GTC TRADING S.A. v HAZEM ABDOLSHAHID MAHMOUDI RASHED [2024] DIFC CFI 046 — Enforcement and Chabra Injunctions (18 September 2024)

This decision addresses the Court’s robust approach to enforcing judgments against complex corporate structures, confirming the continued application of Chabra-style freezing orders where evidence suggests assets are under the common control of a judgment debtor.

What is the nature of the dispute between GTC Trading S.A. and the Respondents regarding the enforcement of the judgment against Hazem Abdolshahid Mahmoudi Rashed?

The litigation concerns the efforts of GTC Trading S.A. to enforce a judgment debt against Hazem Abdolshahid Mahmoudi Rashed (D1). The claimant sought and obtained Worldwide Freezing Orders (WWFOs) and disclosure orders against D1, H.M.R Investment Holding Limited (D2), and several other entities and individuals, including Royal View Trading DMCC (R1), Royalty Business Management DMCC (R2), and Ms Hala Reffat Mohamed Mansour (R3). The core of the dispute involves allegations that D1 has utilized a network of related corporate entities to hide or divert assets to frustrate the satisfaction of the judgment.

The respondents, particularly R2 and R3, sought to discharge these orders, arguing that the freezing injunctions against them were unjustified. The court’s inquiry focused on whether these third parties were sufficiently connected to D1’s assets to warrant the continuation of the freezing orders. As noted in the court's findings:

(c) The nature of the business relationship between D1 and R3 was close and on her own evidence she knew the family well.

The claimant successfully argued that the assets held by these third parties were effectively under the control of D1, rendering them susceptible to enforcement processes. The court’s refusal to discharge the orders highlights the judiciary's commitment to preventing the dissipation of assets through "related parties" identified in audited accounts.

Which judge presided over the hearing of the stay and discharge applications in CFI 046/2023?

The applications were heard by Justice Sir Jeremy Cooke in the DIFC Court of First Instance. The hearing took place on 13 September 2024, with the resulting Order with Reasons issued on 18 September 2024.

What specific legal arguments did the parties advance regarding the stay of proceedings and the discharge of the worldwide freezing orders?

The First Defendant (D1) sought a stay of proceedings pending a renewed application for permission to appeal an earlier order and a referral to the Joint Judicial Committee. Additionally, D1 attempted to revoke a consent order that had previously varied the WWFO against D2 to allow for ordinary business expenditure. D1’s position was that the DIFC Court should defer to the onshore Dubai Court’s stance regarding the execution against D1’s shares in D2.

Conversely, the Second and Third Respondents (R2 and R3) argued for the discharge of the WWFOs and disclosure orders, claiming they should be removed from the proceedings. The Claimant opposed these applications, maintaining that the respondents were acting in concert with D1 to avoid enforcement. The Claimant highlighted that R2 was funding the legal defenses of D1 and D2 without any clear agreement for reimbursement, which the court viewed as evidence of a lack of arm's-length dealing.

What was the jurisdictional and doctrinal question the Court had to answer regarding the application of Chabra-style injunctions against third-party respondents?

The primary legal question was whether the claimant had demonstrated "good reason to suppose" that assets held by third-party respondents (R2 and R3) were beneficially owned by the judgment debtor (D1) or were otherwise available to satisfy the judgment. The court had to determine if the evidence of common control—specifically the interlinking of D2, R1, and R2 as "related parties" in audited accounts—was sufficient to justify the continuation of the freezing and disclosure orders under the principles governing Chabra injunctions.

How did Justice Sir Jeremy Cooke apply the test for Chabra injunctions to the evidence of common control and asset diversion?

Justice Sir Jeremy Cooke applied the test by examining the degree of control D1 exerted over the corporate entities. The court found that the evidence of a close business relationship, combined with the fact that R2 was funding the defense of D1 and D2, established a clear nexus. The judge emphasized that the court must look beyond the corporate veil when there is evidence of common ownership or control.

The court specifically addressed the requirement for the claimant to show that the assets were susceptible to enforcement. The reasoning was anchored in the principle that if assets are held by a third party but are effectively under the debtor's control, they remain reachable. As the court stated:

The test that the Court must apply is whether or not there is good reason to suppose that the asset in the hands of a third party is beneficially owned by a defendant against whom the claimant has obt

The judge concluded that the respondents were acting in concert with D1, and the failure of R3 to provide a proper affidavit on behalf of R1 further solidified the court's decision to maintain the injunctions.

Which statutes and rules did the Court rely upon to maintain the disclosure orders and the worldwide freezing injunctions?

The court relied on the Rules of the DIFC Courts (RDC), specifically those governing the granting and continuation of freezing orders and disclosure obligations. The court also referenced the principles established in the English Court of Appeal decision in Lakatamia Shipping v Morimoto [2019] EWCA Civ 2033 and the Privy Council decision in Broad Idea International Ltd v Convoy Collateral Ltd [2021] UKPC 24. These authorities provided the framework for determining when a third party can be subject to an injunction to prevent the dissipation of assets that are effectively the judgment debtor's property.

How did the Court use the cited precedents to justify the continuation of the freezing orders?

The court utilized Lakatamia Shipping v Morimoto and Broad Idea International Ltd v Convoy Collateral Ltd to confirm that the DIFC Court has the power to grant relief against third parties when there is a risk that assets will be dissipated to frustrate a judgment. The court noted that it was "fully alive" to the need to show that the assets held by R2 and R3 were susceptible to a procedure leading to the compulsory satisfaction of the judgment. By citing these cases, the court affirmed that the "good reason to suppose" test was met, given the evidence of D1's control over the related entities.

What was the final outcome of the applications, and what orders were made regarding costs?

The Court dismissed the Stay Application, the Consent Order Application, and the Discharge Application. Consequently, the Worldwide Freezing Orders and disclosure orders were continued on the same terms. Regarding costs, the court ordered:

D1 shall pay the Claimant’s costs of the Stay Application and the Consent Order Application to be the subject of submissions in writing, if not agreed

Furthermore, the court held:

R2 and R3 shall pay the Claimant’s costs of the Discharge Application to be the subject of submissions in writing, if not agreed.

What are the wider implications of this ruling for practitioners dealing with enforcement against complex corporate structures in the DIFC?

This decision reinforces the DIFC Court’s proactive stance in enforcement matters. Practitioners must anticipate that the Court will not be deterred by complex corporate structures if there is evidence of common control. The ruling serves as a warning that third parties who facilitate the defense of a judgment debtor or act as "related parties" in audited accounts risk being drawn into the enforcement net. Litigants seeking to discharge such orders must provide full and frank disclosure and demonstrate a lack of connection to the debtor's assets, which, as seen here, is a high bar when the evidence points to a unified control structure.

Where can I read the full judgment in GTC Trading S.A. v Hazem Abdolshahid Mahmoudi Rashed [2024] DIFC CFI 046?

The full judgment can be accessed via the DIFC Courts website: https://www.difccourts.ae/rules-decisions/judgments-orders/court-first-instance/cfi-0462023-enf-0222023-enf-0232023-gtc-trading-s-v-1-hazem-abdolshahid-mahmoudi-rashed-2-hmr-investment-holding-limited-and-1-r

Cases referred to in this judgment:

Legislation referenced:

• Rules of the DIFC Courts (RDC)
• DIFC Court Law (as applicable to enforcement and injunctions)