Claim No: CFI 026/2014
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 THE DEPUTY CHIEF JUSTICE SIR DAVID STEEL
STANDARD CHARTERED BANK
INVESTMENT GROUP PRIVATE LIMITED
Hearing: 6 March 2017
Counsel: James Abbott and Victoria Hambly (Clifford Chance LLP) for the Claimant
James Barratt, Alain Farhad and Jonathan Taunton instructed by Squire Patton Boggs for the Defendant
Judgment: 16 August 2017
JUDGMENT OF THE DEPUTY CHIEF JUSTICE SIR DAVID STEEL
Summary of Judgment
|The Deputy Chief Justice (DCJ) here granted the Claimant’s, (SCB) application for immediate judgment under Rule 24.1 of the Rules of the DIFC Courts (“RDC”) on its claim for outstanding principal. The application relates to two loan agreements between the Claimant as lender and the Defendant (“IGPL”) as borrower dated 3 June 2009 and 9 May 2010 respectively and also under a share pledge agreement between SCB and IGPL dated 3 June 2009, whereby certain shares were pledged by IGPL as security for the 2009 loan.
For the purposes of the present proceedings, the Court had to be satisfied as regard the claims for principal and the declaration as to the enforceability of the share pledge agreement that IGPL has “no real prospect” of successfully defending the claim. The DCJ rejected the suggestion made by IGPL that even if there was no such real prospect there was some other compelling reason for a trial. There was no challenge to SCB’s case that the outstanding loan monies have not been repaid. The DCJ rejected IGPL’s contention that the anti-setoff clause in the 2009 loan agreement (governed by UAE law) could not be relied upon by SCB as protection against any claim to set off because the clause was no bar to “mandatory” set-off as provided for in Article 369 of the Federal Civil Code (No. 5 of 1985).
The same unpersuasive argument was advanced to counteract the impact of the decision in Dubai Court of Cassation Case No. 77/2011 (Commercial) dated 21 September 2011 that the right of set off under the Code can only be established if there is a counterclaim to a debt claim that is “indisputable, payable and known”. IGPL accept that even after 6 years an expert is needed to assess the quantum of their counterclaim.
The 2010 loan agreement governed by English law also contained an anti-setoff clause which was clear and unequivocal and valid and enforceable as such. Moreover, the DCJ accepted the supplementary submission that in the absence of a liquidated debt no right of legal setoff exists. As regards a right in equity, no assessment of quantum has been attempted. Yet such is also a precondition of the doctrine of equitable setoff and there was no basis for asserting a right of equitable setoff let alone that it would be “manifestly unjust” to enforce the claim without account of the cross claim.
Interest to be determined in due course. Furthermore, IGPL may pursue their counterclaim if so advised but there would be no stay of this judgment in the meantime.
This summary is not part of the Judgment and should not be cited as such.
UPON hearing Counsel for the Claimant and Counsel for the Defendant on 6 March 2017
AND UPON reading the submissions and evidence filed and recorded on the Court file
AND PURSUANT TO RDC 36.40 and subject to any application by the Defendant within 7 days, paragraph 1 of the below Order is hereby amended to include subparagraphs (a) and (b)
IT IS HEREBY ORDERED THAT:
1.The Claimant be granted immediate judgment in the terms sought in their application, as follows:
(a) Investment Group Private Limited shall pay Standard Chartered Bank USD 106,425,788.33 (one hundred and six million four hundred and twenty-five thousand seven hundred and eighty-eight United States Dollars and thirty-three cents) within 14 days of the issuance of the immediate judgment on 16 August 2017.
(b) Standard Chartered Bank is entitled to enforce its security under the Share Pledge between Standard Chartered Bank and Investment Group Private Limited dated 3 June 2009, and shall be permitted to sell all or any number of the Pledged Shares, as selected by Standard Chartered Bank, at market value at the Dubai Financial Market and/or Abu Dhabi Securities Exchange upon the relevant date of actual enforcement of this declaration, in order to satisfy and collect all amounts determined as outstanding in favour of Standard Chartered Bank pursuant to this Order.
