Tim Elliot: Welcome to Lawgical, the U.A.E.’s first, and still only, regular legal podcast. My name’s Tim Elliot. As ever, I’m at the Dubai-based legal firm, HPL Yamalova & Plewka in Jumeirah Lakes Towers here in Dubai, with the Managing Partner, Ludmila Yamalova. Nice to see you, as always.
Ludmila Yamalova: Good to be here, Tim, as always.
Tim Elliot: This time on Lawgical, Ludmila, freezing orders, which wasn’t a term I’d heard until a day or two ago, but I am kind of up to speed. Can we start with why you might need a freezing order? Let me put this to you in simple terms. If you were to apply for a freezing order against me for something untoward, and let’s just leave it untoward, I might have done something that would mean you would be within your rights legally to cause me financial inconvenience or even financial pain, and you would be applying to freeze my assets, I guess. Is that basically what it is?
Ludmila Yamalova: Yes. Well, basically what it is, it’s an opportunity or a tool for a party that has a dispute with another party to ensure that while the dispute is being litigated or adjudicated that the defendant does not run away, for example, or dispose of his or her assets, before the court issues its judgment. That is basically, at a high level, the definition. It is a form of interim relief or an injunction that prohibits a defendant, in this case let’s make it you, from disposing of or dealing with or moving your assets for a specific period of time. It is not indefinite. It is important to understand that it is not indefinite, and it is not final. It is an interim order, and it doesn’t have the effect of taking your money or taking your assets away from you. It just has the effect of putting a freeze on them until the final decision is made.
Tim Elliot: Okay. It at least limits my access to my assets in order to secure the judgment in court that you want to get to?
Ludmila Yamalova: Right. Ultimately, it aims to ensure that the defendant has not divested or transferred or got rid of the assets prior to the court issuing a judgment, obviously, for specific financial compensation. It is not like it applies to anything, but ultimately, if there is an anticipation that there will be a judgment against you, and I’m afraid that you will, in the meantime, because as we know court cases take time, so if in the meantime, I think that you may be inclined to either pack up shop and leave or transfer your assets to someone else, it is basically a precautionary attachment or a precautionary measure that allows me to put things on hold, to freeze things, as far as your value or your worth is concerned.
Tim Elliot: Okay. Let’s assume, and this is not much of a stretch, that I am ethically dubious, and you decide to do that. The thing about a freezing order is you are not obliged to let me know that you applied for a freezing order.
Ludmila Yamalova: Right. The freezing order is applied, what is called, ex parte, which is where the defendant does not know. I apply to the court and the defendant is not served until the court makes a decision on whether a freezing order is appropriate or not. I have made the request to the court, and the court has decided. You know nothing about it. And it may be that the court rejects it, and you will not know about it. If the court rejects it, you have never been served because you are not a party to that particular case because it is ex parte, so you don’t even know about it. You will only know about it once the court issues the order, and then I am required to serve you. Then ultimately you have the ability to potentially challenge it. It is not like you don’t have the ability to challenge it whatsoever, but basically you are challenging a decision that has already been made.
Tim Elliot: Yeah. Yeah.
Ludmila Yamalova: There is another interesting concept that applies to freezing orders. In many cases and the way that we have seen it be applied in the U.A.E. and in other countries as well, you don’t even actually need to have, using me and you as an example, I don’t even need to have a substantive case filed against you yet.
Tim Elliot: So, you can just call up the court now and say, look, that guy that does the podcast is in the office – a little bit dodgey – and get a freezing order against me? There has got to be more to it than that.
Ludmila Yamalova: There is a little bit more to it. It depends also where you are applying for it, and this also the purpose of this discussion today is just to outline the different options that exist as far as the U.A.E. is concerned and the differences between them. But there has to be, depending on which court you are applying to in the U.A.E., there has to be some evidence that there is an actual case that is either being filed or is about to be filed. There is that, and then again, it depends on which court, and also there has to be some evidence or at least indicia that there is evidence of risk of you fleeing, for example, or divesting or dumping your assets. Then also, that particular freezing order is also attached to a requirement that there is a substantive case filed, again, it depends on which court you are applying to, but in the local courts within seven days you have to apply for a substantive case. But yes, ultimately it is possible that, as far as you know, we don’t have a dispute, and all of a sudden you receive a document that says freezing order and your assets, as per this order, are frozen, and you don’t even know there is a court case open. But then that order, in most cases, only stays if I follow up with a substantive case. The logic behind it to justify it – it seems like a very draconian tool, by the way, but it can also be very effective – because the logic behind it, as we often know, there is a dispute between the parties and in particular for some sort of financial compensation or monetary compensation, then once the party that, at least allegedly, is owed money, once they know about a court case, then there are so many different mechanisms by which they can become poor, so to speak, or become nonexistent. They can leave the country or, more importantly, they transfer assets at that point, once they just sniff that there is the possibility of a court case. That is the logic behind it.
