LUNARS v LIUNS [2022] DIFC CFI 042 — Dismissal of pre-action disclosure applications pending arbitration (26 October 2022)

What was the nature of the USD 90,826,522 dispute in Lunars v Liuns and why did the Claimant seek disclosure against the Lerstin Entities?

The dispute originated from an alleged failure to pay sums due under a 2018 Settlement Agreement concerning the sale of the Claimant’s stake in Lectra Holding. The Claimant, Lunars, alleged that Mr. Livt, acting as its agent, had failed to account for the proceeds of the "Lectra acquisition." The Claimant suspected that the Lerstin Entities (D1–D3) had received proprietary interests that rightfully belonged to it, leading to a claim valued at approximately USD 90,826,522.

To support its position, the Claimant sought a suite of disclosure orders to ascertain whether it had a viable cause of action for proprietary wrongdoing, breach of trust, and dishonest assistance. As noted in the judgment:

The basis of the relief sought by the Claimant arises from the Claimant’s suspicion that the Lerstin Entities may have purportedly received proprietary interest, being the balance of the Lectra acquisition, which took place on or around 6 August 2018.

The Claimant utilized the Part 8 procedure to request pre-action disclosure, non-party disclosure, and Norwich Pharmacal/Banker’s Trust orders against the various defendants, hoping to identify the role of Mr. Livt as the "alter ego" of the Lerstin Entities.

Which judge presided over the CFI 042/2022 hearing and when was the judgment issued?

The matter was heard before H.E. Justice Shamlan Al Sawalehi in the DIFC Court of First Instance. Following the hearing held on 29 August 2022, the Court issued its final judgment on 26 October 2022, dismissing the Claimant’s Urgent Application and the substantive Part 8 Claim in their entirety.

What were the opposing legal arguments regarding the necessity of pre-action disclosure in Lunars v Liuns?

The Claimant argued that the disclosure was essential to determine whether it had a viable claim against the Lerstin Entities (D1–D3) and to establish whether Mr. Livt acted as their alter ego. The Claimant asserted that the requested documents would reveal proprietary wrongdoing and provide the necessary evidence to pursue claims of breach of trust. Specifically, the Claimant sought:

The Claimant asserted in their submissions that they seek pre-action disclosure to identify whether Mr Livt is the alter ego of the Lerstin Entities so that it could be sued for proprietary wrongdoing, breach of trust and dishonest wrongdoing.

Conversely, the Respondents (D1–D3) argued that the application was premature and unnecessary. They contended that the entire dispute was already subject to DIAC arbitration proceedings, which were scheduled to commence their own inter-party disclosure process in September 2022. They maintained that the Claimant’s attempt to use the DIFC Court for pre-action disclosure was an improper attempt to bypass the arbitration tribunal’s procedural powers.

What was the jurisdictional question the Court had to resolve regarding the intersection of RDC 28.48 and ongoing arbitration?

The primary doctrinal issue was whether the DIFC Court possesses the jurisdictional authority to grant pre-action disclosure under RDC 28.48 when the underlying dispute between the parties is already being adjudicated in an arbitral forum. The Court had to determine if the existence of "on foot" arbitration proceedings acts as a bar to the exercise of the Court’s discretionary powers to order disclosure against parties and non-parties, or if the Court retains a residual power to assist claimants in "identifying" potential defendants or causes of action before the tribunal.

How did Justice Shamlan Al Sawalehi apply the test for pre-action disclosure in the context of existing arbitration?

Justice Al Sawalehi adopted a restrictive approach, emphasizing that the Court’s power to order disclosure is not a tool for speculative fishing expeditions, particularly when a more appropriate forum—the arbitration tribunal—is already seized of the matter. The Court reasoned that the Claimant’s request failed on three distinct grounds: the existence of arbitration, the impermissibility of using disclosure to "identify" a case, and the inevitability that the documents would be produced within the arbitration itself.

