Salem Mohammed Ballama Altamimi & ors v Emirates NBD Bank PJSC, HSBC Bank Middle East Limited, ICICI Bank UK Plc and others [2021] DIFC CFI 085 [1]


AG's Dubai Commercial Disputes Team, led by Partner Shane Jury along with Managing Associate Antonia Grieve-Yates and Associate Charlotte Davis, recently acted on behalf of a Syndicate of international banks (the Syndicate) in successfully defending a 'Part 8' claim in the DIFC Courts brought by a panel of Trustees [2] seeking recognition of parallel restructuring/bankruptcy proceedings in the Abu Dhabi Courts (the Trustees). [3]  In dismissing the Trustees' Claim, the Court handed down a significant judgment regarding the operation of the DIFC Insolvency Law.  

Background 

The Trustees brought a claim under Part 8 of the Rules of the DIFC Court (the Claim) requesting the DIFC Court to, among other things, recognise the restructuring proceedings commenced in the Abu Dhabi Courts by the Debtor (Mr Khalifa Butti Bin Omair Al Muhairi) and each of the Joined Litigants (being H.E Saeed Al Qebaisi and 28 corporate entities) (the AD Proceedings) as 'foreign main proceedings' under Article 15 of Schedule 4 of the DIFC Insolvency Law No 1 of 2019 (the DIFC Insolvency Law). 

The purpose of the Claim was to stay proceedings brought by the Syndicate (and other creditors) in the DIFC Courts seeking recovery of significant sums.  The AG team is acting for the Syndicate on those claims in the DIFC Courts and recently obtained significant judgments for over US $300 million against the Debtor and certain of the Joined Litigants.  

In bringing the Claim, the Trustees also sought orders for (1) a stay of all proceedings before the DIFC Courts against the Debtor and the Joined Litigants and (2) the DIFC Courts to recognise and enforce the Commencement Order of the Abu Dhabi Courts dated 27 July 2021 (the Commencement Order) staying proceedings against the Debtor and Joined Litigants (relying on Article 7(6) of the Judicial Authority Law No 12 of 2004 (the JAL) (as well as other relevant legislation)). 

Schedule 4 of the DIFC Insolvency Law incorporates the UNICTRAL Model Law (Model Law). Relevant to the Claim, the Model Law provides for recognition of 'foreign proceedings' upon a claim being made by a 'foreign representative'. 

The Trustees brought the Claim on the following basis:

1. The Trustees are a 'foreign representative' under the Model Law and therefore entitled to apply directly to the DIFC Court for recognition (Model Law, Articles 2(d) and 9); and 

2. The AD Proceedings are 'foreign main proceedings' under the Model Law because Abu Dhabi is the place where the Debtor has the centre of his main interests (Model Law, Article 2(b)). 

Decision 

Justice Sir Jeremy Cooke rejected the Claim in full. His Honour found there were fundamental issues with the Claim [4] which were ultimately fatal to its success. We have considered below the key points arising from Justice Cooke's decision and the practical effect of this decision for parties involved in DIFC Court proceedings where restructuring or bankruptcy proceedings may be commenced in parallel in another jurisdiction (including onshore UAE). 

Practical Considerations

Justice Cooke's decision (outlined below) is an important reminder that the Model Law can only be relied on in specific circumstances and confirms the DIFC Courts as an appropriate choice of forum when potentially facing a dispute with distressed debtors, especially those who are individuals. 

The key practical considerations arising from this case are:

  • Parties litigating against an individual (such as a personal guarantor) in the DIFC Courts can take some comfort that, should the individual commence restructuring/bankruptcy proceedings in another jurisdiction, the individual is not entitled to rely on the procedures set out in the Model Law to seek a stay of or derail proceedings in the DIFC Courts. 
  • Parties may therefore wish to consider to confer exclusive jurisdiction on the DIFC Courts in any personal guarantees entered into with individuals with extensive assets in the Middle East. 
  • When commencing restructuring /bankruptcy proceedings in the UAE, parties should be mindful of who is the 'debtor' for the purposes of those proceedings. It is not possible to rely on the mere joinder of other parties to those proceedings to justify that 'foreign proceedings' are on foot for the purposes of recognition in the DIFC Courts. 
  • When bringing or defending an application under the Model Law, parties should be aware of the scope of the trustees' mandate. Anything that falls short of a Court order to administer the reorganisation or the liquidation of a debtor's assets will not meet the criterion for recognition in the DIFC.  For example, an order that simply authorises a process that might lead to a reorganisation or liquidation is insufficient.
Were the Trustees a 'foreign representative'?

