Claim No: CFI 037/2017

THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS

In the name of His Highness Sheikh Mohammad Bin Rashid Al Maktoum, Ruler of Dubai

IN THE COURT OF FIRST INSTANCE

BEFORE DEPUTY CHIEF JUSTICE SIR DAVID STEEL

BETWEEN

ILYAS GAFFAR SABOOWALA

Claimant

and

(1) SOMAN KUNIYATH KUNJUNNI NAIR

(2) MINI SOMAN THORUVIL VELUTHEDATH

(3) RAG FOODSTUFF TRADING LLC

Defendant

Hearing: 8 October 2017

Counsel: Harris Borr instructed by Galadari Advocates and Legal Consultants for the Claimant

Bushra Ahmed assisted by Paatrick Dillon-Malone (KBH Kaanuun) for the Defendants

Judgment: 9 October 2017


JUDGMENT OF DEPUTY CHIEF JUSTICE SIR DAVID STEEL


Transcribed from the oral judgment delivered on 9 October 2017, revised and approved by the Judge.

ORDER

UPON hearing Counsel for the Claimant and Counsel for the Defendants at a hearing on 8 October 2017

AND UPON reading the submissions and evidence filed and recorded on the Court file;

IT IS HEREBY ORDERED THAT:

1.The application for a mandatory injunction in the form of specific performance is refused.

2. The application for the appointment of a receiver is refused.

3. Paragraph 3 of the Order of Justice Sir Richard Field dated 21 August 2017 prohibiting the Defendants from causing any liability on the part of RAG save in the ordinary and proper course of business shall remain in effect.

4. The Claimant shall pay the Defendants’ costs, assessed in the amount of USD 95,000, within 14 days of the date of this Order.

Issued by:

Lema Hatim

Assistant Registrar

Date of issue: 10 October 2017

At: 11am

 

JUDGMENT

1.This is an inter parties application in which the Claimants seek an interim order for transfer of shares in the Third Defendant company which I will call RAG, together with reinstatement of himself or a nominee to manage the company pursuant to a Share Purchase Agreement (“SPA”). In the alternative, the Claimant seeks the appointment of a receiver over the affairs of RAG. There is a concurrent application for renewal of an order of Justice Sir Richard Field dated 23 August 2017 in regard to delivery up of shares to the Court, and obligations to produce annexures to the SPA and obligations to not incur liability in respect of or dispose of any of the assets of the company save in the ordinary and proper course of business. That concurrent application somewhat receded into the background and I will focus initially on the application for the mandatory injunction. In effect, it was an application for an interim order of specific performance.

2. Negotiations for the sale of RAG to the Claimant commenced in late 2015. The SPA was executed on 8 February 2015. It had been drafted it appears by the Claimant’s legal advisors. Subject to certain potential deductions, the purchase price was AED 10.5 million. This was in respect of all the shares in RAG but also in respect of the assets of the company. These assets were supposed to be itemized in various annexures to the SPA. Annexure 2 was to list all premises, equipment and fixtures, annexure 3 all vehicles and annexure 4 all intellectual property such as trademarks. Unfortunately, the annexures do not seem to have been drafted, or if they were, they are not annexed nor can they be found. This was something of a complication since any liability in regard to the shares and the assets were to constitute a deduction from the last instalment of the purchase price and furthermore any deduction in excess of that instalment was to trigger encashment of certain cheques which had been provided by the seller.

3. The important clauses in the SPA were as follows. Clause 2.1 provided that the purchase price of AED 10.5 million was to be payable in 5 instalments. Payments 1, 2 and 3 totalling AED 3 million had in fact been paid prior to execution of the SPA. The third instalment of those three was the sum of AED 1 million which was in respect of the transfer of the trademarks. Payment 4, which was due on completion of “due diligence by the purchaser” was to be in the amount of AED 2 million. Payment 5, being the residual AED 5.5 million, was payable in 6 equal instalments but after deduction of all liabilities, liens and charges.

4. Clause 2.2 provided that the two initial instalments of AED 1 million each triggered the transfer of all the vehicles, free of encumbrances. A difficultly subsequently arose in this regard in that the Road Traffic Authority seems to have stated that they could not be transferred to an individual. There was a dispute as to the reason for this restriction. The Claimant said it was because of outstanding loans: the Defendants say it was a routine restriction. I’m not sure the matter can be taken any further.

5. Clause 2.3 made provision for 2 undated cheques by way of security for the payments already made, with a cheque for AED 2 million to be returned on transfer of the shares, and a cheque of AED 1 million to be returned on the transfer of the trademarks. The Defendants contended that the reference to shares in respect of the first of those provisions was an obvious drafting mistake and should have referred to the vehicles.

