July 17, 2018 Court of Appeal - Judgments
Claim No: CA-002-2018
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 APPEAL
BEFORE THE CHIEF JUSTICE MICHAEL HWANG SC, H.E. JUSTICE ALI AL MADHANI AND JUSTICE SIR RICHARD FIELD
BETWEEN
INVESTMENT GROUP PRIVATE LIMITED
Defendant / Appellant
and
STANDARD CHARTERED BANK
Claimant / Respondent
Hearing: 10 May 2018
Counsel: James Barratt and Ali Al Aidarous (Squire Patton Boggs) for the Appellant
James Abbott, Shane Jury and Victoria Hambly (Clifford Chance LLP) for the Respondent
Judgment: 17 July 2018
JUDGMENT
Summary of Judgment
This dispute arises out of two loan agreements made between the Respondent (“SCB”) as lender and the Appellant (“IGPL”) as borrower. SCB and IGPL entered into the first loan agreement on 4 June 2009 for a USD 130 million Multi-Currency Term Loan Facility (the “2009 Loan”). The 2009 Loan was drawn down by the IGPL and the outstanding principal is USD 57,926,207.47. The 2009 Loan was secured by a share pledge agreement between the same parties (“Share Pledge”). The 2009 Loan is governed by UAE law. The second loan agreement was entered into by SCB and IGPL on 9 May 2010 for a USD 54 million term loan facility (the “2010 Loan”). The outstanding principal on the 2010 Loan is USD 48,499,580.86. The 2010 Loan is secured by an assignment agreement and an account pledge under which IGPL assigned rights to SCB, including the right to receive dividends and receivables. The 2010 Loan is governed by English law.
The present appeal relates to an immediate judgment application by SCB on 18 May 2016 for IGPL’s payment of the outstanding principal of USD 106,425,788.33 and a declaration that SCB was entitled to enforce the Share Pledge to satisfy and collect all amounts determined as outstanding in favour of SCB. SCB did not claim for the interest outstanding in the 2009 and 2010 Loans. At the hearing of SCB’s immediate judgment application, IGPL argued that the quantum of outstanding principal must be reduced as SCB breached the 2009 and 2010 Loans as well as the Share Pledge. IGPL pointed out that it pleaded a defence of set-off against SCB’s claim in its defence.
On 16 August 2017, the learned Deputy Chief Justice Sir David Steel granted an immediate judgment in favour of SCB. On 5 September 2017, the Deputy Chief Justice re-issued his order of 16 August 2017 which sets out the detailed reasons for decision in granting the immediate judgment. The Deputy Chief Justice’s main finding was that the presence of anti-set-off clauses in the 2009 and 2010 Loans operated to exclude all forms of set-off, thereby entitling SCB to immediate judgment on its claim. The Deputy Chief Justice found that the anti-set-off clause in the 2009 was “entirely clear and devoid of ambiguity” and, under UAE law, contracting parties were allowed to consent to such terms if the wording of the contract was clear. Accordingly, the anti-set-off clause operated to exclude set-off. As regards the 2010 Loan, the Deputy Chief Justice held that anti set-off clauses have a legitimate commercial function and are therefore contractually enforceable. Additionally, the Deputy Chief Justice held that IGPL had no right to set-off as its counterclaim was not quantified and therefore not “indisputable, payable and known.”
IGPL appealed against the Deputy Chief Justice’s findings and was denied permission by the Deputy Chief Justice to appeal in his order of 1 October 2017. On 5 February 2018, the Chief Justice granted IGPL permission to appeal against the whole judgment of the Deputy Chief Justice on the basis that there was a compelling reason why the appeal should be heard, namely, the public interest in clarifying the meaning and extent of the doctrine of mandatory and judicial set-off as set out in Articles 369 to 372 of the UAE Civil Code. The Chief Justice also asked the Parties to make comparative law submissions on the law of set-off with the equivalent provisions in the Civil Codes of Egypt, Iraq, Jordan and Syria.
The issues to be addressed on appeal were (1) whether IGPL raised a substantive defence to SCB’s claim; (2) whether judicial set-off was available as a remedy to the 2009 and 2010 Loans; (3) whether the effect of mandatory set-off under Articles 369 and 370 of the UAE Civil Code were mandatory such that the Parties cannot interfere with the automatic operation of set-off; (4) if mandatory set-off was not excluded by the anti set-off clauses, whether IGPL has fulfilled the conditions for mandatory set-off; (5) whether IGPL was required to have a fully quantified set-off at the time of SCB’s immediate judgment application.
Chief Justice Michael Hwang SC (with H.E. Justice Ali Al Madhani and Justice Sir Richard Field) dismissed the appeal. The Court of Appeal found that the Deputy Chief Justice had considered IGPL’s substantive defence at the immediate judgment hearing to SCB’s claim. Under UAE law, there must be an independent claim or counterclaim for judicial set-off to apply. As IGPL failed to file a counterclaim, it should not be granted its application for judicial set-off. The Court of Appeal also held that, under UAE law, mandatory set-off does not override the Parties’ freedom to contract under Articles 257, 259 and 265(1). The anti set-off clauses were therefore effective in excluding mandatory set-off under Articles 369 and 370 of the UAE Civil Code. Finally, the Court of Appeal agreed with the Deputy Chief Justice on IGPL’s lack of quantification in its defence of set-off. Furthermore, despite making numerous assertions in its defence such as its requests for the release of excess shares or SVB’s failure to collect dividends for its pledged shares in time, IGPL had not tendered any witness statements or evidence to support its position. Accordingly, the Court of Appeal was not convinced that there was sufficient evidence to show that IGPL had a real prospect of success in its defence.
This summary is not part of the Judgment and should not be cited as such
ORDER
UPON hearing Counsel for the Appellant and Counsel for the Respondent on 10 May 2018
AND UPON reading the submissions and evidence filed and recorded on the Court file
IT IS HEREBY ORDERED THAT:
1. The Appellant’s appeal is dismissed.
2. The Immediate Judgment of the Deputy Chief Justice Sir David Steel dated 16 August 2017 (re-issued on 5 September 2017) is upheld.
3. The stay of the proceedings granted by the Order of the Chief Justice dated 5 February 2018 is lifted.
4. Costs arising from the appeal shall be paid by the Appellant to the Respondent, within 14 days of the date of this order, the amount of which shall be assessed, if not agreed, by the Registrar.
Issued by:
Nour Hineidi Kirk
Date of Issue: 17 July 2018
At: 3pm
JUDGMENT
Chief Justice Michael Hwang:
I. INTRODUCTION
1. The present appeal arises out of two loan agreements made between the Respondent (“SCB”) as lender and the Appellant (“IGPL”) as borrower. SCB and IGPL are collectively referred to as the “Parties”. Brief details of the two loan agreements are as follows.
1.1. The 2009 Loan: On or about 4 June 2009, SCB and IGPL entered into a USD 130 million Multi-Currency Term Loan Facility (the “2009 Loan”). The Respondent has drawn down the full USD 130 million. According to SCB, the total repayments of the principal sum by IGPL amount to USD 72,073,792.63. The outstanding principal is USD 57,926,207.47.