The Model Law defines a 'foreign representative' as a person or body, including one appointed on an interim basis, authorised in a 'foreign proceeding' to administer the reorganisation or the liquidation of the debtor's assets or affairs or to act as a representative of the foreign proceeding.

Justice Cooke, in his analysis, considered the scope of the Trustees' appointment in the AD Proceedings. As part of this analysis he considered the terms of the Commencement Order and found that no order had been made for any reorganisation or liquidation by the Abu Dhabi Court. Rather, the Trustees' function was 'preparatory' in nature and limited to putting forward proposals for restructuring for the approval of the creditors and the Abu Dhabi Court on the basis of information gathered by them in relation to the assets and liabilities of the Debtor, with a list of creditors where liability is accepted or disputed. [5]

It follows, the Trustees' role does not extend to administering any reorganisation or liquidation until such time as any proposal is accepted and/or an order to this effect is made by the Abu Dhabi Court.  Whilst his Honour's findings on this point were unequivocal, the Judge did note that there were more fundamental issues with the Claim, which we consider in detail below. 

Does the DIFC Insolvency Law permit recognition of foreign proceedings against individuals?

Article 117(3) of the DIFC Insolvency Law states that the Model Law has force in the DIFC in respect of Foreign Companies.  The Judge found that the operation of the Model Law in the DIFC is therefore restricted to Foreign Companies and does not apply to individuals. As a consequence, Justice Cooke found the Model Law provisions set out in the DIFC Insolvency Law cannot apply to the Debtor, who is an individual. 

Were the AD Proceedings 'foreign proceedings'?

As the Model Law does not apply to individuals (such as the Debtor) the question arose as to whether it applied to the Joined Litigants (which included 28 companies).  

As outlined below, the characterisation of the 'Debtors' and the 'Joined Litigants' in the AD Proceedings and the subsequent Commencement Order was of critical importance to Justice Cooke's reasons for deciding the AD Proceedings were not 'foreign proceedings' for the purposes of the Model Law.

The Model Law defines 'foreign proceeding' as 'a collective judicial or administrative proceeding in a foreign State, including an interim proceeding… in which proceeding the assets and affairs of the debtor are subject to control of supervision by a foreign court, for the purposes of reorganisation or liquidation'.

In his reasons, Justice Cooke drew a distinction between the Debtor and the Joined Litigants, noting that the Joined Litigants did not apply to the Abu Dhabi Court for restructuring or liquidation as debtors and were not recognised as such in the AD Proceedings. [6] The UAE Bankruptcy Law permits the joinder of persons whose assets overlap with a debtor's assets in a way which is hard to desegregate.  Following this reasoning, his Honour found that the Joined Litigants were not classified as insolvent debtors petitioning for restructuring or liquidation; they had simply been joined because of an overlap of assets. [8]

It follows, the Trustees could not assert that the Joined Litigants (all but one of which are companies) were 'debtors' for the purpose of the definition of 'foreign proceeding', which refers specifically to a proceeding where the assets and affairs of 'the debtor' are subject to control or supervision by a foreign court.  Therefore, his Honour found that the DIFC Court could not recognise the AD Proceedings, even if they had been brought by a 'foreign representative' (which, as noted above, his Honour found they were not). [9]

Comment

The Court's decision on this point serves as an important lesson that the Model Law can only be invoked to recognise 'foreign proceedings' involving companies and not individuals. It follows, where proceedings have been commenced against an individual in the DIFC Courts (such as a high net worth personal guarantor), creditors can take some comfort in the knowledge that should that individual apply to commence restructuring or insolvency proceedings in another jurisdiction, they cannot rely on the Model Law to have those proceedings recognised and to stay the DIFC Court proceedings. 