First, you issue the judgment. That is why you do it ex parte, so you don’t notify the other parties, as not to spook them. But the court obviously has to be convinced. The court is not always convinced. Also, the scope of the freezing order is subject to discussion because obviously a lot of claimants want to request a broad freezing order on everything globally, but the court will also challenge the claimant and have them prove the expansiveness or the scope of the freezing order in terms of jurisdiction, in terms of amounts, and then in terms of, for example, authorities or assets that are being covered by it. But it is really between the claimant and the judge, without the defendant’s knowledge by the time the order is issued. Later on, you can request to get – again, it depends on where things happen – but later on you can get, for example, minutes of meetings or decisions from the judge so later on the defendant can see what was the discussion that took place between the judge and the claimant.
Tim Elliot: So, the judge would take advice from that substantive case and freeze – I don’t know if the person has the fast cars or a bank account here and another bank account here – in theory, those assets could be frozen rather than saying, you can’t go run around on a Tuesday. It is very much tangible assets that are caught that they say you can no longer use. It’s not freedom of movement.
Ludmila Yamalova: Correct. Although, in the local courts in the U.A.E., it also may be connected with the option of restricting travel outside of the U.A.E. As I mentioned earlier, the freezing order, that is the concept of freezing orders. It is an interesting judicial tool which we have seen used expansively and arguably it seems arbitrarily and perhaps extraordinarily and comprehensively where all of sudden the person has no access to anything that they touch. Because also what is important is the freezing order usually are accompanied by what is called a penal notice, which outlines the repercussions for the breach and is basically contempt of court, fines, or imprisonment. In other words, let’s say the court issues a freezing order that says you, Tim Elliot, cannot touch money in your bank account, for example, until this judgment. That order, for the time being – again, it depends on which court you are filing in – for the time being that order is only addressed to you, not to the court. It is not necessarily that the bank froze the money. It is that you know that there is a court decision that disallows you from using that money. Therefore, if you do actually use that money because the bank account has not been frozen, then allegedly and in theory, you are violating the penal notice which has pretty severe repercussions. There are penalties such as contempt of court and such. For example, this can apply in cases, let’s say there is a dispute and you have expensive art or watches or jewelry. When the court issues its freezing order, it is not something that you can take to a third party and say, hey, by the way, put a freeze on this bank account or put a freeze on that car, because that asset, the personal property, is your own house and it is under your own control, but the idea is that if you are later found to have violated, gotten rid of your art or watches or jewelry, then you will be deemed to have been in contempt of court or to have breached the court’s orders, which can follow with, not only penalties, but also some criminal sanctions. The tool can be fairly serious and draconian for some.
It has been used in particular in divorce cases. For example, when there are acrimonious divorces, and not to use a stereotype, but let’s say the husband is the breadwinner and has significant wealth, and now that divorce is anticipated he is trying to divest all these interests so as not to share with his soon-to-be ex-wife or to limit his liability to compensate expenses for the kids. Freezing orders have often been used in those kinds of cases where the courts would issue the freezing order just to prevent the party from going around and getting rid of all of their assets. They are basically trying to maintain the status quo until there is a substantive decision.
It can be very positive because we have certainly seen cases where people just go crazy just to avoid the liability and avoid the responsibility. They just go and they just get rid of their stuff or transfer it into different names. There are so many different ways of transferring these days where you are transferring away from yourself but really you are still owning it, through offshores and other legal vehicles. It has benefits, and obviously that is why it exists, but there is another side because it can also be extremely abusive, very abusive because it can really prevent – especially when you have a court case and all of a sudden, there is a freezing order and you as a litigant or as a party, you have access to cash, because you need cash, you need money, to hire lawyers and to litigate in court, but as part of the freezing order the access to your bank accounts or to your cash is basically frozen. In a way it is paralyzing your ability to litigate.
