The Court of Appeal affirmed the DIFC Court’s jurisdiction over international financial institutions, confirming that registration with the Dubai Financial Services Authority (DFSA) triggers in personam jurisdiction under the Judicial Authority Law.
What was the specific dispute between Larmag Holding and First Abu Dhabi Bank regarding the Reditum SA Bonds?
The litigation arose from a claim by Larmag Holding B.V. (the Respondent) concerning the alleged fraudulent transfer of bonds. Larmag contended that it was induced by fraud, purportedly committed by a Mr. Aljabri and an entity known as Elite Holding Group, to sell certain Reditum SA Bonds. These bonds were subsequently delivered to an account held by the Second Appellant, FAB Securities LLC.
To protect its interests, Larmag sought and obtained an injunction from the Court of First Instance restraining First Abu Dhabi Bank PJSC and FAB Securities LLC (the Appellants) from disposing of, dealing with, or diminishing the value of the bonds or any assets derived from them. The Appellants challenged the DIFC Court’s jurisdiction to issue such an order, leading to a jurisdictional ruling by Justice Sir Richard Field, which was subsequently appealed. As noted in the judgment:
In my opinion, what we have to decide is whether the Appellants fall within the definition of “Licensed DIFC Establishment”.
The core of the dispute was not the underlying fraud, but whether the Appellants, as major financial institutions, were subject to the authority of the DIFC Courts by virtue of their operational status within the Centre. The full judgment can be accessed at https://www.difccourts.ae/rules-decisions/judgments-orders/court-appeal/1-first-abu-dhabi-bank-pjsc-2-fab-securities-llc-v-larmag-holding-bv-2019-difc-ca-010.
Which judges presided over the Court of Appeal hearing for First Abu Dhabi Bank v Larmag Holding?
The appeal was heard by a panel of the DIFC Court of Appeal consisting of Chief Justice Zaki Azmi, H.E. Justice Omar Al Muhairi, and H.E. Justice Ali Al Madhani. The hearing took place on 25 September 2019, with the final judgment issued on 23 March 2020.
What legal arguments did Rupert Reed QC and Michael Black QC advance regarding the Appellants' status?
Rupert Reed QC, representing the Appellants, sought to challenge the jurisdictional nexus, arguing against the broad application of the Judicial Authority Law (JAL) to the Appellants' activities. Conversely, Michael Black QC, for the Respondent, emphasized the clear statutory language of the JAL. The Respondent argued that the interpretation of the JAL must account for its status as a Dubai statute, its official Arabic enactment, and its foundational role in establishing the DIFC Courts' authority.
The Respondent’s position was that the Appellants’ status as entities licensed by the DFSA was sufficient to establish jurisdiction. The Respondent further highlighted that the principles governing this jurisdictional question were well-settled and not subject to reasonable controversy.
What was the precise doctrinal question the Court of Appeal had to answer regarding Article 5(A)(1)(a) of the Judicial Authority Law?
The Court was tasked with determining whether the Appellants fell within the definition of a "Licensed DIFC Establishment" as defined under Article 5(A)(1)(a) of the Judicial Authority Law (JAL). The doctrinal issue was whether the mere fact of being licensed, registered, or authorized by the DFSA to conduct financial services within the DIFC creates an ad hominem (party-based) jurisdiction for the DIFC Courts, regardless of whether the specific transaction in question had a separate, independent nexus to the DIFC.
How did Chief Justice Zaki Azmi apply the test for Licensed DIFC Establishments?
Chief Justice Zaki Azmi, writing for the Court, confirmed that the lower court’s analysis was correct. He applied the test established in previous jurisprudence, which focuses on the status of the entity rather than the location of the transaction. The Court reasoned that once an entity is shown to be licensed by the DFSA, the requirements of Article 5(A)(1)(a) are satisfied.
He determined that the Court has jurisdiction over the Appellants pursuant to Article 5(A)(1)(a) of the JAL on the basis that the Appellants are “Licensed DIFC Establishments” as defined in the JAL.