Other Key Findings

Other key findings: 

1. The DIFC Courts are the appropriate forum to determine forgery allegations 

Both the Debtor and one of the Joined Litigants have asserted in DIFC Court proceedings that the personal guarantees allegedly given by them were the subject of forgery and therefore are not valid. 

Justice Cooke noted in his decision that issues of forgery can only be appropriately decided, if genuinely in dispute, by the court process. [10] His Honour went further and confirmed that in these circumstances the DIFC Courts are the preferable forum to determine allegations of forgery. This point is made by his Honour in no uncertain terms. He says: "there can be no doubt in the mind of any objective observer that this Court is better equipped to determine issues of forgery with the benefit of disclosure, cross examination and expert evidence". [11]

Therefore, the Court may have been minded to exercise its discretion to lift any stay of proceedings (even if the Claim had succeeded) so as to permit these contested issues of forgery to be determined by the DIFC Courts.

2. The DIFC Court has a broad discretion to grant or lift any stay under the Model Law

Whilst his Honour ultimately found there were no 'foreign proceedings', his Honour did confirm that the Model Law clearly states that upon the recognition of a 'foreign proceeding' that is a 'foreign main proceeding'[12], there is an automatic stay of proceedings concerning the debtor's assets, rights, liabilities and obligations. However, the Court has a discretion to lift an 'automatic' stay.  

In addition, where the Court recognises a foreign proceeding, which is a 'non-main proceeding', the imposition of any stay is discretionary. His Honour noted that in the context of the Court's power to lift the automatic stay or to impose a discretionary stay, the essential criterion to be adopted by the Court is that it must do what is right and fair according to all of the circumstances of the case. [13] This suggests the Court recognises its broad discretion to lift or order a stay, as the circumstances permit. 

3. Stay orders may not be enforceable under the JAL

The Trustees submitted that the DIFC Court should recognise and execute the Commencement Order (and the stay ordered by the Abu Dhabi Court when making the Commencement Order). The Trustees sought to rely on Articles 7(4), 7(5) and 7(6) of the JAL (as well as other DIFC laws) in support of this submission. 

His Honour rejected the Trustees' argument. Article 7(4) of the JAL states "[w]here the subject matter of execution is situated in DIFC, the judgments, decisions and orders rendered by Dubai Courts or Arbitral Awards ratified by Dubai Courts shall be executed by the execution judge of the Courts subject to [certain conditions". 

His Honour found there was no 'subject matter of execution' because the decision of the Abu Dhabi Court to stay proceedings was a procedural decision of that court (not a final and executory decision) which does not have extra-territorial effect in the DIFC and therefore no process of execution can apply. [14]

The Addleshaw Goddard team was led by Partner Shane Jury and included Antonia Grieve-Yates and Charlotte Davis.

Addleshaw Goddard instructed John Taylor QC of Fountain Court Chambers. 

Key Contacts

Shane Jury

Shane Jury

Partner, Commercial Disputes
UAE

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Emma Tormey

Emma Tormey

Managing Associate, Commercial Disputes
UAE

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Footnotes

[1] The judgment of Justice Sir Jeremy Cooke dated11 February 2022 can be accessed online here: https://www.difccourts.ae/rules-decisions/judgments-orders/court-first-instance/1-salem-mohammed-ballama-altamimi-2-david-nigel-croll-stark-3-paul-james-leggett-v-1-emirates-nbd-bank-pjsc-2-hsbc-bank-middle-e 

[2] The panel of Trustees is comprised of Mr Salem Mohammed Ballama Altamimi (appointed 27 July 2021) and Messrs David Stark and Paul Leggett both of Deloitte (appointed 26 September 2021 following a grievance petition filed in the Abu Dhabi Courts by the Syndicate and other creditors).

[3] The Claim was also defended by other creditors separate to the Syndicate. These parties were separately represented in the action. 

[4] Para 18.

[5] Para 18.

[6] Para 28. 

[7] Para 16.

[8] Paras 16, 27.

[9] Para 29. 

[10] Para 56

[11] Para 44.

[12] 'Foreign main proceeding' is defined in the Model Law as 'a foreign proceeding taking place in the State where the debtor has the centre of its main interests'.

[13] Para 35.

[14] Para 50.