2. The Defendant’s Application Notice CFI-024-2016/6 dated 23 February 2017 to add a counterclaim be granted, subject to the condition of withdrawal of any claim before the Dubai Courts in regard to the counterclaim and any reference to the Union Supreme Court in regard thereto, payment of any outstanding order as to costs in respect of the counterclaim and an undertaking not to issue further proceedings in relation to the counterclaim in the UAE.
3. The Defendant shall pay the Claimant’s costs to be assessed by the Registrar if not agreed.
Date of issue: 16 August 2017
Date of re-issue: 5 September 2017
1.This is an application for immediate judgment under Rule 24.1 of the Rules of the DIFC Courts (“RDC”). It relates to two loan agreements between the Claimant (“SCB”) as lender and the Defendant (“IGPL”) as borrower dated 3 June 2009 and 9 May 2010 respectively and also under a share pledge agreement between SCB and IGPL dated 3 June 2009, whereby certain shares were pledged by IGPL as security for the 2009 loan.
2. As regards the two loan agreements, SCB seeks judgment in respect of principal but not interest. In this respect, the position in short is as follows:
(a) On or about 4 June 2009, SCB and IGPL entered into a Multi-Currency Term Loan Facility pursuant to an offer letter dated 3 June 2009 which incorporated SCB’s general terms. Pursuant to the offer letter, SCB agreed to make available a facility of up to USD 130 million. The entire facility was drawn down on June 2009. Pursuant to the terms of the facility, IGPL was obliged to repay the principal under the loan in five instalments commencing 10 June 2010. IGPL failed to pay the instalment due on 10 March 2011 or any subsequent instalments. This failure constituted an event of default under the loan and the share pledge. On 5 August 2014 SCB issued a demand notice cancelling the 2009 loan, declaring as due and payable all amounts of principal and giving notice that any remaining security available under the share pledge was enforceable. Following allocation of various sums recovered under the share pledge, the principal outstanding as at the date of the Particulars of Claim was USD 57,926, 207.47.
(b) On or about 9 May 2010, SCB and IGPL entered into a US dollar term loan facility whereby SCB agreed to make available USD 54 million. The loan was secured by:
(i) an assignment agreement between IGPL and Ruby Living Courts (as assignees) and SCB dated 9 May 2010; and
(ii) an account pledge and assignment agreement between IGPL as pledger and SCB as security agent dated 9 May 2010.
The entire loan was drawn down on 13 May 2010. Pursuant to the terms of the facility, IGPL was obliged to repay the loan in equal instalments payable quarterly from 9 November 2010. IGPL failed to pay the instalment due on 9 February 2011 in full or any subsequent instalments. These failures constituted events of default under the 2010 loan (and the 2009 loan). By letter dated 5 August 2014, SCB issued a demand notice cancelling the loan and declaring as due and payable all amounts of principal. As at the date of the Particulars of Claim the outstanding amount of principal was USD 48,499,580.86.
3. The claim form was issued on 6 August 2014. The Particulars of Claim are dated 10 February 2016. This two-year gap calls for some explanation. Furthermore, although a defence was served on 6 April 2016, it was not until 23 February 2017 (about one week before the new date for the hearing of this application) that IGPL sought leave to submit a counterclaim which put forward a substantial claim by way of set off to what was otherwise essentially an admission of the Claimants’ claim in respect of principal. Both the merit of that claim to set off (and the application to pursue it) are informed by the various proceedings that occupied the long period of delay.
4. Following service of the claim form in these proceedings, IGPL filed an application on 21 September 2014 challenging the jurisdiction of this Court. In the alternative, IGPL sought a stay of the claim on the premise that, if this Court did have jurisdiction, it should not exercise it on the grounds that the Sharjah Courts constituted the convenient forum for resolution of any dispute under the loan agreements.
5. Those applications failed at first instance. Indeed, the challenge to jurisdiction was abandoned because, SCB being a licensed entity within the DIFC Courts, it was accepted that exclusive jurisdiction was properly founded on Article 5 of the Judicial Authority Law No. 12 of 2004 as amended. It was also conceded that the parties had not opted out of that jurisdiction given that for the purposes of the 2009 loan (as well as the share pledge agreement) the parties had expressly submitted to the exclusive jurisdiction of the courts of the UAE (of which this Court forms a part) and in regard to the 2010 loan SCB was contractually entitled to select any competent jurisdiction.
