from considering comparative common law authorities on the relevant points.

The Court of Appeal will now hear the appeal on all grounds for which permission has been granted, and will also consider (arguably for the first time) whether it is open to the Court of Appeal to revisit and, if so minded, depart from its own previous decisions.

Afridi & Angell acts for the Claimant-Appellant in the proceedings. ■

Introduction

Following the issuance of Consultation Paper 3 of 2023 and the consultation process that followed, on 2 October 2023 the Abu Dhabi Global Market (ADGM) enacted the DLT Foundations Regulations 2023 (the Regulations), aimed at providing a regulatory framework for the creation and operation of specialised foundations for distributed ledger technology (DLT) and decentralised autonomous organisations (DAO).

Background

Despite growing global demand for a licensing regime for an entity that can hold and manage digital assets, DLT networks, blockchain and token issuance, there has been a lack of options (prior to the Regulations) to promote DAO in a manner that provides legal certainty while supporting the concept of decentralised governance. The Regulations are a first step in bridging this gap by providing a legal entity that supports a decentralised operating model.

DLT Foundations differ from the already-established ADGM foundations regime (one which has been increasingly relied upon for wealth management and legacy planning) in that they cater to foundations established for a particular purpose, being: to use, deploy, develop, facilitate or support DLT and/or the issuance of tokens.

However, DLT Foundations retain many of the corporate governance and statutory requirements of the already existing traditional ADGM foundations regime. This includes the requirement to: (a) in most cases and subject to very limited exceptions, appoint a company services provider (CSP) with which a registered address must be maintained and (b) prepare and file a charter setting out the specific rules regarding governance, rules for token issuance (including types, purposes and rights attached to tokens) and provisions relating to the DLT Foundation’s assets (this is not an exhaustive list). Interestingly, the Regulations also include provisions allowing for the migration of DLT Foundations to and from ADGM, subject to certain criteria.

Governance

The key office-holders of a DLT Foundation are council members, guardians, and tokenholders:

i. There must be a minimum of 2 and no more than 16 council members who are responsible for the management of a DLT Foundation’s affairs. Council members are also granted certain statutory veto rights which cannot be narrowed by the charter (being the primary constitutive document) of a DLT Foundation.

ii. A guardian is appointed by the founder or council members and is responsible for ensuring compliance with a DLT Foundation’s objectives.

iii. If the DLT Foundation issues tokens, it shall have tokenholders. The Regulations specify that a tokenholder is not, merely by virtue of being a tokenholder, liable for any acts and/or omissions of the DLT Foundation. Subject to the provisions of the charter, tokenholders may be able to approve or reject certain matters concerning the affairs of a DLT Foundation.

DLT Foundations must also keep accounting records and prepare annual accounts, which must be audited by an independent auditor, published on the DLT Foundation’s website, and lodged with the ADGM Registration Authority. DLT Foundations must also conduct periodic security audits of the DLT Foundation’s data protection and security systems and share the results of such security audits with the ADGM Registration Authority.

Looking Ahead

The Regulations are yet another step taken by ADGM to provide an adaptable framework for non-traditional business sectors.

Whilst we can expect the ADGM to reply to industry developments in the form of amendments and/or sub-ordinate regulations, the present framework not only provides a structure for DLT Foundations but also a supportive regulatory system with sufficient flexibility for DLT, DAO and ADGM’s regulatory ecosystem to grow together with the market. ■