1.1.1. The 2009 Loan was secured by a share pledge agreement between SCB and IGPL dated 3 June 2009 (the “Share Pledge”) under which IGPL pledged in favour of SCB certain shares and related rights. The shares are described in Schedule No. 1 of the Share Pledge and consist of various shares listed on the Dubai Financial Market and the Abu Dhabi Securities Exchange.
1.1.2. According to SCB, it “periodically recovered amounts payable under or in respect of the Security Assets under the Share Pledge”. Such amounts have been applied to reduce the amount of interest owed by IGPL.
1.1.3. On 6 August 2014, SCB commenced an action in the DIFC Courts claiming return of the loan monies.
1.1.4. IGPL contested the validity of the Share Pledge in the Sharjah Courts. However, the Sharjah Court of Appeal denied jurisdiction over the dispute on 16 May 2016. The Union Supreme Court upheld the same decision as the Sharjah Court of Appeal in separate proceedings commenced by IGPL. According to SCB, there are no pending proceedings concerning the validity of the Share Pledge in the Sharjah Courts, Dubai Courts, DIFC Courts or elsewhere.
1.1.5. The 2009 Loan is governed by UAE law.
1.2. The 2010 Loan: On or about 9 May 2010, SCB and IGPL entered into a USD 54 million term loan facility (the “2010 Loan”). Thereafter, the Respondent drew down the full USD 54 million. The total repayments of the principal sum made to date amount to USD 5,500,419.14, leaving an outstanding principal of USD 48,499,580.86.
1.2.1. The 2010 Loan was secured by an assignment agreement and an account pledge under which IGPL assigned certain rights to SCB, including the right to receive dividends and receivables. These rights are described in the (a) Account Pledge and Assignment Agreement between IGPL (as pledger) and SCB (as security agent and account bank) dated 9 May 2010, and (b) Assignment of Receivables between IGPL and Ruby Living Courts (as assignors) and SCB (as security agent) dated 9 May 2010.
1.2.2. The 2010 Loan is governed by English law.
1.3. The 2009 Loan and the 2010 Loan are collectively referred to as the “2009 and 2010 Loans”. The total amount of principal outstanding under both the 2009 and 2010 Loans is USD 106,425,788.33.
1.4. As this appeal is confined to the Respondent’s application for immediate judgment only on the principal amounts owing under the 2009 and 2010 Loans, I will only consider arguments relevant to the repayment of the aggregate principal amounts of USD 106,425,788.33.
II. PROCEDURAL HISTORY AND BACKGROUND FACTS
2. The following paragraphs provide the procedural history and background relevant to the current appeal.
3. On 18 May 2016, SCB made an application for immediate judgment to the DIFC Courts of First Instance (“Immediate Judgment Application”). The hearing was fixed on 16 October 2016. The details of SCB’s Immediate Judgment Application were as follows.
3.1. The Immediate Judgment Application was limited to SCB’s claim for the principal amounts outstanding under the 2009 and 2010 Loans (i.e. USD 106,425,788.33), as well as its claim for a declaration that SCB was entitled to enforce the Share Pledge to satisfy and collect all amounts determined as outstanding in favour of SCB.
3.2. SCB’s claims for interest outstanding under the 2009 and 2010 Loans were not included in the Immediate Judgment Application.
4. On 11 October 2016, IGPL made 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 DIFC Courts. On 12 February 2017, the Joint Judicial Committee (“JJC”) established under Decree No. 19 of 2016 ruled that the DIFC Courts were the competent court.[1]
5. The hearing for immediate judgment was re-fixed on 6 March 2017 (“Immediate Judgment Hearing”). On 23 February 2017, IGPL applied for leave to serve a counterclaim (“Counterclaim Application”). The counterclaim arose from IGPL’s complaint that SCB had breached certain terms of the Share Pledge as (a) it failed to return and/or realise IGPL’s shares held as security, and (b) failed to collect, on a timely basis, dividends in relation to the pledged shares.
6. On 1 March 2017, SCB filed an answer to IGPL’s Counterclaim Application.
7. At the Immediate Judgment Hearing on 6 March 2017, the learned Deputy Chief Justice Sir David Steel heard the Counterclaim Application and the Immediate Judgment Application. His Honour ordered that IGPL was permitted to file its Counterclaim Application upon fulfilling certain conditions proposed by SCB within seven days. However, IGPL made it clear at the hearing that it would not consent to the undertakings.
8. On 13 March 2017, IGPL applied for permission to appeal against the Deputy Chief Justice’s conditional grant of leave to file its counterclaim. On 2 April 2017, Justice Sir Jeremy Cooke denied IGPL’s appeal application.
9. On 17 April 2017, IGPL filed a challenge with the JJC, contesting the DIFC Courts’ jurisdiction. On 14 August 2017. The JJC rejected IGPL’s challenge.[2]
10. On 16 August 2017, the Deputy Chief Justice issued an order granting SCB’s Immediate Judgment Application.
10.1. SCB was granted immediate judgment in the terms sought in its Immediate Judgment Application.
10.1.1. IGPL was ordered to pay to SCB the amount of USD 106,425,788.33 within 14 days of the issuance of the Judgment of the Deputy Chief Justice.
10.1.2. SCB was entitled to enforce its security under the Share Pledge and was permitted to sell all or any number of pledged shares, as selected by SCB, at market value at the Dubai Financial Market and/or Abu Dhabi Securities Exchange upon the relevant date of actual enforcement of the declaration, in order to satisfy and collect all amounts determined as outstanding in favour of SCB.
10.2. IGPL was granted its Counterclaim Application, subject to the following conditions:
10.2.1. The withdrawal of any claim before the Dubai Courts in regard to the counterclaim;
10.2.2. The withdrawal of any reference to the Union Supreme Court in regard to the counterclaim;
10.2.3. Payment of any outstanding order as to costs in respect of the counterclaim; and
10.2.4. An undertaking not to issue further proceedings in relation to the counterclaim in the UAE.
10.3. IGPL was also ordered to pay SCB’s costs to be assessed by the Registrar, if not agreed.
11. IGPL did not fulfil the conditions stated in paragraph 2 above in order to bring a counterclaim. Accordingly, no counterclaim was in fact filed.
12. On 5 September 2017, the Deputy Chief Justice re-issued his Order of 16 August 2017, setting out his reasons for his decision in granting the immediate judgment. The Deputy Chief Justice’s reasons for decision are explained in paragraphs 25 to 41
13. On 7 September 2017, IGPL filed an application for permission to appeal against the Order of the Deputy Chief Justice. On 1 October 2017, the Deputy Chief Justice denied IGPL permission to appeal.
14. On 22 October 2017, IGPL made a further application for permission to appeal accompanied by its skeleton argument (“Appellant’s Skeleton Argument”).
15. On 12 November 2017, SCB filed its response to IGPL’s appeal notice of 22 October 2017.
16. On 11 January 2018, the Court of Appeal fixed the appeal for hearing on 10 May 2018 (the “Appeal Hearing”).
17. On 18 January 2018, the Court of Appeal asked the Parties to make submissions on the appropriateness of imposing a condition for payment into court as a requirement for the grant of permission to appeal and a stay of execution (“Proposed Conditions for Appeal”).
