Following a successful trial and the issuance of a final judgment, the DIFC Court of First Instance ordered the release of EUR 350,000 in fortification funds, confirming that security for undertakings becomes redundant once the underlying litigation has concluded in the claimant's favor.
What was the dispute regarding the EUR 350,000 fortification sum in Larmag Holding B.V. v First Abu Dhabi Bank PJSC?
The dispute centered on the Claimant’s application to recover EUR 350,000 that had been paid into the DIFC Court as security for undertakings given at the outset of the litigation. In 2019, Larmag Holding B.V. had obtained an injunction against the First and Second Defendants regarding specific corporate bonds. As a condition of that injunction, Larmag was required to provide "fortification"—a sum of money held by the Court to compensate the Defendants should they suffer losses due to an improperly granted injunction.
Following a successful trial and the issuance of a final judgment in August 2021, Larmag sought the return of these funds. The core of the dispute was whether the security remained necessary despite the fact that the Claimant had already secured a substantial judgment against the Third, Fourth, and Fifth Defendants. As noted in the Court’s reasoning:
Lamag undertook in paragraph (2) of schedule B to the Original Injunction to pay into court, the sum of EUR 350,000 as security for Larmag’s undertaking at paragraph (1) of Schedule B in relation to any loss suffered by the First and Second Defendants as a result of the Original Injunction (the “Fortification Sum”).
The Claimant argued that because the trial had concluded and the judgment was final, the risk of loss to the Defendants—which the fortification was intended to cover—had effectively vanished. The application sought both the release of the funds and a formal variation of the Post-Judgment Freezing Order to remove the ongoing requirement for this security. The full order can be reviewed at the DIFC Courts website.
Which judge presided over the application for the release of the fortification sum in CFI 054/2019?
The application was heard and determined by Justice Sir Richard Field in the DIFC Court of First Instance. The order was issued on 15 December 2022, following a preliminary ruling on the matter issued earlier that year on 9 November 2022.
What were the positions of Larmag Holding B.V. and the Defendants regarding the return of the EUR 350,000?
Larmag Holding B.V. argued that the purpose of the fortification sum had been fully satisfied by the conclusion of the trial. Counsel for the Claimant emphasized that the judgment debt owed by the Third, Fourth, and Fifth Defendants exceeded EUR 13 million, rendering the retention of a EUR 350,000 security deposit unnecessary and disproportionate. They contended that the Defendants were already adequately protected by the existing post-judgment freezing orders and the finality of the court’s decision.
The First and Second Defendants, who were the original beneficiaries of the fortification, confirmed in writing that they had no objections to the payment of the funds back to Larmag. This lack of opposition was a critical factor in the Court’s decision, as it signaled that the parties protected by the original undertaking no longer required the security to be maintained.
What was the precise legal question Justice Sir Richard Field had to answer regarding the redundancy of security?
The Court had to determine whether, under the Rules of the DIFC Court (RDC), it possessed the discretion to release security funds when the underlying litigation has reached a final judgment, even if the formal wording of the original injunction order had not been explicitly varied to account for the conclusion of the trial. Specifically, the Court addressed whether the "Fortification Sum" remained a necessary safeguard for the Defendants or if the final judgment rendered the security requirement "redundant" as a matter of law.
How did Justice Sir Richard Field apply the doctrine of redundancy to the fortification sum?
Justice Sir Richard Field reasoned that the primary purpose of the fortification was to protect the Defendants against potential losses arising from the injunction during the pendency of the trial. Once the trial was concluded and the Claimant was successful, the risk profile of the case changed entirely. The judge concluded that the security was no longer required because the Defendants were already protected by the judgment debt itself.
In my judgment, the Application should be granted for the following reasons: Return of the Fortification Sum 12.
The Court further reasoned that there was no procedural barrier to releasing the funds. Even without a formal variation of the original injunction, the written confirmation from the First and Second Defendants that they did not object to the release provided sufficient grounds for the Court to order the payment out of court. The judge explicitly agreed with the evidence provided in the sixth affidavit of Keith Lyall Hutchison, which argued that the security was no longer serving its intended purpose.
Which RDC rules and specific order provisions were cited in the Court’s decision?