6. The alternative submission that considerations of convenience required a stay in favour of the Sharjah Courts failed for a range of reasons including the fact that any dispute as to jurisdiction needed to be resolved by the Union Supreme Court (“USC”) under the Constitution.
7. This judgment was handed down on 15 January 2015. A few days earlier on 12 January 2015 an executive officer of IGPL commenced proceedings against SCB in the Sharjah Civil Court. The primary nature of the claim seems to have been the contention that the share pledge agreement was invalid as having been executed without authority. However, on 31 May 2015, the Court of First Instance in Sharjah issued a judgment that it had no jurisdiction because SCB was based in Dubai and the loan agreements were to be performed in Dubai. An appeal by IGPL to the Sharjah Court of Appeal was dismissed on 15 September 2015. A further appeal to the Sharjah Supreme Court was dismissed on 29 December 2015.
8. IGPL had meanwhile appealed against the judgment of the DIFC Court of First Instance. This was dismissed on 19 November 2015. During the course of the appeal IGPL had sought to withdraw the concession that the DIFC Courts had competent jurisdiction and also the concession that the parties had not opted out of DIFC Courts jurisdiction. Although IGPL was permitted to withdraw its concession as to jurisdiction it was held to have been correctly made. The Court of Appeal refused to allow the concession that there had been no opt-out of DIFC Courts jurisdiction to be withdrawn but again concluded that it had been correctly made. As regards the refusal of a stay on forum conveniens grounds the Court of Appeal confirmed that disputes as to jurisdiction were matters for the USC.
9. As already noted, pleadings in the present action finally got underway in February 2016. SCB served an application for immediate judgment in conjunction with its reply on 18 May 2016. IGPL had however issued a claim against SCB in the Centre for Amicable Settlement of Disputes in the Dubai Court. This claim was in respect of AED 200 million for alleged loss and damage by way of set off against any debt owed. The claim was transferred to the Dubai Court of First Instance on 30 May 2016.
10. On 6 June 2016, IGPL made an application to the USC for determination of an alleged conflict of jurisdiction. Very shortly thereafter IGPL issued an application in the DIFC Courts on 9 June 2016 for a stay of the DIFC Courts proceedings pursuant to Article 60 of Federal Law No. 20 of 1973. This was rejected on 28 July 2016.
11. The hearing of SCB’s application for immediate judgment was fixed for 16 October 2016. But on 11 October 2016, IGPL issued an application pursuant to Article 4 of Decree No. 19 of 2016 for adjudication of an alleged conflict of jurisdiction between the Dubai Courts and the DIFC Courts. On 13 October 2016, the Chairman of the Tribunal established under Decree No. 19 imposed a stay on both sets of proceedings pending determination by the tribunal of the manner of resolving the conflict. On 12 February 2017, the Tribunal published its ruling that the DIFC Courts were the competent court.
12. The application for immediate judgment was re-fixed for 6 March 2017. On 25 February 2017, IGPL issued an application for leave to serve a counterclaim. The proposed counterclaim was said to replicate the claim that had been advanced before the Dubai Courts. It arose from alleged breaches by SCB of the terms of the share pledge agreement. Although not quantified, it was based on the complaint that SCB had failed to return excess shares in accord with the agreement and failed to collect dividends in regard to the pledged shares. In the result, it was asserted that the counterclaim constituted a “substantive legal and equitable setoff” despite the anti-setoff provisions contained in the loan agreements. The absence of any quantification of the counterclaim was said to flow from the fact that assessment of the loss could only be achieved with the assistance of an expert.
13. The reaction of SCB was set out in a response dated 1 March 2017 to the effect that the application would be consented to but only on terms in regard to termination of proceedings before the Dubai Courts and the USC, payment of outstanding costs as well as an undertaking not to issue any fresh proceedings in regard to the counterclaim. IGPL responded that it was unwilling to accept those terms absent withdrawal of the application for immediate judgment.