18. On 22 and 24 January 2018, SCB and IGPL filed their submissions on the Proposed Conditions for Appeal respectively. On 29 January 2018, SCB filed its reply submissions on the Proposed Conditions for Appeal.
19. In my Order dated 5 February 2018, I granted IGPL permission to appeal against the Judgment of the Deputy Chief Justice pursuant to Rule 44.8 of the Rules of the DIFC Courts (“RDC”) on the basis that there was a compelling reason why the appeal should be heard, namely the public interest in clarifying the meaning and extent of the doctrines of mandatory and judicial set-off as set out in Articles 369 to 372 of the Federal Civil Code (No. 5 of 1985) (“UAE Civil Code”). IGPL was granted permission to appeal against the whole of the Order of the Deputy Chief Justice David Steel dated 16 August 2017. IGPL was also granted a stay of proceedings pursuant to RDC 44.4 pending the appeal being granted.
20. On 19 March 2018, SCB filed its skeleton argument for the Appeal Hearing.
21. On 4 April 2018, IGPL filed its supplemental skeleton argument for the Appeal Hearing (“Appellant’s Supplemental Skeleton Argument”).
22. On 18 April 2018, SCB filed its supplemental skeleton argument for the Appeal Hearing (“Respondent’s Supplemental Skeleton Argument”).
III. THE STATUTORY PROVISIONS
23. The relevant provisions of the UAE Civil Code are as follows.
“Article 257
The basic principle in contracts is the consent of the contracting parties and what they have undertaken to do in the contract.
…
Article 259
There shall be no room for implications in the face of clear words.
Article 260
Words should be given effect to rather than ignored, but if it is impossible to give effect to words, they shall be ignored.
…
Article 265(1)
If the wording of the contract Is clear, it may not be deviated from by way of interpretation to ascertain the intention of the parties.
…
Article 368
Set-off is the satisfaction of an obligation owed to the obligee by an obligation owed by him to the obligee.
Article 369
Set-off may either be mandatory, occurring by operation of law, or voluntary, occurring by operation of agreement between the parties, or judicial, occurring by order of the court.
Article 370
In the case of mandatory set-off, each of the parties must be in debt to the other, and the obligations must be of the same kind and description, must be equally due and of equal strength and weakness, and the making of the set-off must not be prejudicial to the rights of third parties, whether the cause of the arising of the obligations is the same or different.
Article 371
A set-off may be made by agreement if any of the conditions for a mandatory set-off is not satisfied.
Article 372
A judicial set-off takes place by order of a judge if the conditions thereof are satisfied, upon either an original or an interlocutory application.”
24. The relevant provisions of the Egyptian, Iraqi, Jordanian and Syrian Civil Codes are provided in the relevant sections below for ease of reference.
IV. THE DECISION BELOW (JUDGMENT OF THE DEPUTY CHIEF JUSTICE DATED 16 AUGUST 2017)
25. The Deputy Chief Justice set out his reasons for granting SCB its Immediate Judgment Application in his judgment. Before launching into his reasons for decision, the Deputy Chief Justice set out a full chronology and highlighted his view that IGPL had “expended an enormous amount of time and money to disrupt and delay the proceedings.”[3]
26. As a starting point, the Deputy Chief Justice found that immediate judgment may be granted (pursuant to Part 24 of the RDC) if the Court was satisfied that IGPL had “no real prospect” of successfully defending SCB’s claims for (a) the principal amounts owed under the 2009 and 2010 Loans, and (b) a declaration as to the enforceability of the Share Pledge.[4] Further, His Honour rejected IGPL’s suggestion that there was, in any event, “some other compelling reason for a trial.”[5] His Honour also found that there was no dispute by IGPL that the outstanding loan monies had not been repaid.[6] Following these findings, the Deputy Chief Justice went on to consider the main contentions by the Parties.
26.1. IGPL took the position that the quantum of the loan monies must be reduced via set-off by its cross claims which reflected SCB’s breaches of the 2009 and 2010 Loans and the Share Pledge. According to IGPL, it had pleaded a defence of set-off against the Claimant’s claim in its Defence of 6 April 2016 (“Defence”).
26.2. SCB took the following position.
26.2.1. There was no evidential support for IGPL’s allegations of breach underlying its claim for damages.
26.2.2. Furthermore, IGPL’s claim for damages was not quantified. Expert evidence was required to quantify the claim.
26.2.3. SCB also highlighted that there were anti set-off clauses in the 2009 and 2010 Loans.
26.2.4. Accordingly, SCB argued that the judgment on its claim should not be postponed as any valid cross-claim by IGPL could be conveniently and properly determined in due course.
27. The Deputy Chief Justice examined each loan separately as they had different governing laws. The 2009 Loan was governed by UAE law while the 2010 Loan was governed by English Law.
A. The 2009 Loan
[1] Anti set-off clause
28. The relevant anti set-off clause in the 2009 Loan is as follows.
“19.3 No set off 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.”
29. The governing law of the 2009 Loan is UAE law. The Deputy Chief Justice referred to Articles 257, 259 and 265 of the UAE Civil Code and found that the UAE Civil Code allowed contracting parties to consent to such terms as they wished if the words of the contract were clear. The Deputy Chief Justice found that the anti set-off clause in clause 19.3 of the 2009 Loan was “entirely clear and devoid of unambiguity”.[7]
30. Accordingly, His Honour found that the anti set-off clause in the 2009 Loan was valid and that the Parties intended to exclude any form of set-off. The Deputy Chief Justice stated that, even if the UAE Civil Code provided for set-off by operation of law, by agreement or by order of the court, there was “no basis for concluding that the parties cannot (and did not) exclude any form of set off.”
[2] Mandatory Set-Off (under UAE Civil Code)
31. Following his decision that the anti set-off clause applied to the 2009 Loan, the Deputy Chief Justice went on to consider if “mandatory” set-off under Article 370 of the UAE Civil Code applied in the event that the anti set-off clause in Article 19.3 did not exclude “mandatory” set-off.
“Article 370
In the case of mandatory set-off, each of the parties must be in debt to the other, and the obligations must be of the same kind and description, must be equally due and of equal strength and weakness, and the making of the set-off must not be prejudicial to the rights of third parties, whether the cause of the arising of the obligations is the same or different.”
32. The Deputy Chief Justice held that the conditions required for “mandatory” set-off under Article 370 of the UAE Civil Code were not satisfied.
32.1. The “relevant obligations” of the parties were not of the same type and description. SCB had an undisputed debt claim while IGPL had a disputed and unparticularised damages claim
32.2. The obligations were not equally due and of equal strength.
33. Under Article 371, set-off by agreement between the parties can occur if the conditions for mandatory set-off were not satisfied. The Deputy Chief Justice found that there was no such agreement under the 2009 Loan; instead, there was an agreement not to set-off.
[3] Judicial Set-off (Under UAE Civil Code)
34. IGPL argued that, as a matter of construction, the anti set-off clause only barred the set-off for transactions between the Parties and not court proceedings. The anti set-off clause did not prevent the court from allowing a set-off in favour of IGPL.