6. Clause 2.4 provided for payment number 4 “upon completion of due diligence procedure” to the satisfaction of the purchaser. In the event of a failure to furnish information or cooperation by the seller or in the event that the due diligence exercise was otherwise unsatisfactory to the purchaser, the deal was to be unravelled by the return of the AED 3 million by the company.

7. Clause 2.5 provided for further adjustment of tranche 5 of the purchase price and also provided “the parties also agree that upon execution of this arrangement the Purchaser shall be entitled to nominate his representative to singly manage the affairs of the Company till such time the transfer of Shares is not affected due to the unsatisfactory Due Diligence or the Shares are duly transferred”.

8. Clause 2.7 made provision for the Claimant to be added as a signatory to the company’s bank accounts “from the date of signing the agreement onwards”. Clause 8 dealt with disputes. There was a provision for mediation failing which all disputes were to be submitted to the exclusive jurisdiction of this Court. Clause 10 provided that DIFC law was to be the governing law of the contract.

9. As I understand it, the Claimant was appointed manager of RAG as of 14 January 2016 and his nominee was added as a signatory to company bank accounts as of 8 February 2016. Furthermore, the trademarks were duly assigned the same day although there is an unparticularised dispute as to whether the assignment covered all the relevant matters. Be that as it may, the relevant guarantee cheque was not returned by the Claimant.

10. On 1 September 2016, the Claimant was furnished with a report by Messrs Crowe Horwath, a firm of auditors who had been appointed by Farmex, a company belonging to the Claimant’s brother, to provide assistance on the due diligence exercise. The executive summary viewed the balance of account against a sum of AED 4.25 million rather than AED 3 million supposedly paid. As regards the difference of AED 1.25 million it was a matter of dispute as to whether it formed part of the purchase price or not. According to the report the balance to be paid out in respect of instalments 4 and 5 was only AED 91,000.

11. Thereafter, the Defendants appointed Messrs Paul and Hassan, the company’s auditors, to comment on the Crowe Horwath report. In their report dated 12 January 2017, the equivalent balance to be compared with AED 90,000 was AED 8,382,689, the difference reflecting not just a lower figure in terms of liabilities, AED 6.721 million against AED 9.45 million but also a higher figure in terms of assets, AED 19.353 Million against 14.048 million. It is not possible to reconcile these figures at this interlocutory stage, suffice it to say that the Claimant vigorously sought to complete the SPA on the Crowe Horwath figure, while the Defendants equally vigorously resisted that and refused to accept it.

12. In the event, the Defendants reasserted some form of physical possession and control over the company on or about 10 May 2017. There then ensued a remarkable range of civil and criminal proceedings instituted both by the Claimant and Farmex in the mainland Dubai Courts seeking variously as a matter of civil action the removal of the company’s trade licenses and appointment of a receiver, and as regards criminal proceedings, sanctions in respect of dishonoured cheques being the cheques referred to earlier which had been presented by the Claimant and in respect of which the Defendants had in response deposited AED 3 million in the Dubai Courts on or about 9 July 2017.

13. I remind myself that this is an application for a mandatory injunction and it follows in my judgment that the Claimant must demonstrate that he has much the better of the argument on the material available, so that there is a high degree of assurance that he will establish his right at the trial: Nottingham Building Society v Eurodynamic Systems plc [1993] FSR 468 and Das Real Estate v National Bank of Abu Dhabi in this Court, CFI-002-2016 8 February 2016. If not enough as intimated at least in the Claimant’s skeleton argument that there is a serious question to be tried. This wholly fails to heed the risks of injustice in requiring a positive step to be taken by the Defendants as a result of a court order.

14. At the beginning of the hearing the respective positions of the parties appeared to be this. The Claimant’s position was that he was entitled to transfer of the shares and/or entitled to nominate the sole manager of the company. The process of due diligence had been completed. That demonstrated that only a further AED 91,000 was payable and as pleaded in the particulars of claim such was “accurate and binding on the Defendants for due diligence purposes”. The Defendants’ position was that the Claimant was in repudiatory breach of the SPA in various respects, including on insisting on completion in accord with the Horwarth report, secondly failing to return the guarantee cheques and thirdly abusing the prosecution process in the Dubai courts in regard to the dishonouring of the cheques which had been improperly presented.

15. I start with the due diligence process. It would appear to be the Claimant’s case that the due diligence process was indeed completed to his satisfaction. But this seems to be on the premise that the report by Messrs Horwath was binding on the parties when it clearly was not. Where a dispute arose as to the appropriate deductions, the issue was for determination in accord with Clause 8. The insistence on recognition of a liability for only AED 91,000 was misconceived. In any event, the outcome of any statisfctiory due diligence process would trigger the payment of tranche 4, but this was never paid.