14. There matters stood at the time of the exchange of skeleton arguments on 2 March 2017 and the commencement of the oral hearing on 6 March 2017. By this stage the stance of IGPL was extraordinary:
(a) It was contended that it was only after the tribunal had determined that the DIFC Courts was the appropriate forum “that it became appropriate for the Defendant to bring a counterclaim in the DIFC proceedings.” This was submitted despite the fact that IGPL had spent two years seeking to pursue the subject of the counterclaim in inappropriate forums. In short, the proposition that “the apparent delay in issuing the counterclaim is a necessary consequence of the procedural history” was nothing short of absurd.
(b) The counterclaim was duly considered at the oral hearing against the background of SCB’s concession in the expectation to put it no higher that the relevant undertakings would be forthcoming. However, it was made clear at the end of the hearing by IGPL that the undertakings would not be consented to. I ordered that the counterclaim would only be entertained by the Court on the basis of the undertakings and that absent those undertakings the application for immediate judgment would be considered alone.
(c) On 13 March 2017, IGPL applied for leave to appeal against my order. The undertaking at which this application was directed was that relating to withdrawal of the referrals to the USC. The application also sought a stay pending the determination of the appeal. The application was refused by Justice Sir Jeremy Cooke on the basis that my order constituted an appropriate exercise of case management. This outcome is all the less surprising given the decision of the USC in Mishmish v. Al Bait Al Helou Real Estate 4 of 2016 which determined that the USC had no jurisdiction in respect of matters properly referred to the tribunal.
15. Following the hearing, this judgment was prepared in draft by 27 April 2017. The Court then received notification that IGPL had filed a further application under Decree 19. In response, the Chairman of the Tribunal issued an order staying these proceedings. The grounds of the application were that the conditions imposed on the presentation of the counter-claim were in contradiction to the order of the tribunal to the effect that the DIFC Courts was the competent court. On 14 August 2017, the tribunal rejected the application on the grounds that there were by definition no proceedings in the Dubai Courts and thus no conflict of jurisdiction and further, in any event, the application was barred by virtue of the principle of res judicata.
16. The lengthy reference to the chronology of these proceedings supports the clear view that I have formed that IGPL had expended an enormous amount of time and money to disrupt and delay the proceedings. Those efforts have included the pursuit of a wide range of misconceived propositions of law. The determination to avoid the resolution of the claim leads to the clearest inference in my judgment that to the knowledge of IGPL the defence and counterclaim lack any credibility. Furthermore, the background is of relevance in considering any alleged injustice in proceeding with the claim alone. That all said I turn to the substantive issues.
17. There was (and could have been) no dispute as to the basis on which the Court may grant immediate judgment under Part 24 of the RDC. For the purposes of the present proceedings, the Court must be satisfied as regard the claims for principal and the declaration as to the enforceability of the share pledge agreement that IGPL has “no real prospect” of successfully defending the claim. I reject the suggestion made by IGPL that even if there was no such real prospect there was some other compelling reason for a trial.
18. As already indicated there is no challenge to SCB’s case that the outstanding loan monies have not been repaid. IGPL’s case is that the amounts involved must be reduced by reason of claims reflecting breaches of the loan agreements and share pledge by SCB. SCB’s position on this contention is:
(a) There is no evidential support for the allegations of breach underlying the damages claim.
(b) Furthermore, the damages claim is unquantified. Indeed, it is accepted that expert evidence is required to make good the claim.
(c) Both loan agreements contain clear and unequivocal anti-setoff clauses.
(d) Accordingly, there is no call to postpone judgment on the claim: any valid cross claim can conveniently and properly be determined in due course.
19. It is convenient to start with an analysis of the anti-setoff clauses. If they are enforceable that would be the end of the matter. In this regard, Clause 19.3 of the 2009 loan agreement provides:
“19.3. No set of by the Borrowers.
All payments to be made by a Borrower under the Finance Documents shall be calculated and be made without (and free and clear of any deduction for) setoff or counterclaim whatsoever.”