35. The Deputy Chief Justice examined Article 372 of the UAE Civil Code on judicial set-off, and was not persuaded by IGPL’s argument. His Honour stated at [23] and [24] of his Judgment dated 16 August 2017:
“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 is 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 [IGPL] thus defeating the commercial purpose of such a clause.
24.…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 [IGPL] thus defeating the commercial purpose of such a clause.”
36. Additionally, the Deputy Chief Justice also followed the finding in Dubai Court of Cassation Case No. 77/2011 (Commercial) dated 21 September 2011 that a right of set-off only arises if the debt is “indisputable, payable and known”. In disagreeing with IGPL’s argument, the Deputy Chief Justice highlighted the fact that an expert was still required to assess the quantum of IGPL’s alleged losses that it claimed.[8]
37. Accordingly, the Deputy Chief Justice found that there was no right of set-off under the 2009 Loan.
B. The 2010 Loan
[1] Anti set-off Clause
38. The relevant anti set-off clause in the 2010 Loan is as follows.
“29.6 No set off by the Borrower
All payments to be made by a Borrower under the Finance Documents shall be calculated and made without (and free and clear of any deduction for) set off or counterclaim.”
39. The governing law of the 2010 Loan is English law. The Deputy Chief Justice found that, under English law, anti set-off clauses have a legitimate commercial function and are valid and enforceable. Accordingly, His Honour held that clause 29.6 of the 2010 Loan was “clear and unequivocal”. The anti set-off clause was therefore contractually enforceable.
[2] Equitable Set-Off
40. The Deputy Chief Justice concluded that there was no right of equitable set-off for the following reasons.
40.1. There was no attempt by IGPL to assess the quantum of IGPL’s counterclaim. His Honour cited Federal Commerce & Navigation Co. Ltd v Molena Alpha Inc [1978] 2 QB 927 which found that a reasonable assessment made in good faith would be treated as a precondition to equitable set-off.
40.2. The Deputy Chief Justice considered the history of the claim and found that it would not be “manifestly unjust” to enforce the claim without account of the cross claim: Esso Petroleum Co. Ltd v Milton [1997] WLR 938; Geldof Metaalconstructie NV v Simon Carves Ltd [2010] EWCA Civ 667.
C. Conclusion
41. The Deputy Chief Justice held that SCB was entitled to immediate judgment on its claim for the outstanding principal and declared that SCB was entitled to enforce the Share Pledge.
V. REFUSAL OF PERMISSION TO APPEAL BY THE DEPUTY CHIEF JUSTICE DATED 1 OCTOBER 2017
42. IGPL filed an appeal notice after the Judgment of the Deputy Chief Justice dated 16 August 2017 was issued.
43. In the Order of the Deputy Chief Justice Sir David Steel dated 1 October 2017 (“Order of 1 October 2017”), the Deputy Chief Justice denied IGPL’s application for permission to appeal and its application for a stay.
44. The Deputy Chief Justice repeated the points mentioned in his judgment, namely that:
44.1. There was no merit in IGPL’s argument that its counterclaim was a legitimate set-off;
44.2. There was no real prospect of success in IGPL’s argument that anti set-off clauses were not enforceable; and
44.3. There was no real prospect of success for IGPL’s challenge on mandatory and judicial set-off under UAE law.
45. In coming to his conclusion, the Deputy Chief Justice highlighted his view that there had never been a challenge to the merits and quantum of SCB’s claim on the 2009 and 2010 Loans. The only challenge from IGPL was its counterclaim which “remains wholly unquantified after a number of years”.[9] In fact, the Deputy Chief Justice took the position that IGPL’s counterclaim was never advanced in the DIFC Courts.
46. The Deputy Chief Justice repeated his view that the counterclaim “lacked credibility” and that IGPL had applied for permission to appeal “purely for the purposes of delaying determination of the associated claim for interest together with the enforcement of the share pledge agreement.”[10]
VI. PERMISSION TO APPEAL GRANTED BY THE CHIEF JUSTICE DATED 5 FEBRUARY 2018
47. On 5 February 2018, I granted IGPL leave to appeal against the whole Judgment of Deputy Chief Justice pursuant to RDC 44.8 on the basis that there was a compelling reason why the appeal should be heard, namely, the public interest in clarifying the meaning and extent of the doctrine of mandatory and judicial set-off as set out in Articles 369 to 372 of the UAE Civil Code.
48. Having reviewed the submissions and commentaries submitted by the Parties, I note that the words “mandatory”, “compulsory” and “legal” set-off were used interchangeably, depending on the translation of each relevant provision.
49. As I realised there was limited commentary on set-off in James Whelan’s Commentary of the UAE Civil Code (Sweet & Maxwell, 2011), I asked the Parties to make comparative law submissions on the equivalent provisions in the Civil Codes of selected countries in the Middle East and North Africa on the law of set-off, viz Egypt, Iraq, Jordan and Syria, which also had comparable provisions in their respective Civil Codes relating to set off.
DISCUSSION
VII. ISSUES BEFORE THE COURT OF APPEAL
A. Test for an appeal to be granted
50. RDC 44.117 provides the grounds on which the Court of Appeal will allow an appeal from the Court of First Instance.
“44.117
The Court of Appeal will allow an appeal from a decision of the Court of First Instance where the decision of the lower Court was:
(1) wrong; or
(2) unjust because of a serious procedural or other irregularity in the proceedings in the lower Court.”
51. In the Appellant’s Supplemental Skeleton Argument, IGPL criticises SCB for placing “mistaken reliance” on R(Iran) v Secretary of State for Home Department [2005] EWCA Civ 982 (“R(Iran)”) in defining that “wrong” in RDC 44.117 was restricted only to an error of law.
52. In the Respondent’s Supplemental Skeleton Argument, SCB has clarified that it did not assert that an error of law was the only circumstance in which a decision might be “wrong”. Rather, SCB was “merely pointing out that the Grounds of Appeal in this case are only based on alleged errors of law rather than any other form of error.”[11]
53. In furtherance of its position on the test for an appeal with regard to errors of law, SCB relies on R(Iran) which held that an error of law needed to be “material”.
54. SCB also relies on two English cases, Aldi Stores Limited v WSP Group Plc & Ors [2007] EWCA Civ 1260 and Stuart Goldberg & Anor [2008] EWCA Civ 2, which were concerned with appeals on decisions to strike out claims. According to SCB, granting a striking out application is a discretionary remedy, and was similar to the granting of immediate judgment. The focus of the test in these two English cases was whether the conclusion of the court was “plainly wrong”. SCB submitted that IGPL had not discharged its burden of demonstrating that the Deputy Chief Justice had erred in such a way to render the Immediate Judgment “wrong” or “plainly wrong”.
55. Having received clarification from both Parties, I do not find that the Parties’ positions are inconsistent. The test for an appeal to be granted examines whether the conclusion of the Deputy Chief Justice was “wrong”, and “wrong” includes applies to both errors of fact and errors of law.