16. In fact, the contention that the due diligence exercise was satisfactory is somewhat surprising. The Claimant made persistent complaints that he faced lack of cooperation and limited provision of information, a complaint which is repeated extensively in the Crowe Horwath report itself. Furthermore, the Crowe Horwath report contains innumerable examples of what were termed as dummy sales. These fictitious sales were said to have been recorded to support applications for bank finance and amounted to over AED 21 million.

17. Against that background, the apparent enthusiasm of the Claimant for completing the transaction might appear to be somewhat opportunistic. The Crowe Horwath report would on his analysis eliminate almost the entirety of the outstanding balance of the purchase price and the initial instalments of AED 3 million were recovered in consequence of the posting of security in response to the criminal proceedings. In short, the Claimant would be purchasing the company without furnishing any part of the AED 10.5 million purchase price. In my judgment, the application for transfer of the shares and the entitlement to manage the affairs of the company against that background would be most unlikely to succeed.

18. The Defendants’ case is that the Claimant is in repudiatory breach and such has been accepted thereby bringing the SPA to an end. This is put in various ways. In so far as the due diligence exercise was satisfactory the primary obligation of the Claimant was to make pay payment 4 in the sum of AED 2 million which he failed and refused to do. To the contrary, he wrongfully sought to insist on reducing the balance to AED 91,000 based on the alleged binding nature of the Crowe Horwarth report. He failed to return the cheque deposited to secure the transfer of the trade license. To the contrary, he sought improperly it seems to me to engage the Dubai Courts to exert pressure on the Defendants to accept the Claimant’s position by virtue of the potential criminal sanctions (thereby for good measure failing to engage the court which had exclusive jurisdiction pursuant to the terms of the contract).

19. In my judgment, it is strongly arguably that such activities fell squarely within the terms of Article 86 of the DIFC Contract Law No. 6 of 2004. Acceptance of that repudiation is evidenced by letters served by the Defendants’ legal advisors on 6 July 2017. In any event, the defence dated September 2017 also evidences acceptance of the breaches as repudiatory and it is difficult to identify any unambiguous affirmation in the meantime.

20. If on the other hand the due diligence process was unsatisfactory, then Clause 2.4 set out the machinery for unravelling the contract, rendering the claim for the transfer of the shares, the appointment as a manager and the designation as an account signatory redundant.

21. In the result, in my judgment, the Claimant has fallen well short of establishing that he has much the better of the argument on the material available and I do not accept that despite that, the interest of justice requires the Court to grant the relief sought. So, the application for a mandatory injunction in the form of specific performance is refused.

22. The alternative claim formulated by the Claimant is the appointment of the receiver. There seem to me to be significant difficulties about such an application. Firstly, it is far from clear that the Court has any jurisdiction to make such an order. Part 49 of the Rules of the DIFC Courts (“RDC”) merely makes reference to the laws of the DIFC. Secondly, the Claimant has failed to comply with the threshold requirements specified in RDC 49.10-49.13. Thirdly, the circumstances outlined earlier do not prima facie justify the appointment of the receiver. Accordingly, that application is also refused.

23. This leaves the matter of renewal of Sir Richard Field’s order for the deposit of the shares, the prohibition against incurring any liability other than in the ordinary and proper course of business and the production of Annexures 2-4 of the SPA.

24. I accept that the Claimant’s case is perhaps at least arguable. But the requirement for a deposit of the share certificates is in effect now redundant. There are apparently no share certificates and what was deposited was a copy of the trade license. That copy has been furnished to the Claimant and matters can be left in that way.

25. So far as production of the annexures is concerned, again, it is far from clear to me that that was an order requiring production of documents that actually exist and so I do not think that there is any need to renew that.

26. More difficult is paragraph 3 of the order which is prohibiting the Defendants from causing any liability on the part of RAG save in the ordinary and proper course of business. What is said is that there is evidence in the papers of activities which seem to be by way of fraudulent activity. The sham transactions if continued may create liabilities which are wholly inappropriate and improper. Since the requirement is not to incur liabilities other than in the ordinary course of business, it seems to me that that is an appropriate order to maintain and I do so.

27. I do so despite having some considerable concerns about the disclosure that was effected at the time when this order was sought from Sir Richard Field. I have some doubts as to whether his attention was properly drawn to the scale and scope of the civil and criminal proceedings issued in the Dubai courts or the return of the AED 3 million or the relationship between the Claimant and Farmex, but with some hesitation I have decided not to set aside the order on that ground, so paragraph 3 will survive.

28. The Claimant shall pay USD 95,000 to the Defendants by way of costs within 14 days.

Issued by:

Lema Hatim

Assistant Registrar

Date of issue: 10 October 2017

At: 11am