20. The governing law of the 2009 loan was UAE law. It was as I understood it IGPL’s case that the clause could not be relied upon by SCB as protection against any claim to set off because the clause was no bar to “mandatory” set-off as provided for in Article 369 of the Federal Civil Code (No. 5 of 1985).
21. The first difficulty with this proposition was that the clause is entirely clear and devoid of ambiguity. The Code permits contracting parties to consent to such terms as they wish: Article 257. Further as Article 259 provides there is no scope for implication in the face of clear words. Indeed “if the wording of a contract is clear it may not be departed from by way of interpretation to ascertain the intention of the parties”: Article 265. Although Article 370 provides for set off by operation of law, by agreement or by order of the court, I discern no basis for concluding that the parties cannot (and did not) exclude any form of set off.
22. In any event, even on the assumption that mandatory set off cannot be excluded by agreement IGPL are unable to establish the conditions for such set off as prescribed by Article 370. The relevant obligations of the parties are not of the same type and description. SCB have an undisputed debt claim: IGPL have a disputed and unparticularised damages claim: Article 370. By the same token the obligations are not equally due and of equal strength. In the absence of mandatory set off there is no agreement for such a process: to the contrary there is agreement to the opposite effect: Article 371.
23. There are no grounds for judicial setoff: Article 372. Indeed, IGPL appeared to accept that a judicial order would merely be a reflection of the mandatory set off if applicable. In this connection IGPL contended that as a matter of construction the clause only applied to bar set off in regard to transactions between the parties and not in the context of court proceedings. I fear I was unable to follow this proposition which would of course render the clause of no effect in circumstances where a claim was not accepted by the defendant thus defeating the commercial purpose of such a clause.
24. The same unpersuasive argument was advanced to counteract the impact of the decision in Dubai Court of Cassation Case No. 77/2011 (Commercial) dated 21 September 2011 that the right of set off under the Code can only be established if there is a counterclaim to a debt claim that is “indisputable, payable and known”. As already noted the position here is that IGPL accept that even after 6 years an expert is needed to assess the quantum of their counterclaim.
25. Clause 29.6 of the 2010 loan agreement provides:
“29.6 All payments to be made by the Borrower under the Finance Documents shall be calculated and be made (and free and clear of any deduction for setoff or counterclaim).”
The governing law is English Law. It is well established that such clauses have a legitimate commercial function and are valid and enforceable as such: see Deutsche Bank (Suisse) SA v. Khan & Ors  EWHC482 (Comm): Caterpillar (NI) Ltd. V John Holt & Co (Liverpool) Ltd.  EWCA Civ. 1232: FG Wilson (Engineering) Ltd. v. John Holt & Co (Liverpool) Ltd.  EWHC 2177: The Fedora  2 Lloyd’s Rep. 441. The present clause is clear and unequivocal.
26. Again, I should add that I accept the supplementary submission that in the absence of a liquidated debt no right of legal setoff exists. As regards a right in equity:
(a) No assessment of quantum has been attempted. Yet a reasonable assessment made in good faith would also be treated as a precondition of any equitable setoff: Federal Commerce & Navigation Co. Ltd. v. Molena Alpha Inc  2 QB 927.
(b) In any event given the terms of Clause 29.6 there is no basis for asserting a right of equitable setoff let alone, having regards also to the history of the claim, that it would be “manifestly unjust” to enforce the claim without account of the cross claim: Esso Petroleum Co. Ltd. v. Milton  W L R 938: Geldof Metaalconstructie NV v. Simon Carves Ltd  EWCA Civ. 667.
27. In the result, I conclude that SCB is entitled to immediate judgment on the claim for outstanding principal. SCB also seek a declaration that it is entitled to enforce the share pledge agreement. Accepting the need for caution I was unable to unearth what legitimate objection IGPL had to such an order. This leaves over the matter of interest for determination in due course. It also leaves over the cross claim the merits of which I am anxious to make no comment on. IGPL may pursue their counterclaim if so advised. There can be no stay of this judgment in the meantime.
28. IGPL must pay the costs of SCB in relation to this application to be assessed by the Registrar if not agreed.
Date of issue: 16 August 2017
Date of re-issue: 5 September 2017