56. In the present appeal, I note that IGPL has argued that there are both errors of fact and law for the Court of Appeal to consider. On the other hand, SCB has contended that IGPL’s grounds of appeal only contain alleged errors of law by the Deputy Chief Justice.
B. Test for immediate judgment
57. The test for immediate judgment is whether IGPL had “no real prospect” of succeeding in defending SCB’s claim. The Court of Appeal must therefore consider whether IGPL had a “realistic”, as opposed to “fanciful” prospect of success: Swain v Hillman [2001] 2 All ER 91 and GFH Capital Limited v David Lawrence Haigh CFI-020-2014, 18 October 2016.
58. While the legal burden of proof for immediate judgment rests with it, SCB submits that the evidential burden of proving that IGPL has a real prospect of successfully defending SCB’s claim rests with IGPL.
59. I agree with SCB’s position. The case of Korea National Insurance Corporation v Allianz Global Corporate & Speciality AG [2007] EWCA Civ 1066 (“Korea National Insurance Corporation”) provides some useful guidance as to a party’s evidential burden of proof. In Korea National Insurance Corporation, Lord Justice Moore-Bick opined that, if a party wished to rely on the likelihood that further evidence would be available, it must substantiate the assertion. It is insufficient to simply say that further evidence will or may be available. The relevant excerpt is as follows.
“14. In the present case Allianz criticised the judge for having failed to make allowance in its favour for the likelihood that additional evidence relating to various aspects of this defence would be available at trail to cast a more benevolent light on events, but in my view that criticism is unfounded. It is incumbent on a party responding to an application for summary judgment to put forward sufficient evidence to satisfy the court that it has a real prospect of succeeding at trial. If it wishes to rely on the likelihood that further evidence will be available at that stage, it must substantiate that assertion by describing, at least in general terms, the nature of the evidence, its source and its relevance to the issues before the court. The court may then be able to see that there is some substance in the point and that the party in question is not simply playing for time in the hope that something will turn up. It is not sufficient, therefore, for a party simply to say that further evidence will or may be available, especially when that evidence is, or can be expected to be, already within its possession, as is the case here…” (emphasis added)
C. Grounds of appeal
60. IGPL has raised four grounds of appeal in its Appellant’s Skeleton Argument. There is also an additional ground raised among IGPL’s substantive defences which it has not categorised.
61. In this judgment, I will address the following issues.
61.1. Ground 1: Whether the Deputy Chief Justice was wrong in concluding that IGPL did not raise a substantive defence to SCB’s claim. IGPL has contended that its right to set-off was advanced by way of defence in its response to the Immediate Judgment Application and in its defence (“Substantive Defence Ground”).
61.2. Ground 2: Whether the Deputy Chief Justice was wrong in finding that judicial set-off was merely a reflection of mandatory set-off (“Judicial Set-Off Ground”). IGPL has taken the position that judicial set-off was a separate remedy available to the courts. IGPL contends that judicial set-off is available for both the 2009 and 2010 Loans and that it was available even though there is no connection in terms of the subject of the obligations and when one debt is disputed or unquantified.
61.3. Ground 3: Whether the effect of the mandatory set-off under Articles 369 and 370 of the UAE Civil Code is mandatory with the result that parties cannot interfere with the automatic operation of the set-off (“Mandatory Provisions Ground”).
61.4. Ground 4: Whether the Deputy Chief Justice was wrong in concluding that IGPL had failed to establish the conditions required for mandatory set-off under Article 370 of the UAE Civil Code (“Mandatory Set-Off Conditions Ground”).
61.5. Ground 5: Whether the Deputy Chief Justice was wrong in determining that, at the time of the Immediate Judgment Application, IGPL was required to have a fully quantified set-off available (“Quantification Ground”).
62. IGPL has not challenged the Deputy Chief Justice’s finding that the anti set-off clause was valid under English law in the 2010 Loan. However, in [58] of the Appellant’s Supplemental Skeleton Argument, IGPL has asserted that the following errors were made in the Deputy Chief Justice’s treatment of the 2010 Loan.
62.1. The Deputy Chief Justice was wrong in concluding that IGPL offered no defence (i.e. Substantive Defence Ground);
62.2. The Deputy Chief Justice was wrong in his application of the law on judicial set-off (i.e. Judicial Set-Off Ground); and
62.3. The Deputy Chief Justice was wrong to rely on the present state of the quantification of set-off (i.e. Quantification Ground).
VIII. GROUND 1: SUBSTANTIVE DEFENCE GROUND
A. IGPL’s (Appellant’s) Position
63. IGPL’s main argument under this Substantive Defence Ground stems from its view that the Deputy Chief Justice was wrong in saying that IGPL had never raised a substantive defence to SCB’s claim. IGPL relied on the Deputy Chief Justice’s words in the Order of 1 October 2017 that “there is and never has been any challenge to the merits and quantum of the claim in respect of the two loans”.
64. IGPL argues that it pleaded a defence of set-off against SCB’s claims in its Defence.[12] The relevant paragraphs, amongst other paragraphs, in the Defence are as follows.
“[17] The details of those breaches and losses incurred which are before the Dubai Courts are particularised in this Defence solely as a defence to the Claimant’s claims; the Defendant is not seeking any positive relief from this Court in relation to these claims which are set out below for that limited, explanatory, defensive purpose.
…
[55] Further or alternatively, if the Defendant is held liable to the Claimant, the Defendant seeks to reduce the Claimant’s claims to an amount consistent with a proper application of funds and calculation interest.”
65. IGPL argued that, in order for set-off to operate under DIFC law and procedure, set-off can be included in a defence and does not need to be filed as a counterclaim. In support of its position, IGPL highlights RDC 17.33 which states as follows.
“Defence Of Set-Off
17.33
Where a defendant:
(1) contends he is entitled to money from the claimant; and
(2) relies on this as a defence to the whole or part of the claim,
the contention may be included in the defence and set off against the claim, whether or not it is also a counterclaim.” (emphasis added)
66. IGPL further contends that the Deputy Chief Justice, in his review of the lengthy procedural history of this appeal, drew “inappropriate” inferences that its defence and counterclaim lacked credibility.[13] IGPL argues that the procedural history of IGPL’s various jurisdictional challenges indicated IGPL’s position that it was not the Parties’ intention to submit their dispute to the DIFC Courts. It did not indicate that IGPL’s defence lacked credibility. The Court of Appeal was therefore invited to consider IGPL’s defence afresh without reference to the Deputy Chief Justice’s inferences on its procedural history.
B. SCB’s (Respondent’s) Position
67. SCB contends that the Deputy Chief Justice had considered IGPL’s defence in [18] of the Judgment of the Deputy Chief Justice. IGPL is therefore wrong to say that the Deputy Chief Justice did not consider its substantive defence.
68. Maintaining its primary position, SCB emphasises that the anti set-off clauses in the 2009 and 2010 Loans provide the complete answer to IGPL’s only substantive defence. SCB points out that, in his judgment, the Deputy Chief Justice found that it was not necessary to consider the requirement for set-off to be asserted in a standalone claim or counterclaim as he held that the anti set-off clauses were enforceable.
