DIFC court rejects non-compete injunction in energy sector dispute

The dispute arose as David Lee Rapp and Prime Energy Markets FZCO sought to prevent a former employee from joining a rival firm by enforcing a suite of restrictive covenants.

On 18 March in an oral judgment the court of first instance refused the application by Rapp and Prime Energy Markets against former employee, Ahria Esphandiar Roushanbakhti, who joined Axis Limited, a DIFC-registered energy derivatives firm.

The judge rejected the request for an interim injunction to enforce non-compete clauses against the former employee and Axis, which were both represented by Pinsent Masons, finding that the non-compete in the shareholders’ agreement did not apply to the former employee as he had never been a shareholder.

The decision offers a number of important lessons on the enforceability of non-compete injunctions for employers operating across the DIFC and onshore UAE.

In this case, the shareholders agreement’s (SHA) non-compete clause required the relevant party to be, or to have been, a holder of B Shares. Since Roushanbakhti had never become a holder of B Shares, the covenant could not apply. The court said this was plainly unenforceable and disposed of this claim at the threshold of contractual construction, without needing to reach the balance of convenience.

The court was also asked to consider non‑competes in the employment contract and undertaking. It declined to grant injunctive relief due to material delay and because a substantial part of the alleged risk had already been mitigated by undertakings which had been offered to the court.

The employment contract’s three month restraint period was due to expire at the end of March 2026, leaving only 12 days to run at the date of the hearing. Rapp and Prime Energy Markets had waited approximately two months since the employee’s termination before issuing proceedings. That delay was fatal to the application. The court considered that granting an injunction in those circumstances would have been wrong.

Article 14 – a gateway and a warning

An important feature of the decision was the court’s approach to jurisdiction under the DIFC Courts Law No. 2 of 2024, and in particular article 14.

The jurisdictional basis for the application rested on article 14(a)(1), which confers jurisdiction on the DIFC courts over employment claims “by or against” a DIFC establishment.

Axis’ status as a DIFC‑registered company therefore provided what the court described as a plausible jurisdictional foothold, even though that the underlying employment contract and freestanding undertaking were governed by UAE law and contained exclusive jurisdiction clauses in favour of the onshore Dubai courts.

The court accepted that those exclusive jurisdiction clauses amounted to strong reasons to decline DIFC jurisdiction under Article 14(c). In isolation, and absent other considerations, they would ordinarily have been given effect.

However, the court declined to refuse jurisdiction at the interlocutory stage. This was driven by the risk of fragmented proceedings and potentially inconsistent outcomes if claims against the DIFC employer proceeded in the DIFC courts while employment‑related claims were determined in the onshore courts. The court considered it inappropriate to shut the DIFC door entirely where overlapping claims against a DIFC establishment remained before it.

As a result, the court determined that it had jurisdiction, notwithstanding the parties’ agreed onshore forum, while recognising that there were good reasons why it might otherwise have declined to exercise it.

The decision illustrates how article 14 has the potential to operate as a jurisdictional ‘gateway’ where a departing employee of an onshore employer joins a DIFC‑registered employer. Even where employment relationships are firmly onshore and subject to exclusive Dubai court clauses – where injunctive relief is not available – jurisdictional certainty may be undermined once a DIFC establishment becomes involved and relief is sought across multiple respondents. Employers should therefore proceed with caution and not assume that contractual forum selection alone will prevent DIFC proceedings where article 14 is engaged.

What this means for employers

Delay remains the most straightforward way to lose an injunction application. Undertakings were first sought on 12 January and refused on 17 February, yet proceedings were only issued in mid‑March. Where restriction periods are short, every day counts, so it is important to act as soon as possible.

Do not assume the DIFC courts will decline jurisdiction where the employee was previously employed by an onshore or freezone company

While the court acknowledged strong reasons to decline DIFC jurisdiction in respect of the employment contract and undertaking – both governed by UAE Federal Law – it nevertheless retained jurisdiction to avoid the risk of competing or inconsistent decisions being reached in different fora.

In a post‑2024 landscape, article 14 materially increases the likelihood that DIFC proceedings may continue notwithstanding existing, pending or prospective onshore forum clauses.

Where a departing employee joins a DIFC‑registered entity, employers should therefore assume that DIFC jurisdiction may be asserted, at least at an interim stage, even where the employment relationship and governing documents are onshore. In such cases, contractual certainty may give way to practical and procedural concerns around parallel proceedings and inconsistent judgments.

It is also important for employers to assess their ability to provide a cross‑undertaking in damages. The court questioned whether Rapp and Prime Energy Markets had the financial capacity to meet a damages award if an injunction were wrongly granted, which weighed against relief. Applicants should be prepared to address this point expressly.

The decision provides helpful clarity for employers operating in or recruiting into the DIFC, but leaves several substantive questions unanswered.

However, at trial, the court may still need to determine whether the employment contract non‑competes are enforceable under UAE Labour Law – a high bar given the restrictive statutory approach to post‑termination restraints and unavailability of injunctive relief under onshore law.

More broadly, the case highlights that jurisdictional boundaries in employment disputes involving DIFC entities remain fluid, and the scope of article 14 is likely to continue to be tested in future cases.