Tim Elliot: In Dubai courts it is called a precautionary attachment. I know that. A freezing order is kind of the colloquial term, I suppose. But you can go to Dubai courts, you can go to DIFC courts, I believe, and also, am I right in saying ADGM courts can issue orders like this as well?
Ludmila Yamalova: Exactly. At a high level, to recap or perhaps to highlight to those who are not aware, the U.A.E. has a very interesting, almost like a hybrid type of judicial system where we are generally, as a country, a civil law jurisdiction, and we have our own courts. We call them the mainland courts, and every emirate has its own court system, more or less. We have a federal system in addition to the emirate-based system. They are all called mainland courts that are subject to the U.A.E. federal laws. They are in Arabic and are part of the civil law jurisdiction.
Then, within the U.A.E. as well, we have two other similar courts, almost like exceptions. There is the DIFC courts in Dubai, which is the Dubai International Financial Centre Court, and in Abu Dhabi we have the Abu Dhabi equivalent to the DIFC and it is the ADGM courts, which is the Abu Dhabi Global Market. Both of these courts are actually common law courts, as compared to the civil law jurisdiction on the mainland. These are common law courts and they are English based courts. They are subject to their own laws. They have their own laws and their own jurisprudence, so they are not subject to the federal laws. They are created by virtue of obviously the relevant laws that gives the authority and the autonomy and sovereignty to have their own subsets of legal systems.
For the purposes of this discussion, we have the three different courts. We have the DIFC court in Dubai, we have the ADGM court in Abu Dhabi, and we have the mainland courts. Therefore, the discussion of a freezing order and the term freezing order, it actually does, in the context of the DIFC courts and ADGM courts, it actually does exist as a phrase. It is actually a term of art, a freezing order. But, as you rightfully said, in the mainland courts, it is called a precautionary attachment. But the concept is more or less the same.
In fact, we have recently seen where parties have started to use the DIFC courts, for example, to use the DIFC freezing order tools to circumvent the mainland precautionary attachment for a number of reasons. One of the reasons is that it is easier to obtain a freezing order in the DIFC courts than it is in the mainland courts, in certain cases especially. We have seen parties play the conflict of laws or, in other words, forum shopping, where you use a different forum to benefit themselves. But basically yes, a freezing order in the ADGM courts and the DIFC courts is a term of art that stems from the English system and English laws because those jurisdictions are based on common law which is based on and a derivative from the English legal system and the English laws, and so therefore, they adopted the same concept from the English jurisprudence. In England in particular, the freezing order is a tool that has been used a lot in the last several decades, and it is very common. It can be extremely severe, expensive, and it is immediate. It has been used a lot by foreigners, by the way, even foreign governments who are trying to pursue a particular citizen. To either get them to the table or to just exert their own leverage, often they would apply for this freezing order while a case was being litigated. The standards to apply a freezing order, in particular in the English system, seems to be fairly loose, if you will, not very specific, so you just need to have some semblance of a prospect of having a successful judgment, but you do not have to prove that in fact you have a substantive case that has a very high chance of success. You just need to show that you will be filing a court case that may ultimately lead to a judgment in your favor, it may lead to a judgment in your favor, and just on the basis of that alone, you can apply for the freezing order. But in the mainland courts in Dubai, like you said, it is a precaution and it is called precautionary attachment, and it is provided by the U.A.E. civil procedure law, Article 247 to 251. Under these provisions, a claimant can request for an attachment over the defendant’s assets prior to even filing a substantive legal claim, but they have to follow up with an actual substantive claim within seven days. So, in practice, whenever a claimant asks for a precautionary attachment, they ask specific entities to basically put a freeze, such as on bank accounts, property, vehicles, company shares, or even furniture, office machinery and equipment. You can request the court to please put all of this on the precautionary attachment, a temporary freezing, until we get onto the merits. But in the mainland Dubai courts, there is a little bit more of a requirement, such as actually being able to obtain the freezing order and you have to show credible evidence that the debtor may actually escape the U.A.E. and you also need to show that the debtor actually owes money to the creditor. You cannot just say, I think Tim owes me X amount of money in the mainland courts. Basically, there has to be a confirmed commercial debt. For example, there is a bounced check from you. That is a confirmed commercial debt, so on the basis of that alone, I can ask for a freezing order. You may still argue that the check that she has, that I have paid part of it already, but that is an example where the local courts require some sort of evidence to show that you actually owe me money before they will start attaching assets.