In summary, first of all, pre-action disclosure cannot be sought whilst arbitration proceedings are already on foot, this precludes me from exercising the powers vested under RDC 28.48 and RDC 28.51, secondly pre-action disclosure cannot be used as a mechanism to identify if the Claimant has a viable case against D1- D3, and finally I believe that the documents sought from this Court will inevitably arise in the arbitration proceedings.

The Court further clarified the jurisdictional limitation:

Hence, it is common ground that the Court will not have jurisdiction to make an order under RDC 28.48 for pre-action disclosure where the dispute between the parties will be decided in arbitration, which is the case before me.

Which specific RDC rules and statutes were applied to the Claimant’s request for non-party disclosure?

The Court analyzed the application through the lens of the Rules of the DIFC Courts (RDC), specifically focusing on the requirements for pre-action and non-party disclosure. The Claimant relied on RDC 28.48 (pre-action disclosure) and RDC 28.51 (non-party disclosure). The Court also considered RDC 28.47, which governs the Part 8 procedure, and RDC 28.64 regarding the scope of disclosure. Additionally, the Court referenced the DIFC Law on Damages and Remedies No. 7 of 2005, Article 36, in the context of the remedies sought.

The Claimant’s reliance on RDC 28.51 was specifically addressed:

The Claimant seeks pre-action disclosure under RDC 28.51 which permits “an order for disclosure against a person who is not a party to the proceedings”.

How did the Court distinguish the cited English and DIFC precedents in Lunars v Liuns?

The Court evaluated the application against established principles regarding Norwich Pharmacal and Banker’s Trust orders. While the Claimant cited various English authorities, such as Personal Management Solutions Ltd v Gee 7 Group wealth Ltd and Anglia Research Services Ltd v Finders Genealogists Ltd, the Court found these inapplicable because the existence of an active arbitration tribunal fundamentally altered the Court’s role.

The Court relied on the principle established in CFI-054-2020, which dictates that a Norwich Pharmacal order should not be granted unless there is a "real purpose" to be served. Justice Al Sawalehi concluded that because the arbitration tribunal was the proper venue to resolve the proprietary interest dispute, the DIFC Court’s intervention would be redundant and improper. As stated in the judgment:

The salient issues pertaining to the Claimant’s proprietary interest in the First Tranche and the requested documents will be decided in the DIAC Arbitration in due course.

What was the final disposition of the Urgent Application and the Part 8 Claim?

The Court dismissed the Urgent Application and the Part 8 Claim in their entirety. Justice Al Sawalehi ordered the Claimant to pay the costs of the First, Second, and Third Defendants (D1, D2, and D3) on the standard basis. These costs are to be assessed by the Registrar if the parties fail to reach an agreement on the quantum.

What are the wider implications of Lunars v Liuns for practitioners seeking disclosure in the DIFC?

This judgment serves as a definitive warning to practitioners that the DIFC Court will not facilitate "fishing expeditions" or pre-action disclosure when the parties are already engaged in arbitration. It reinforces the principle of party autonomy in arbitration and the Court’s reluctance to interfere with the procedural management of an arbitral tribunal. Litigants must now anticipate that if a dispute is subject to an arbitration agreement, any requests for disclosure must be directed to the tribunal rather than the Court. Furthermore, the case underscores the high threshold for Norwich Pharmacal and Banker’s Trust orders, which require a clear, non-speculative purpose that cannot be satisfied through standard arbitral disclosure mechanisms.

Where can I read the full judgment in Lunars v Liuns [2022] DIFC CFI 042?

The full judgment is available on the official DIFC Courts website: https://www.difccourts.ae/rules-decisions/judgments-orders/court-first-instance/cfi-0422022-lunars-v-1-liuns-2-lerstin-3-liwt-4-lohan-5-lufits

Cases referred to in this judgment

Legislation referenced

• DIFC Law on Damages and Remedies No. 7 of 2005, Article 36
• Rules of the DIFC Courts (RDC):
  • RDC 28.47 (Part 8 procedure)
  • RDC 28.48 (Pre-action disclosure)
  • RDC 28.51 (Non-party disclosure)
  • RDC 28.64 (Scope of disclosure)