This order clarifies the high threshold for obtaining security for costs against foreign claimants, establishing that procedural delay in a foreign jurisdiction does not equate to a "real risk of non-enforcement."
What specific factual dispute and monetary stakes led the Defendants to seek security for costs in Ajial National Education Company v Al Aman Investment Company?
The dispute arises from a Share Purchase Agreement (SPA) executed on 15 May 2019, under which the Claimants sold 100% ownership of Dar Al Salaam Education Company to the Defendants for an adjusted price of KWD 18 million. The core of the litigation involves the Defendants’ refusal to pay a "Hold Back Amount" of KWD 4.5 million, which the Claimants allege is due. Additionally, the Claimants seek reimbursement for pre-contract guarantee obligations and salaries paid on the Defendants' behalf.
The Defendants, seeking to mitigate their financial exposure, filed an application for security for costs under RDC 25.97, requesting a total of USD 453,446.71. By the time of the application, the Defendants had already incurred over USD 210,000 in legal fees, with total projected costs for the proceedings estimated to exceed USD 1 million. The application was predicated on the fact that all parties are based in Kuwait, and the Defendants argued that enforcing a DIFC costs order against the Kuwaiti Claimants would be fraught with practical difficulties.
Which judge presided over the security for costs application in the DIFC Court of First Instance?
Justice Michael Black presided over the application in the Court of First Instance. The hearing took place on 26 January 2023, with the final order and written reasons issued on 30 January 2023.
What were the primary legal arguments advanced by Mr. Lyon for the Claimants and Mr. Lovett for the Defendants regarding the enforcement of costs in Kuwait?
Mr. Lovett, representing the Defendants, argued that because the Claimants are resident outside the UAE and their assets are located in Kuwait, the Court should exercise its discretion under RDC 25.101 to order security. He contended that the enforcement of a DIFC judgment in Kuwait is a complex, time-consuming, and expensive process, citing evidence that such procedures could take over two years and involve significant irrecoverable costs. He suggested that these hurdles created a practical barrier that necessitated security to protect the Defendants from being left with an unenforceable costs order.
Mr. Lyon, for the Claimants, countered that the Defendants failed to meet the evidentiary burden required to justify such an order. He maintained that the Claimants are substantial entities with assets in Kuwait and that the mere existence of a foreign legal process does not constitute a "real risk" of non-enforcement. He argued that the Defendants' application was a tactical maneuver intended to exert pressure on the Claimants rather than a genuine attempt to secure against insolvency or bad faith, particularly given the late stage at which the application was filed.
What was the precise doctrinal question Justice Michael Black had to answer regarding the "substantial obstacles" test for security for costs?
The Court was tasked with determining whether the procedural requirements and potential delays inherent in enforcing a DIFC judgment within the Kuwaiti legal system satisfy the threshold of "substantial obstacles" or "real risk of non-enforcement" required to trigger an order for security for costs under RDC 25.97. The doctrinal issue centered on whether the DIFC Court should treat the enforcement of its judgments in a signatory state of the Riyadh and GCC Conventions as inherently risky, or whether the burden remains strictly on the applicant to prove that the foreign court would be unwilling or unable to enforce the order.
How did Justice Michael Black apply the test for security for costs and evaluate the "real risk" of non-enforcement?
Justice Black emphasized that the DIFC Court must be cautious not to discriminate against foreign litigants who are entitled to access the court. He clarified that the mere existence of a foreign enforcement process, even one that is slower or more expensive than domestic enforcement, does not automatically justify security. The judge highlighted that the focus must remain on the likelihood of actual recovery rather than the administrative burden of the process.
The relevant risk is non-enforcement, not difficulty in enforcement and this is the risk to which the test of “substantial obstacles” is directed.
Justice Black further noted that the Defendants had failed to provide evidence that the Kuwaiti courts would be unable or unwilling to enforce a DIFC judgment. He observed that the procedures for enforcement in Kuwait are not fundamentally different from those in other UAE emirates where the DIFC Courts routinely operate. Consequently, he concluded that the Defendants had not discharged their burden of proof.