69. SCB submits that the Deputy Chief Justice did not draw any adverse inference by stating the procedural history of the case. In the alternative, even if the Deputy Chief Justice drew an adverse inference, it was an “entirely proper exercise of judicial discretion.”
C. Discussion
70. Having examined the submissions presented by the Parties, I am satisfied that the Deputy Chief Justice did give due consideration to IGPL’s defence. It is clear in [18] of the Judgment of the Deputy Chief Justice that he had considered IGPL’s defence of set-off.
“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…”
71. Leaving aside consideration of how a set-off should be pleaded (i.e. by way of a defence or counterclaim), I find that IGPL’s defence has been adequately addressed by the Deputy Chief Justice in his judgment.
72. On the contrary, the Deputy Chief Justice allowed the defence of set-off to be argued even though the words “set-off” were not expressly used in the defence. This was admitted by IGPL’s counsel, Mr Barratt at the Appeal Hearing.[14]
“CHIEF JUSTICE MICHAEL HWANG: Sorry, Mr Barratt, just leading on from that; coming back to your defence that you have just been taking us through, show me in the defence where you use the word "set-off".
MR BARRATT: Your Honour is quite correct, the word "set-off" is not in fact used, which we of course accept. We do however say that these claims were raised in the sense of we have traversed a cause of action. We have said, "These are the facts, these are the obligations, this is the breach, this is the loss". The loss in particular being that both loans would have been discharged….”
73. Moreover, the defence of set-off was clearly considered in [20] to [26] of the Judgment of the Deputy Chief Justice.
74. IGPL goes on to argue, in its Skeleton Argument, that there were a number of other challenges to the quantification of the loans. In particular, IGPL highlighted [13], [34], [41], and [45] of its Defence.
“13. It is admitted that clause 2 of the BAL General Terms and Conditions provides that ‘overdue outstandings’ will be charged interest at a minimum of 5% per cent per annum. Otherwise, paragraph 17 is denied. On 4 January 2012, when asked by Aji George on behalf of the Defendant which interest rate was being charge, S. Shymata on behalf of the Claimant, provided interest figures consistent with the usual rate of interest pursuant to clauses 5 and 6 of the General Terms. In the premises, the Defendant relied on this representation to its detriment and the Claimant is estopped from denying that representation and it is not entitled to recover default interest.
…
34. Paragraph 29 of the Particulars of Claim is denied. The Defendant repeats paragraph 13 of this Defence. The Claimant is estopped from relying on the terms of the 2009 Loan to claim default interest. The Claimant is further prohibited from charging compound interest under UAE law.
(1) The 2009 Loan is governed by UAE law: General Terms (for Multi Currency/ Multiple Borrower Term Loan Facility, Paragraph 26.
(2) Compound interest is prohibited under UAE law according to the judgment of the Federal Supreme Court in Petition No. 176/2008 issued on 15 June 2009.
(3) Thus the amounts sought by the Claimant are further inflated due to the application of illegal interest. …
41. Paragraph 39 of the Particulars of Claim is denied. The correct schedule is…
[IGPL proceeded to list a schedule for payment of instalments]
45. The Claimant breached the terms of the 2010 Loan by misapplying credit card receipts pledged as security. The Claimant was obliged to apply those credit card receipts to the 2010 Loan which carried a higher interest rate, but instead applied them to the 2009 Loan which carried a lower interest rate: Assignment of Receivables, Recital “B”.”
75. As these challenges related to the interest component of the 2009 and 2010 Loans, the Deputy Chief Justice was correct in excluding them from his decision of the Immediate Judgment Application.
76. Further, it was not wrong for the Deputy Chief Justice to set out the procedural history of the case. In fact, setting out the procedural history is helpful in explaining the context of an appeal. Even though the Deputy Chief Justice commented that the procedural history was lengthy and that “the defence and counterclaim lacked credibility”, it does not mean that any adverse inference was made just because the Deputy Chief Justice used the word “inference” in his judgment.
77. Accordingly, I disagree with IGPL that the Deputy Chief Justice failed to consider its substantive defence at the Immediate Judgment Hearing.
IX. GROUND 2: JUDICIAL SET-OFF GROUND
78. Article 372 of the UAE Civil Code states as follows:
“A judicial set-off takes place by order of a judge if the conditions thereof are satisfied, upon either an original or an interlocutory application.”
79. At [23] of his judgment, the Deputy Chief Justice held that there were no grounds for judicial set-off under Article 372 of the UAE Civil Code. The Deputy Chief Justice disagreed with IGPL’s position that the anti set-off clauses in the 2009 and 2010 Loans prevented parties from setting off sums owed in court proceedings, and only applied to prevent any set-off during the course of transactions between the Parties.
80. In coming to his conclusion that the anti set-off clause excluded judicial set-off, the Deputy Chief Justice reasoned that a finding in favour of IGPL’s position would “render the clause of no effect… defeating the commercial purposes” of the anti set-off clause.
A. IGPL’s (Appellant’s) Position
81. First, IGPL argues that, as a matter of DIFC law and procedure under RDC 17.33, a defendant’s set-off may be included in a defence, and set-off against a claim “whether or not it is also a counterclaim”. (See [65] of this judgment)
82. Second, IGPL takes the position that the UAE Civil Code does not specify the conditions required for judicial set-off to occur. In support of its position, IGPL has cited the Dubai Court of Cassation’s decision in Petition 129/2009 (Labor) (7 June 2010) for its proposition that, unlike mandatory set-off under Article 370 of the UAE Civil Code, judicial set-off is available under the following circumstances as long as the two parties were creditor and debtor “towards each other only”:
82.1. No connection in terms of subject or reason between the debts;
82.2. One debt is undisputed and the other is of a “non-determined value”; and
82.3. It was unnecessary for either obligation to be quantified.
83. In the Appellant’s Skeleton Argument,[15] IGPL maintains its position that a plain reading of the anti set-off clauses in the 2009 and 2010 Loans only governed payments from IGPL to SCB “during the course of performance of the loans”. This means that IGPL could not unilaterally deduct amounts owed to it by SCB when calculating instalment payments under the 2009 and 2010 Loans. The anti set-off clauses did not prevent IGPL from filing an application for set-off in court proceedings.
B. SCB’s (Respondent’s) Position
84. SCB maintains its position that the anti set-off clauses in the 2009 and 2010 Loans exclude all forms of set-off, including judicial set-off. SCB therefore submits that the anti set-off clauses are the complete answer to any alleged set-off.
85. SCB also agrees with the Deputy Chief Justice’s finding that the anti set-off clauses would be rendered useless commercially if it was not allowed to be applied.
86. In regard to the requirements of a judicial set-off, SCB makes the following submissions:
86.1. Judicial set-off has to be requested by way of ordinary case or by interlocutory demand: Dubai Court of Cassation, Petition No. 80/2010. There must be a standalone claim or counterclaim to assert set-off: Dubai Court of Cassation, Case No. 129/2009.
86.1.1. In support of its position, SCB highlights that the alleged breaches by SCB of the 2009 and 2010 Loans were set out in IGPL’s Defence and did not constitute a primary claim nor a separate counterclaim.
