UAE – DIFC, Dubai
The Dubai International Financial Centre (referred to below as “DIFC”) is a financial freezone physically located in the Emirate of Dubai which has its own legal system and jurisdiction distinct from onshore Dubai or other Emirates (save for some UAE laws which also apply in the DIFC such as criminal laws). The DIFC has its own Courts which operate on the common law system in which remedies such as injunctive relief including freezing orders are available. Abu Dhabi has an equivalent financial freezone (the Abu Dhabi Global Market) in which similar principles apply. Where a freezing order concerns assets in onshore Dubai or other Emirates or freezones in the UAE, legal advice should be sought as their effect and enforceability. We would be happy to speak to you if you have any queries in this regard.
1. Are freezing orders (or their equivalent referred to below) available in civil legal proceedings in this jurisdiction and what is their effect?
Yes, freezing orders are available as an interim remedy in the DIFC Courts which have the effect of:
(i) restraining a party from removing, from the jurisdiction, assets located there; or
(ii) restraining a party from dealing with any assets whether located within the jurisdiction or not.
For these purposes, the jurisdiction is the DIFC specifically and not the Emirate of Dubai.
2. Are other interim orders commonly made in conjunction with a freezing (or equivalent) order?
The respondent may be ordered to provide information about the location of relevant property or assets or to provide information about relevant property or assets which are or may be the subject of the freezing order. The Court may also require the applicant’s legal representatives, as well as the applicant, to give undertakings.
3. Briefly what is the relevant legal test?
The English law principles for obtaining a freezing order generally apply in the DIFC. The applicant must establish that:
(i) it has a good arguable case;
(ii) the respondent has or may have assets which will be available to satisfy the judgments against him if granted;
(ii) there is a real risk that the judgment will not be satisfied by reason of an unjustifiable disposal of those assets; and
(iii) in all the circumstances, it is just and convenient to make the order sought.
4. Briefly what is the process for obtaining a freezing (or equivalent) order?
An application (or a Part 8 claim where there are current or prospective proceedings outside the DIFC) should be made to the Court supported by an affidavit, appending a draft order. The application may be on an urgent basis and without notice provided there are good reasons. The affidavit must set out the facts on which the applicant relies, including all material facts of which the Court should be made aware and, if it is made without notice, should state why. For applications with notice, the application must be served as soon as practicable after issue and in any event not less than three days before the hearing. The applicant will owe the Court a duty of full and frank disclosure when applications are made without notice.
5. Does the applicant have to provide any form of security or commit to compensation if its claim is ultimately unsuccessful and any freezing (or equivalent) order granted causes loss and damage to the respondent?
Unless the Court orders otherwise, the order must contain an undertaking by the applicant to pay any damages sustained by the respondent which the Court considers the applicant should pay (or the freezing order may require the applicant to comply with any further order of the Court in this regard). The Court may order the applicant to provide security which can include a payment into Court, a bond issued by an insurance company or a first demand guarantee or standby credit issued by a bank, payment to the applicant’s legal representatives to be held by them as officers of the Court and an undertaking of a parent company. The Court may also consider whether to require an undertaking by the applicant to compensate a third party, other than the respondent, for losses suffered as a result of the freezing order (including the costs of finding out whether that person holds any of the respondent’s assets).
6. Can it be sought against third parties?
Yes, a third party to the underlying proceedings or prospective proceedings may be made a party to a freezing order where there is good reason to suppose that its assets are in fact the assets of the defendant in the underlying litigation or will be available to the defendant to meet a judgment or arbitral award. A third party notified of the order can also be held liable if they knowingly help or permit the respondent to breach the terms of the order (as described below).
7. What assets are covered by a freezing (or equivalent) order?
Assets in the respondent’s name whether solely or jointly owned, and which the respondent has the power, directly or indirectly, to dispose of or deal with as if they were his own. The respondent is to be regarded as having such power if a third party holds or controls the asset in accordance with his direct or indirect instructions. For the purpose of assessing value subject to the freezing order, it is the unencumbered value free of charges or security. Assets may be within or outside the DIFC, but there might be further issues with enforceability and other factors to consider if outside the DIFC.
8. Can a freezing (or equivalent) order be made in support of substantive proceedings abroad?
Yes, DIFC case law (Carmon Reestrutura-Engenharia E Serviços Técnios Especiais, (SU) LDA v Antonio Joao Catete Lopes Cuenda [2024] DIFC CA 003) has established that freezing orders can be granted in support of ongoing foreign proceedings. This Court of Appeal case gives effect to the importance of the “enforcement principle”. In other words, parties who may ultimately be seeking to recognize and enforce foreign judgments in the DIFC, should be given the relief needed to protect the dissipation of the relevant assets (including assets in onshore Dubai).
