SBM BANK v RENISH PETROCHEM [2020] DIFC CFI 054 — The discretionary nature of the 'Business Exception' in worldwide freezing orders (19 November 2020)

Did the DIFC Court err in excluding the 'Business Exception' from the worldwide freezing order issued against Prime Energy in SBM Bank v Renish Petrochem?

The dispute centers on the Third Defendant, Prime Energy FZE, seeking to vary a worldwide freezing order (WFO) originally granted on 2 August 2018. The Claimant, SBM Bank (Mauritius) Ltd, alleged that Prime Energy, alongside Renish Petrochem FZE and Mr. Hiteshkumar Chinubhai Mehta, engaged in a sophisticated fraud. Prime Energy sought to include the "Business Exception"—a standard provision allowing a respondent to deal with assets in the ordinary course of business—which had been omitted from the initial WFO. The Court rejected this application, emphasizing that the inclusion of such an exception is not a default right but a matter of judicial discretion.

The Court’s refusal was grounded in Prime Energy’s failure to demonstrate that the exception was appropriate given its history of non-compliance with the WFO and its failure to disclose a significant judgment debt from the Dubai Commercial Court. As the Court noted:

To deal first with the question of whether an inference can be drawn from the square brackets in which the Business Exception appears in the Example Order, in my view, SBM’s position – that the Business Exception is an optional provision to be included insofar as is appropriate in the circumstances – is to be preferred.

The full order can be accessed via the DIFC Courts website.

Which judge presided over the Variation Application in CFI 054/2018 and when was the order issued?

The Variation Application was heard by H.E. Justice Ali Al Madhani in the DIFC Court of First Instance. The hearing took place via teleconference on 9 September 2020, and the formal order dismissing the application was issued on 19 November 2020.

What arguments did Prime Energy and SBM Bank present regarding the inclusion of the Business Exception?

Prime Energy argued that the WFO should be varied to include the Business Exception as a matter of course, asserting that the purpose of a freezing injunction is not to paralyze a defendant's legitimate commercial activities. They contended that the omission of the clause prevented them from conducting ordinary business operations, thereby exceeding the scope of a protective interim remedy.

Conversely, SBM Bank argued that the Business Exception is an optional provision, not a mandatory one. SBM highlighted Prime Energy’s history of non-compliance with the WFO, noting that the defendant had failed to provide evidence of ongoing business activity and had withheld information regarding a substantial judgment debt owed to another party in the Dubai Commercial Court. SBM maintained that in cases involving allegations of sophisticated fraud, the Court should exercise caution by refusing to grant the defendant the flexibility that the Business Exception provides.

What was the precise legal question the Court had to answer regarding the 'Example Order' in the RDC?

The Court had to determine whether the "Business Exception," which appears in square brackets within the Example Order found in Schedule A of Part 25 of the RDC, is a mandatory component of every freezing order or an optional provision that the Court may exclude based on the specific facts of a case. The doctrinal issue was whether the absence of this clause in the original WFO constituted a material error or an appropriate exercise of judicial discretion in the face of alleged fraud.

How did Justice Ali Al Madhani apply the 'appropriateness' test to the Business Exception?

Justice Al Madhani reasoned that the Court must look at the conduct of the defendant to determine if the exclusion of the Business Exception was justified. He noted that the primary purpose of a WFO is to prevent the dissipation of assets, not to provide a claimant with an unfair advantage or penalize the defendant. However, he balanced this against the defendant's demonstrated lack of transparency.

But in as much as the inclusion or exclusion of the Business Exception ultimately comes down to a question of appropriateness, it is necessary, in my judgment, to look at the circumstances of a case in order to be able to decide whether there was anything reprehensible about the Business Exception not being included in a particular freezing order.

The judge concluded that because Prime Energy had failed to comply with the WFO and had not been forthcoming about its financial obligations, the Court was justified in maintaining the WFO in its stricter form.

Which RDC rules and statutes were central to the Court's reasoning in SBM Bank v Renish Petrochem?

The Court relied heavily on the RDC Part 25, Schedule A, which provides the "Example Order" for freezing injunctions. The Court specifically analyzed the square brackets surrounding the Business Exception in the Example Order to interpret its optional nature. Furthermore, the Court applied RDC r. 38.7(1) regarding the allocation of costs, which dictates that the unsuccessful party generally pays the costs of the successful party.

How did the Court utilize English case law to interpret the scope of freezing injunctions?

The Court cited JSC BTA Bank v Ablyazov [2013] EWCA Civ 928 to reiterate the cardinal justification for freezing injunctions: preventing the dissipation of assets that would otherwise be available for enforcement. The Court quoted the following principle from that case:

Such orders are interim remedies. They are not imposed to give a claimant security for his claim, to impose a pre-judgment penal imposition on the defendant or to give the claimant an unfair advantage in the litigation.

Additionally, the Court referenced Halifax Pie v Chandler (2001) EWCA Civ 1750 to acknowledge that while freezing orders should not interfere with a defendant's ordinary business, the Court retains the discretion to exclude such exceptions when the circumstances—such as allegations of sophisticated fraud—warrant a more restrictive approach.

What was the final disposition and the specific order regarding costs in this application?

The Court dismissed the Variation Application, meaning the WFO remained in its original form without the Business Exception. Regarding costs, the Court ordered the Third Defendant to bear the financial burden of the application:

The Third Defendant shall pay the Claimant its costs of the Variation Application, on the standard basis, to be assessed by a Registrar if not agreed.

What are the wider implications for practitioners seeking to vary freezing orders in the DIFC?

This decision serves as a warning that the "Example Order" in the RDC is a template, not a rigid statutory requirement. Practitioners must anticipate that if a client has a history of non-compliance or has failed to disclose material financial information, the Court will be reluctant to grant the standard "Business Exception."

In my finding, the Business Exception is optional, its exclusion in the present matter was consistent with SBM’s case and Prime’s conduct after it had notice of the WFO suggests that SBM was, at least at that time, correct in its conclusions. It follows, in my view, that questions of material non-disclosure do not arise.

Litigants must now demonstrate full transparency and compliance with existing orders before seeking to relax the terms of a freezing injunction.

Where can I read the full judgment in SBM Bank v Renish Petrochem [2020] DIFC CFI 054?

The full judgment is available on the DIFC Courts website and via the CDN link.

Cases referred to in this judgment:

Legislation referenced:

• RDC r. 23.16
• RDC r. 38.7(1)
• RDC Part 25, Schedule A (Example Order)