Now, precautionary attachment is used in the U.A.E. specifically, in addition to the cases where there is, for example, a confirmed commercial debt, as I said with a bounced check, once you have an appeal judgment because then the court views that if you have an appeal judgment, that is already a confirmation of some sort of an obligation. That is when precautionary attachments are used most often. There are options in the mainland courts, but they are more scrutinizing in terms of the evidence that the courts will require from the claimant before they obtain a precautionary attachment.
But in the DIFC courts, it seems to be a lot broader and a lot – I am hesitant to use the words, a lot more loosey goosey – but it is a lot more tenuous. For example, we recently had a case where a party filed a request for a freezing order against a party in the DIFC while there was not a single case in the DIFC. There was no case in the DIFC whatsoever. In fact, there were many cases going on between the parties on the mainland in local courts, and yet the parties chose not to apply for the freezing order in the local courts, but rather to go to the DIFC and file for a freezing order in the DIFC because it is easier to prove in the DIFC since the burden of proof and the requirements for qualifying for a freezing order are a lot more, I guess, easier to prove than in the local courts. That was a great example where, at least in my view, it seemed that – obviously reasonable minds can differ – but it is a bit of an abusive process almost through forum shopping. There were a number of substantive cases in the local courts, so the parties could have ask for precautionary attachment in any one of those cases in the local courts, and they should have done that, or the claimant in that case, but because the threshold is different and requires more evidence and substantiation of your claim, and it is not as expansive, and it does not have, for example, the penal notice like the DIFC freezing orders do, so the he claimant in that case decided to circumvent the local jurisdiction and go to the DIFC court and file a freezing order there ex parte, not serving the party, only on the basis of basically, in short, a pretty complex, legally nuanced argument, but ultimately they said, listen, once we have, if we have a favorable judgment, at least one of these judgments, we may be able to enforce in the DIFC courts or in the DIFC jurisdiction, in the DIFC itself, maybe. That in itself, as far as the jurisdiction is concerned, the DIFC court say, okay, that gives us enough of a jurisdiction hook. It may seem a little bit abusive potentially, but again, it can work. It depends on who is using it.
There is a flip side as well. On the one hand, it is easier to obtain a freezing order in the DIFC courts and in the ADGM courts because it based on much more established English practices with more relaxed standards, but also as part of it, the penalty for the violation of penal notice is quite significant. In our client’s case, the penalties for being perceived to have violated the freezing order, we are talking about hundreds of thousands of dollars and it is pretty fast. It all seems a little dramatic and draconian. Remember, the case may never be won. All the substantive cases may be dismissed altogether, or the defendant may actually win them all, and yet in the meantime, they are handcuffed and cannot do anything. And on top of that, whenever they try to get access to money to pay for the lawyers, they may additionally suffer the consequences of these heavy penalties, all of which, by the way, can be lifted if the substantive case falls apart.
Tim Elliot: I was going to ask that because the point is, the precautionary attachment is limited in terms of time. It can only apply for a certain amount of time. You have to act. If you apply for one, you have to act relatively quickly. It is something like 30 days, I think, isn’t it?
Ludmila Yamalova: Well, in the local courts, it is actually eight days, but it is more about, when you apply precautionary attachment before you file a substantive case.
Tim Elliot: Okay.
Ludmila Yamalova: Without a substantive case, it is in the local courts. So, you have to make a precautionary attachment and then within eight days you have to file a case. If you don’t file, then the precautionary attachment gets lifted.
Tim Elliot: Right.
Ludmila Yamalova: Okay. If the DIFC courts, for example, in the particular case there were already substantive cases filed, but the cases were filed in a different jurisdiction, i.e., in the mainland jurisdiction, not the DIFC courts. They used that as an example of, well, look, we already have these substantive cases. Also, it was even more interesting because the claimant in the DIFC case was arguing that in terms of the expansiveness of the freezing order when they were trying to convince the court to give them a broader freezing order, the court challenged the substantive claims that had been filed, and the defendant said they would file soon another substantive case which will support our current request for a freezing order. It was kind of crazy, if you think about it. All of a sudden, the court is issuing these judgments or these decisions on the promise of something, and yet, in the meantime, it affects the person’s life very rapidly and very radically. Again, this is like any other judicial tool, it can be of much benefit or it can be used and abused.