9. Can a freezing (or equivalent) order be made in support of arbitration proceedings or awards?
Yes, the same principles as above apply.
10. At what stage of proceedings can a freezing (or equivalent) order be sought?
At any stage, including prior to commencing the claim and after judgment has been given. However, the Courts may only grant an order before a claim has been made if either:
(i) the matter is urgent; or
(ii) it is otherwise desirable to do so in the interests of justice. Unless the Courts order otherwise, a defendant may not apply for an order before they have filed either an acknowledgment of service or a defense. Where the Court grants an order before a claim has been commenced, it may give directions requiring a claim to be commenced.
11. Are there typically any exceptions to the general prohibition on the respondent’s use of assets subject to a freezing (or equivalent) order?
Yes. The order will generally provide that the respondent may deal with their assets:
(i) above a specified value;
(ii) for ordinary living expenses; and/or
(iii) for legal expenses.
The order may also provide that it does not prohibit the respondent from dealing with or disposing of assets in the ordinary and proper course of business.
12. What happens after a freezing (or equivalent) order is granted?
The applicant must serve the freezing order on the respondent if it was made at a hearing without notice to the respondent/on an urgent basis, and notify third parties impacted by the order (such as banks). Where the order was made without notice, there would be a further hearing (the return date) and the respondent or third parties may apply to vary or discharge the order. At this point the original order will usually either be set aside, extended or replaced with a Court-sanctioned undertaking which has broadly the same effect as a freezing order until trial.
13. Who pays the costs of the application for a freezing (or equivalent) order?
The judge will usually decide on costs at the second hearing in respect of the freezing order if applicable.
14. What protections are there typically in a freezing (or equivalent) order for third parties to such orders?
(a) Banks are not prevented from exercising any rights of set-off arising from a facility granted to the respondent prior to its notification of the freezing order.
(b) They also do not need to enquire into the application or proposed application of any money withdrawn by the respondent if the withdrawal appears to be permitted by this order.
(c) In relation to worldwide orders, a third party located outside of the DIFC is not affected by the freezing order unless one or more of the following conditions apply:
(i) they are an officer or agent of the respondent;
(ii) they are subject to the jurisdiction of the DIFC Court;
(iii) if notice was given at their place of business or residence in the DIFC Court’s jurisdiction (for example, at a branch in the DIFC);
(iv) they are able to prevent acts or omissions outside the DIFC which constitute or assist in a breach of the order.
(d) In other cases, the order must be declared enforceable or enforced in that jurisdiction first.
(e) The applicant may have to undertake to compensate third parties for any loss caused by the freezing order.
15. What are the consequences of breach of a freezing (or equivalent) order?
A person who breaches a freezing order may be held in contempt of Court. This could result in a fine, the seizure of assets and/or potential imprisonment (by the Court referring the alleged wrongdoer to the Attorney General for further investigation and potential prosecution). Similarly, a third party who was notified of the order may also be held in contempt of Court and may be fined or have their assets seized if they knowingly help or permit the respondent to breach the terms of the order.
16. Does a third party notified of (but not a party to) a freezing (or equivalent) order owe a duty of care to the applicant (meaning it can be liable to the applicant for non-compliance)?
There is no liability to the applicant, but as stated above, a third party notified of an order can be held in contempt of Court.
17. Can a freezing (or equivalent) order be enforced abroad?
The applicant is usually required to seek permission of the Court before enforcing the order outside of the DIFC (subject to the terms of the order). Enforcement outside of the DIFC would be subject to the laws regarding recognition and enforcement in the relevant jurisdiction.
18. Can freezing (or equivalent) orders from overseas jurisdictions be enforced in this jurisdiction?
Yes, freezing orders from overseas jurisdictions can be enforced in the DIFC, subject to the rules of recognition and enforcement in the DIFC.
Contacts
Rebecca Copley Head of Litigation and Dispute Management – Middle East Head of Corporate Crime and Financial Services Disputes and Investigations Middle East Eversheds Sutherland Dubai, United Arab Emirates rebeccacopley@eversheds-sutherland.com www.eversheds-sutherland.com Shalagh Massingham Partner Eversheds Sutherland Dubai, United Arab Emirates shalaghmassingham@eversheds-sutherland.com www.eversheds-sutherland.com Shibani Kapur Senior Associate Eversheds Sutherland Dubai, United Arab Emirates shibanikapur2@eversheds-sutherland.com www.eversheds-sutherland.com
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