86.1.2. IGPL was granted conditional permission to file a counterclaim by the Deputy Chief Justice but it failed to comply with the conditions imposed.
86.1.3. In response to IGPL’s argument that RDC 17.33 (instead of UAE Civil Code) applies, with the result that no counterclaim needed to be filed, SCB submits that IGPL has wrongly construed the lex fori / lex causae SCB argues that the requirement of a standalone claim or counterclaim is not simply a question of procedure but rather a substantive requirement before the right of set-off arises. The entire availability of set-off therefore falls to be determined by the lex causae, being the law that the Parties have expressly chosen to govern any dispute that may arise from their disagreement. SCB relies on Dicey, Morris and Collins on the Conflict of Laws (15th ed, Sweet and Maxwell, 2012) (“Dicey, Morris and Collins”) which explains that the primary object of using lex fori to determine matters of procedure is to prevent inconvenience. However, if a foreign rule can be applied without causing any inconvenience, the rule should be “classified as procedural”.
86.2. The conditions for judicial set-off are that the obligations must be “indisputable, payable and known”: [24] of the Judgment of the Deputy Chief Justice which relied on the Dubai Court of Cassation Case No. 77/2011 (Commercial) dated 21 September 2011.
86.2.1. SCB submits that IGPL has been unable to quantify the amount sought to be set-off and/or the basis of any such amount.
86.2.2. SCB further argues that IGPL’s “unparticularised and unquantified potential damages claim” was “no more than a blatant attempt to frustrate” SCB’s attempt to seek immediate judgment of its particularised debt claim.[16] More than two years have passed since the time SCB applied for immediate judgment. There has been “more than adequate time” for IGPL to produce a “fully substantiated and quantified” counterclaim and/or Defence.[17]
86.2.3. Referring to its submission that the evidential burden rests with IGPL to prove that it has a real prospect of successfully defending SCB’s claim (see paragraph 58 above), SCB highlights that IGPL failed to put forward any witness or expert evidence on SCB’s alleged breaches such as, (a) requests for release of alleged surplus shares, (b) SCB’s responses to such requests, (c) SCB’s alleged failure to collect and apply dividends either at all or in a timely manner, (d) SCB’s alleged misapplication of credit card receivables, and/or (e) the alleged quantitative effect of any of these breaches.
C. Discussion
87. There are two main considerations under this ground of appeal:
87.1. First, whether IGPL was required to file “an original or interlocutory application” for judicial set-off to take place. If so, did IGPL do so?
87.2. Second, what are the conditions of judicial set-off and were these conditions fulfilled?
[1] Whether an original or interlocutory application was required
88. The crux of this issue is to whether IGPL’s application for judicial set-off should follow the procedure of the DIFC Rules of Court pursuant to RDC 17.33 or the procedure required under Article 372 of the UAE Civil Code.
89. It is clear from the two Dubai cases discussed at the Appeal Hearing, (Dubai Court of Cassation, Petition No. 80/2010 and Dubai Court of Cassation, Case No. 129/2009) that, under UAE law, there has to be an “original” (i.e. independent) claim or counterclaim for judicial set-off to apply.
90. On the other hand, RDC 17.33 allows set-off to be included in a defence, whether or not it is also a counterclaim.
91. At the Appeal Hearing and in the Respondent’s Supplemental Skeleton Argument, SCB has raised the point that the requirement of an independent counterclaim is “not simply a question of procedure, but rather a substantive requirement.”
92. Dicey, Morris and Collins explains the difficulties and approaches in discriminating between rules of procedure and rules of substance at [7-004].“The difficulty in applying this Rule lies in discriminating between rules of procedure and rules of substance. The distinction is by no means clear-cut. In drawing it, regard should be had in each case to the purpose for which the distinction is being used and to the consequences of the decision in the instant context. The rule under examination must be considered as a whole, without giving undue weight to the verbal formula selected by previous judges or by the draftsman of a statute to introduce the rule… The mechanistic approach, sometimes found in English cases, of relying on the classification of the introductory verbal formula as used in a quite different statute, or of accepting a classification as procedural or substantive made for some purposes quite unrelated to the conflict of laws, is now discredited. The distinction may have to be drawn in one place for the purpose of this Rule but in another place for the purpose of the rule that statutes affecting procedure are, while statutes affecting substance are not, presumed to have retrospective effect. This is not to say that the distinction may not be drawn in the same place for many purposes: it is merely to deny that it must necessarily be drawn in the same place for all purposes. The primary object of this Rule is to obviate the inconvenience of conducting the trial of a case containing foreign elements in a manner with which the court is unfamiliar. In principle, therefore, if it is possible to apply a foreign rule, or to refrain from applying an English rule, without causing any such inconvenience, those rules should not necessarily, for the purpose of this Rule, be classified as procedural.” (emphasis added)
93. I shall now proceed to review the requirements in other jurisdictions for a better understanding of whether the requirement to file a standalone claim or counterclaim should be considered a substantive or procedural one.
94. Under Egyptian law, the procedure of requesting for judicial set-off is not expressly stated in Article 125 of the Egyptian Civil and Commercial Procedures Law.
“Article 125:
The Defendant may submit the following incidental requests:
95. However, the Egyptian Court of Cassation in Case 688/JY 50 has confirmed that set-off is conditional on the filing of a standalone claim or an interlocutory application.
“…The existence of judicial set-off is conditional upon the filing of a stand-alone court claim or by way of an interlocutory application […] which should be filed to the court in accordance with the procedures stipulated by law before the date of the hearing or orally by requesting it in the hearing with the attendance of the opponent and after being recorded in the minutes of the meeting.”
96. The requirements for judicial set-off under the Jordanian Civil Code are similar to the UAE Civil Code.
“Article 347
The judicial set-off is made by a judgement (sic) of the court if its conditions are fulfilled and upon an original or incidental request.”
97. Having considered the comparative law submissions by the Parties, I find that the requirement of an independent claim or counterclaim under Article 372 of the UAE Civil Code on judicial set-off is not merely procedural. It is a substantive requirement to be fulfilled before permission can be given to an applicant for judicial set-off to occur. Similar to the Jordanian Civil Code, the requirement for “an original or an interlocutory application” is integrated as part of the substantive right of judicial set-off in the provision itself. This is different from DIFC law where the requirements of the procedure are annexed under RDC 17.33.
98. Furthermore, filing a counterclaim was not difficult for IGPL. In fact, it made an application for a counterclaim and was in turn granted conditional permission. Applying the principle elaborated in Dicey, Morris and Collins, this demonstrates that following the UAE procedure did not cause any “inconvenience” to the DIFC Courts. It was IGPL’s own wrongdoing for failing to fulfil the conditions stipulated by the Deputy Chief Justice.
99. Accordingly, IGPL was required to file a counterclaim in its application for judicial set-off. Having been given the opportunity by the Deputy Chief Justice, IGPL failed to follow through with its counterclaim and therefore should be not granted its application for judicial set-off.
100. Even though IGPL’s application for judicial set-off fails, I will proceed to discuss the conditions for judicial set-off to be granted for the sake of completeness.