Tim Elliot: Do freezing orders apply just locally? You go to the local courts here. You receive your precautionary attachment. Is that just for local assets? Could you pursue somebody who may have more assets outside of the U.A.E.?
Ludmila Yamalova: A great question because when you apply for a freezing order through the DIFC courts or ADGM courts, because these are common law jurisdictions which are based on English laws, there are a number of MOUs, they call them, and agreements between let’s say the DIFC and the ADGM courts and other foreign courts, especially if you have another English court, and that is why the English basis for the civil law system, basically you cannot actually ask for freezing orders to be global. You can, and the court could issue it, and it becomes a matter of whether those other jurisdictions where you were trying to enforce this freezing order will actually honor it. But certainly, a lot of those freezing orders are global. Let’s say the U.A.E. court, the DIFC court decides he has a global freezing order, but now the burden is on the claimant to go to these different jurisdictions and say, okay, we have a freezing order from the DIFC, please enforce it. It depends on where it is that the plaintiff is trying to enforce it. Let’s say if they are trying to enforce it, or ratify the freezing order, or expand the freezing order into England, it is pretty much easier because it is issued on the same principles in the DIFC court as would apply in England. Basically, that is the idea of this tool.
I have to tell you, obviously the U.A.E. has had its own precautionary attachment tool that we have used successfully, but we always knew that the threshold is a lot more strenuous. Other jurisdictions seem to use it a lot more liberally. It is an interesting use of a tool, especially since in that case, ultimately in all the substantive cases, the freezing order was lifted completely. That was after the court had already penalized our client, the defendant in this case, for allegedly violating the freezing order and the violation there was because they did not respond in time, and after they had already argued jurisdiction and so on and so forth, the court said, no, the freezing order stays and you are also subject to all sorts of penalties for not complying with the order in time, i.e., not responding to the request for documents. It was pretty scary looking, but then all of the freezing order was lifted altogether, and all of it basically disappeared because the substantive cases were lost. It is this dichotomy. On the one hand, you are just freezing somebody’s life. On the other hand, you are doing it on the basis of what may be very tenuous, if not completely flawed, at the end of the day by the virtue of the substantive cases falling apart, which is exactly what happened here.
Interestingly though, in the DIFC courts, and ADGM courts are similar, filing a request for a freezing order is also extraordinarily expensive. It’s very expensive because it is based on very refined legal nuanced arguments and theories and obviously because of the damage it can cause the party, there is the threshold in terms of arguing to the judge, the guarantees that are also required to be put on, and also there are some requirements if the party abuses this or the court later finds they have abused it, there is also a penalty on the claimant as well. But overall, it is extraordinarily expensive. You would only really do it if there was serious money at stake.
Tim Elliot: Could you give a figure for what you mean by extraordinarily expensive, or does it depend on the case, case by case?
Ludmila Yamalova: Well, I would tell you that in this particular case there was, I think, over the course of just two months or so that the parties had argued, and the claimants who asked for the freezing order had argued to the court that their client had already incurred – this was over the course of a month or two months and two or three hearings maximum – and they had already incurred something to the order of 1 million pounds in legal fees.
Tim Elliot: Which is $4.5 million dirhams.
Ludmila Yamalova: Yeah. Just over the course of a month or two, and it was just purely on the freezing order, not on the substantive cases, just the freezing order. That is what I mean by it’s expensive. It is extraordinarily expensive, and that I guess is the flip side. Only those with very deep pockets and a lot of money and who are either extremely vindictive or truly – if you give them the benefit of the doubt – truly believe that their interests could be compromised if they don’t freeze the status quo, would use it. Historically, I think if you read books and stories about freezing orders, a lot of the time, especially in the recent decade, they have often been abused by politicians and foreign powers.
Tim Elliot: Only for the very wealthy indeed. That’s another edition of Lawgical, this time freezing orders or precautionary attachments, as they are also known here in the U.A.E. As ever, thank you for watching or listening or both. Thanks to our legal expert, the Managing Partner here at Yamalova & Plewka, Ludmila Yamalova. Thank you once again. Appreciate it.
Ludmila Yamalova: Thank you, Tim. It was enjoyable, as always.
Tim Elliot: You can find us at LYLAW on social media: Facebook, Instagram, TikTok, LinkedIn. You can find our podcasts at LYLawyers.com. If you would like a legal question answered in a Lawgical episode or you would like to talk to a qualified U.A.E. experienced legal professional, click Contact at LYLawyers.com.
