MUQQI v MUWAN [2023] DIFC CFI 017 — Security for costs in interlocutory injunction proceedings (23 May 2023)

This order clarifies the DIFC Court’s broad discretionary power to award security for costs against shell entities, even during interlocutory stages, rejecting the restrictive application of foreign precedents.

What was the specific nature of the dispute between Muqqi and the Defendants regarding the USD 300,000 security for costs application?

The lawsuit concerns an application for security for costs filed by the first to eighth defendants against the claimant, Muqqi, in the context of an upcoming injunction hearing. The defendants sought to ensure that any potential adverse costs order could be satisfied, arguing that the claimant was a shell entity lacking realisable assets. The court ultimately granted the application, requiring the claimant to deposit funds into the court.

This is the First to the Eighth Defendants Application for security over costs against the Claimant which was successfully granted in my order of 12 May 2023 requesting the Claimant to pay an amount of USD 300,000 to the Court.

The dispute centered on the claimant’s financial viability and its ability to meet costs should its injunction application fail. The defendants contended that Muqqi was established solely for administrative purposes and lacked a bank account or material assets, while the claimant attempted to rely on assets held by third parties or separate entities to demonstrate financial capacity.

Which judge presided over the Muqqi v Muwan application in the DIFC Court of First Instance?

The application was heard and decided by H.E. Deputy Chief Justice Ali Al Madhani, sitting in the DIFC Court of First Instance. The reasons for the order were formally issued on 23 May 2023, following an initial order granted on 12 May 2023, in preparation for an injunction hearing scheduled for 7 June 2023.

What were the primary legal arguments advanced by Muqqi and the Defendants regarding the security for costs application?

The defendants argued that Muqqi was a non-trading shell company used only for administrative functions, with its primary blockchain business operations conducted by an Austrian entity. They maintained that without security, they would be left without recourse for costs if the claimant’s injunction application failed. Furthermore, they argued that the claimant’s failure to provide a breakdown of costs was a procedural distraction, as they had complied with the requirements of the Rules of the DIFC Courts (RDC).

The claimant, represented by Conselis Law, conceded that the court possessed the jurisdiction to order security but argued that doing so would stifle its claim. The claimant attempted to demonstrate financial capacity by pointing to an online account containing USD 300,000 held by a Mr. Mrual and a trademark owned by a separate RAK-based entity. Additionally, the claimant argued that the application was procedurally flawed due to the late submission of the defendants' statement of costs and relied on the principle that security for costs is generally inappropriate for interlocutory applications.

What was the precise doctrinal question regarding the court’s power to order security for costs at an interlocutory stage?

The court had to determine whether the DIFC Court’s discretion to order security for costs under RDC 25 is constrained by the nature of the proceedings—specifically, whether an interlocutory injunction application is exempt from such orders. The court also had to address the threshold question of whether the claimant’s lack of realisable assets and the potential for the order to "stifle" the claim outweighed the defendants' right to be protected against irrecoverable costs.

Thirdly, whether it would just in all circumstances to order security for costs against the Claimant considering the injunction hearing listed on 7 June 2023.

How did H.E. Deputy Chief Justice Ali Al Madhani apply the test for security for costs and address the "stifling" argument?

The judge rejected the claimant's reliance on the Privy Council decision in GFN v Bancredit, noting that it was not binding on the DIFC Courts. He emphasized that the court’s powers under RDC 25 are broad and not restricted by the interlocutory nature of the application. The court found that the defendants had sufficiently demonstrated a risk of non-enforcement.

In my view and considering the current issues and the circumstances of the case, it would be financially detrimental for the Defendants to proceed with the injunction hearing without securing their costs. The timing of the Defendants’ Application is reasonable and not prejudicial to the Claimant, meaning that it has been made at the stage it became apparent to them that there is a real risk of non-enforcement or of additional burdens in the way of enforcement against the Claimant.

Regarding the "stifling" argument, the court found the claimant’s evidence insufficient. The judge noted that the assets cited by the claimant—an account held by an individual and a trademark owned by a different legal entity—did not constitute available assets for the claimant to satisfy an adverse costs order.

Which specific RDC rules and statutory provisions were applied by the court in this decision?

The court relied heavily on the Rules of the DIFC Courts (RDC) to justify its authority. Specifically, RDC 25.97 was cited to confirm that a party may apply for costs of the proceedings at any stage. The court also addressed RDC 25.99(3) and (4), which govern the filing of statements of costs. The claimant had argued that the defendants' late submission of their statement of costs should lead to a dismissal of the application, but the court dismissed this as "weak and over-reaching," noting that the defendants had ultimately complied with the procedural requirements.

The Defendants have complied with RDC 25.99(3) and (4) by filing a statement of costs, albeit a late submission, setting out the incurred fees to date in connection with the Injunction Application including the anticipatory counsel brief fees in defending the Claimant’s Injunction Application.

How did the court distinguish or apply the precedents cited by the parties?

The claimant relied on GFN v Bancredit [2009] UKPC 39 to argue that security for costs should not be granted for interlocutory applications. H.E. Deputy Chief Justice Ali Al Madhani explicitly distinguished this, stating that the decision was not binding on the DIFC Courts and that the court’s powers under RDC 25 Part III were not restricted by such a general rule. The court emphasized that the primary concern is the administration of justice and the prevention of prejudice to the defendants, rather than adherence to foreign procedural limitations that do not align with the DIFC’s flexible approach to security for costs.

What was the final disposition and the specific financial order made by the court?

The court granted the application for security for costs in favor of the first to eighth defendants. The claimant was ordered to pay USD 300,000 into the court. This amount was determined based on the statement of costs provided by the defendants, which included both incurred fees and anticipatory counsel brief fees for the upcoming injunction hearing. The court rejected the claimant's procedural objections regarding the timing of the application and the lack of a detailed breakdown, finding that the defendants had met their obligations under the RDC.

What are the wider implications of this decision for DIFC practitioners regarding security for costs?

This case reinforces the DIFC Court’s robust approach to protecting defendants from the risks of litigating against shell companies or entities with opaque financial structures. Practitioners should note that the court will not be deterred by the "interlocutory" label of an application when there is a clear risk that a claimant cannot satisfy an adverse costs order. Furthermore, the court has signaled that it will prioritize the substance of the financial risk over technical procedural arguments regarding the timing of cost statements, provided the core requirements of the RDC are met. Litigants must be prepared to provide transparent, verifiable evidence of their own assets if they wish to successfully argue that a security order would stifle their claim.

Where can I read the full judgment in Muqqi v Muwan [2023] DIFC CFI 017?

The full judgment can be accessed via the official DIFC Courts website: https://www.difccourts.ae/rules-decisions/judgments-orders/court-first-instance/cfi-0172023-muqqi-v-1-muwan-2-misal-3-minur-4-maut-5-mabtu-6-maru-7-mirki-8-mofu-9-meker

CDN link: https://littdb.sfo2.cdn.digitaloceanspaces.com/litt/AE/DIFC/judgments/court-first-instance/DIFC_CFI-017-2023_20230523.txt

Cases referred to in this judgment:

Legislation referenced:

• Rules of the DIFC Courts (RDC):
  • RDC 25.97
  • RDC 25.99(3)
  • RDC 25.99(4)
  • RDC 25.102
  • RDC 25 Part III