Which specific statutes and RDC rules did Justice Michael Black cite when evaluating the Defendants' application?
The Court primarily relied on RDC 25.97, which governs applications for security for costs, and RDC 25.99, which mandates that such applications be supported by written evidence, including a statement of costs already incurred and an estimate of future costs. Justice Black also referenced RDC 38.35 regarding the requirements for cost statements. Furthermore, the Court looked to RDC 25.101 and 25.102, which outline the conditions under which the Court may exercise its discretion to order security, specifically noting that the claimant being resident outside the UAE is a relevant, but not sufficient, factor on its own to warrant an order.
How did the Court utilize English and DIFC precedents to interpret the burden of proof in security for costs applications?
Justice Black relied on the established principle that the burden of proof rests entirely on the party seeking security. He cited [2010] DIFC CA 001 to reiterate that the applicant must establish facts sufficient to justify the order.
As the Court of Appeal emphasized in Khorafi at [49] “The burden of establishing facts sufficient to justify an order of security for costs rests on the applicant.
The Court also drew upon Nasser v United Bank of Kuwait [2001] EWCA Civ 556 and PJSC Tatneft v Bogolyubov [2019] Costs LR 977 to distinguish between "difficulty in enforcement" and "real risk of non-enforcement." Justice Black used these authorities to demonstrate that the DIFC Court’s approach mirrors the English courts' reluctance to penalize foreign claimants simply because they are based in jurisdictions with different legal procedures, especially when those jurisdictions are party to reciprocal enforcement conventions.
What was the final disposition of the application and the specific costs order made by the Court?
The Court dismissed the Defendants' application in its entirety. Justice Black found that the Defendants had failed to discharge the burden of proving that enforcement of a costs order in Kuwait would face substantial obstacles.
On the whole evidence I am not persuaded that the Defendants have discharged the burden to justify an order for security for costs and the Application is dismissed.
As a result of the dismissal, the Court ordered the Defendants to pay the Claimants' costs associated with the application, which were assessed at USD 45,000.
What are the wider implications of this ruling for practitioners litigating against foreign claimants in the DIFC?
This judgment serves as a critical reminder that the DIFC Courts will not grant security for costs as a matter of course simply because a claimant is based in a foreign jurisdiction. Practitioners must be prepared to provide concrete evidence of a "real risk" of non-enforcement, such as evidence of asset dissipation or a demonstrated refusal by a foreign court to honor DIFC judgments.
Furthermore, the Court signaled a clear disapproval of late-stage applications for security, noting that such moves are often viewed as tactical pressure rather than genuine protective measures. Litigants should anticipate that the Court will be skeptical of applications filed after significant costs have already been incurred, as this suggests the application is not motivated by a fear of irrecoverable costs.
Where can I read the full judgment in Ajial National Education Company v Al Aman Investment Company [2023] DIFC CFI 105?
The full judgment can be accessed via the DIFC Courts website: https://www.difccourts.ae/rules-decisions/judgments-orders/court-first-instance/cfi-1052021-1-ajial-national-education-company-kscc-2-talal-khalifa-talal-al-jeri-v-1-al-aman-investment-company-kscp-2-al-ammar-2
Cases referred to in this judgment:
| Case | Citation | How used |
|---|---|---|
| PJSC Tatneft v Bogolyubov | [2019] Costs LR 977 | Distinguishing difficulty vs. risk |
| Danilina v Chernukhin | [2018] EWCA Civ 1802 | Principles of security for costs |
| Nasser v United Bank of Kuwait | [2001] EWCA Civ 556 | Establishing the "real risk" test |
| De Bry v Fitzgerald | [1990] 1 WLR 352 | Procedural fairness |
| [2010] DIFC CA 001 | [2010] DIFC CA 001 | Burden of proof on applicant |
Legislation referenced:
- RDC 25.97 (Security for Costs)
- RDC 25.99 (Evidence for Security for Costs)
- RDC 25.101 (Discretionary factors)
- RDC 25.102 (Conditions for security)
- RDC 38.35 (Cost statements)
- Riyadh Convention
- GCC Convention