The Court’s decision was grounded in the application of RDC 33.5 through 33.8, which govern the management of funds paid into court. Justice Sir Richard Field specifically referenced the following provisions:
Paragraph (2) of Schedule B to the Post Judgment Freezing Order provided that the Fortification Sum shall stand as security for Larmag’s undertakings given in paragraph (1) of Schedule B to the Post Judgment Freezing Order. 7.
These rules provided the procedural framework for the Court to vary the Post-Judgment Freezing Order and authorize the Assistant Registrar to release the funds to the Claimant’s legal representatives, Clyde & Co LLP.
How did the Court interpret the protection afforded to the Defendants in the context of the Post-Judgment Freezing Order?
The Court emphasized that the Defendants were not left vulnerable by the release of the EUR 350,000. Because the Third, Fourth, and Fifth Defendants were already subject to a freezing order and were liable for a judgment debt exceeding EUR 13 million, the Court found that the security was redundant.
The Third, Fourth and Fifth Defendants, as judgment debtors jointly and severally liable to Larmag in damages for an amount in excess of EUR 13 million, are more than adequately protected by Larmag’s undertaking in paragraph (1) of Schedule B to the Post Judgment Freezing Order without any requirement for security to be provided in respect thereof.
The Court also noted that the First and Second Defendants had provided written confirmation of their lack of objection, which effectively neutralized any remaining concerns regarding the release of the fortification.
What was the final disposition of the application and the specific orders made by the Court?
The Court granted the application in its entirety. The specific orders were as follows:
The sum of EUR 350,000 paid by the Claimant to the DIFC Court as fortification of (i) the undertaking given by the Claimant at paragraph (1) of the Original Injunction and (ii) the undertaking given by the Claimant at paragraph (1) of Schedule B of the Post Judgment Freezing Order (the Fortification Sum) is to be returned to the Claimant together with any interest accrued thereon by payment to the Claimant’s legal representatives, Clyde & Co LLP. 2.
Additionally, the Court ordered that:
The Claimant is released from any continuing undertakings under paragraph (2) of Schedule B to the Original Injunction or paragraph (2) of Schedule B to the Post Judgment Freezing Order to provide or maintain the sum of EUR 350,000 in Court as security for the Claimant’s undertakings at paragraph (1) of Schedule B to the Original Injunction and paragraph (1) of Schedule B to the Post Judgment Freezing Order. 3.
Finally, the Court ordered the Third to Fifth Defendants to pay the Claimant’s costs of the application, to be assessed by the Registrar on the standard basis if not agreed.
What are the practical implications of this ruling for DIFC practitioners handling post-judgment security?
This ruling confirms that the DIFC Court adopts a pragmatic approach to the release of security funds. Practitioners should note that fortification is not a permanent fixture of an injunction; it is intrinsically linked to the risk of loss during the litigation process. Once a final judgment is rendered, the justification for maintaining such security is significantly weakened.
Litigants should anticipate that if they are successful at trial, they can move to release fortification funds by demonstrating that the security is redundant. Obtaining written consent from the parties protected by the undertaking is a highly effective way to streamline this process, as it provides the Court with clear evidence that the security is no longer necessary.
Where can I read the full judgment in Larmag Holding B.V. v First Abu Dhabi Bank [2022] DIFC CFI 054?
The full order and reasons can be accessed via the DIFC Courts website at: https://www.difccourts.ae/rules-decisions/judgments-orders/court-first-instance/fi-0542019-larmag-holding-bv-v-1-first-abu-dhabi-bank-pjsc-2-fab-securities-llc-3-mr-abdulla-saeed-bakheet-obaid-aljaberi-4-mr-a or through the CDN link: https://littdb.sfo2.cdn.digitaloceanspaces.com/litt/AE/DIFC/judgments/court-first-instance/DIFC_CFI-054-2019_20221215.txt.
Cases referred to in this judgment:
| Case | Citation | How used |
|---|---|---|
| Larmag Holding B.V. v First Abu Dhabi Bank | CFI-030-2019 | Consolidated with current proceedings |
| Larmag Holding B.V. v First Abu Dhabi Bank | CFI-054-2019 | Main proceedings |
Legislation referenced:
- Rules of the DIFC Court (RDC), Rules 33.5 – 33.8