The Court rejected the notion that a "transaction-based" requirement was necessary when the party itself falls under the "Licensed DIFC Establishment" umbrella. This approach ensures that financial institutions operating within the DIFC are subject to the Court's oversight for their civil and commercial claims.
Which specific statutes and rules were applied to determine the Court's jurisdiction?
The primary statute applied was Article 5(A)(1)(a) of the Judicial Authority Law (JAL). This provision grants the DIFC Courts jurisdiction over civil or commercial claims to which a "Licensed DIFC Establishment" is a party. The Court also relied on the definitions provided within the JAL, specifically the distinction between a "DIFC Establishment" and a "Licensed DIFC Establishment," the latter being an entity authorized by the DFSA to provide financial services. Additionally, the Court applied RDC 38.6 and RDC 38.7(1) to address the allocation of costs following the dismissal of the appeal.
How did the Court of Appeal utilize the precedent set in Corinth Pipeworks SA v. Barclays Bank PLC?
The Court of Appeal relied heavily on the reasoning of Sir John Chadwick CJ in Corinth Pipeworks SA v. Barclays Bank PLC [2011] DIFC. The Court used this precedent to confirm that the jurisdiction under Article 5(A)(1)(a) is ad hominem. By citing Corinth Pipeworks, the Court reinforced the principle that there is no requirement for a "transaction-based" nexus when the defendant is a licensed entity. The Court also referenced Allianz Risk Transfer AG Dubai Branch v Al Ain Ahlia Insurance Company PJSC [2012] DIFC CFI 012 to support the classification of international banks as DIFC Establishments.
What was the final disposition and the specific monetary order made by the Court?
The Court of Appeal dismissed the appeal, upholding the jurisdictional ruling of the Court of First Instance. Consequently, the Appellants were ordered to pay the Respondent's costs.
Costs are immediately assessed in the sum of USD 63,806.42 and this is to be paid by the Appellants to the Respondent within 30 days of these Reasons being issued.
The Court emphasized that this followed the general rule that the unsuccessful party bears the costs of the litigation.
What are the wider implications of this judgment for DIFC practitioners?
This judgment clarifies that international financial institutions cannot easily escape the jurisdiction of the DIFC Courts by arguing a lack of nexus for specific transactions if they are licensed by the DFSA. Practitioners must anticipate that the DIFC Courts will assert in personam jurisdiction over any entity that holds a DFSA license, effectively making them "Licensed DIFC Establishments" for the purposes of Article 5(A)(1)(a). This reinforces the broad reach of the DIFC Courts and limits the scope for jurisdictional challenges based on the location of underlying assets or transactions.
Where can I read the full judgment in First Abu Dhabi Bank PJSC v Larmag Holding B.V [2019] DIFC CA 010?
The full judgment is available on the official DIFC Courts website: https://www.difccourts.ae/rules-decisions/judgments-orders/court-appeal/1-first-abu-dhabi-bank-pjsc-2-fab-securities-llc-v-larmag-holding-bv-2019-difc-ca-010. The text is also archived at https://littdb.sfo2.cdn.digitaloceanspaces.com/litt/AE/DIFC/judgments/court-appeal/DIFC_COA_1_First_Abu_Dhabi_Bank_PJSC_2_Fab_Securities_LLC_v_Larmag_Holding_B_V_2019_20200323.txt.
Cases referred to in this judgment:
| Case | Citation | How used |
|---|---|---|
| Corinth Pipeworks SA v. Barclays Bank PLC | [2011] DIFC | Established that jurisdiction is ad hominem for licensed entities. |
| Allianz Risk Transfer AG Dubai Branch v Al Ain Ahlia Insurance Company PJSC | [2012] DIFC CFI 012 | Confirmed international banks are DIFC Establishments. |
Legislation referenced:
- Judicial Authority Law (JAL), Article 5(A)(1)(a)
- Rules of the DIFC Courts (RDC), Rule 38.6
- Rules of the DIFC Courts (RDC), Rule 38.7(1)