[2] Conditions of judicial set-off
101. I agree with IGPL’s argument that the conditions of judicial and mandatory set-off under the UAE Civil Code are different. In this regard, SCB was wrong to say that the obligations under judicial set-off must be “indisputable, payable and known” for judicial set-off to proceed.
102. A review of the judgment on which SCB has relied makes it clear that the judgment in the Dubai Court of Cassation Case No. 77/2011 (Commercial) dated 21 September 2011 was considering the conditions in a mandatory (or legal) set-off, and not judicial set-off. The relevant extract is as follows.
“…Accordingly, and whereas the legal set-off requires the debt to be indisputable, payable and known and it is evident by papers that the Appellant by Cassation disputed the Appellee by Cassation with regard to the dues and denied its entitlement of the claimed amount, and this required the appointment of an expert to estimate such defects. This means the two conditions of making legal set-off was absent and therefore the argument shall be unfounded and baseless.” (emphasis added)
103. SCB is therefore not correct in relying on this judgment to say that the obligations under judicial set-off must be “indisputable, payable and known”.
104. Further guidance on judicial set-off can be found in the comparative law analysis prepared by the Parties. According to IGPL’s counsel, Mr Ali Al Aidarous, the Egyptian Civil Code is the most influential of the civil codes in the Arab countries. Mr Ali Al Aidarous also referred to the commentary by Abdulrazzaq Alsanhouri in Al Waseet Explaining the New Civil Code (3) General Theory of Obligation – Descriptions, Assignment and Abatement, New Third Edition (“Alsanhouri’s Commentary on Egyptian Law”).
105. In Alsanhouri’s Commentary on Egyptian Law, Alsahouri explained that the court has discretionary authority in an application for judicial set-off. A judicial set-off may exist when two conditions of legal set-off are not fulfilled: (1) absence of dispute and (2) pre-determination of value of the claim. This means that the court can order judicial set-off even if there is a dispute regarding the existence or quantum of corresponding claims. The relevant excerpt from the translated commentary is as follows.
“The judicial set-off requires two correspondent debts, in which the defendant may not make a legal set-off and fails to make a facultative set-off. If the legal set-off were permissible, it would be imposed automatically by law as from the debt convergence and the defendant wouldn’t need to institute an incidental case. The only action needed by the Defendant would be pleading for the legal set-off and the judge would decide the legal set-off when its existence is proved…
Hence, the judicial set-off exists in the case in which the conditions of the legal set-off aren’t fulfilled. The absent condition/s may not be of the kind stipulated for the interest of the defendant alone; otherwise, the defendant would be able to waive these conditions and make the facultative set-off instead of resorting to the judicial set-off, which is more complicated. It is apparent that the judicial set-off exists when two conditions of the legal set-off are absent: Absence of dispute and the pre-determination of the value. The correspondence of debts, their maturity for being sued, their probability of attachment and their maturity are required even in judicial set-off. No kind of set-off may be made in the absence of these conditions.” (emphasis added)
106. The Parties’ submissions on the other jurisdictions are not as helpful as the submissions on Egyptian law. Nonetheless, for the sake of completeness, I will present them in this judgment.
107. IGPL submits that, under Iraqi law, the court has no power to grant judicial set-off. Where a court is required to grant a set-off, it does so on the same conditions as mandatory set-off. This gives effect to a mandatory set-off instead of calling the form of set-off a “judicial set-off”.
108. According to SCB, there are no express statutory conditions for judicial set-off under Jordanian law. In practice, however, the Jordanian courts seek to ensure that there is a clear nexus between both claims and that both debts are due before judicial set-off may be ordered.
109. As regards Syrian law, it distinguishes between legal set-off and judicial set-off based on principles derived from legal doctrines, judgments and commentaries rather than statute. There is no authority provided on this point, save for SCB’s mention in [72] of the Respondent’s Supplemental Skeleton Argument that Mr Roy Georgiades, an expert in Syrian law, confirmed that he agreed with its submissions as to the law of set-off in Syria.
110. As mentioned, there are no express provisions in Syrian law which set out the conditions which must be satisfied. Based on SCB’s submissions, the requirements of legal set-off are as follows:
110.1. Both debts must be reciprocal such that both parties are simultaneously debtor and creditor of another.
110.2. Both debts must concern the same subject matter – such as, for example the payment of money.
110.3. Both debts must have reached maturity so that they are both due in time to each party from one another respectively.
111. Under Syrian law, judicial set-off can therefore be brought about where debts are disputed and have not been quantified.
112. Despite the comparative law submissions provided by the Parties on judicial set-off, I find that, save for the fact that the court has a wide discretion in granting judicial set-off, there is little guidance as to how a court can decide on allowing a judicial set-off once the conditions of legal set-off are not fulfilled.
113. Nonetheless, it is clear to me that the pre-conditions for judicial set-off to be applied, as determined in Dubai Court of Cassation’s decision in Petition 129/2009 (Labor) (7 June 2010)), are likely to be correct. They are as follows:
113.1. The two parties should be a creditor and debtor to each other only.
113.2. There is no requirement for a connection in terms of subject or reason between the two debts.
113.3. Any of the debts may be disputed.
113.4. Any of the debts may have a “non-determined value” as long as it is payable.
114. However, since IGPL did not meet the initial requirement of filing an independent claim or counterclaim, this Court does not need to consider the conditions for judicial set-off.
X. GROUND 3: MANDATORY PROVISIONS GROUND
115. As mentioned in paragraph 80 above, the Deputy Chief Justice found that the anti set-off clauses were contractually enforceable. In coming to his conclusion, the Deputy Chief Justice relied on the following provisions in the UAE Civil Code which allow contracting parties to contract out of setting-off in an agreement.
“Article 257
The basic principle in contracts is the consent of the contracting parties and that which they have undertaken to do in the contract.
Article 259
There shall be no scope for implications in the face of clear words.
Article 265
(1) 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 369
Set-off may either be mandatory, occurring by operation of law, or voluntary, occurring by operation of agreement between the parties, or judicial, occurring by order of the court.
Article 370
In the case of mandatory set-off, each of the parties must be in debt to the other, and the obligations must be of the same kind and description, must be equally due and of equal strength and weakness, and the making of the set-off must not be prejudicial to the rights of third parties, whether the cause of the arising of the obligations is the same or different.”
A. IGPL’s (Appellant’s) Position
118. While IGPL acknowledges that there is a “general freedom of contract”, it argues that Articles 257, 259 and 265 of the UAE Code do not allow parties to override the mandatory legal provisions of mandatory set-off.
119. According to IGPL, mandatory set-off occurs regardless of the will of the parties once the relevant conditions are met. This therefore prevents parties from interfering with the automatic operation of the provision. While there is a provision under the UAE Civil Code (i.e. Article 369) which expressly allows parties to effect voluntary set-off, there is no provision which expressly permits parties to prevent mandatory set-off from happening.
B. SCB’s (Respondent’s) Position
120. SCB argues that IGPL has not provided any authority to show the mandatory effect of Articles 369 and 370 other than pointing to the words “mandatory” in the provisions.
121. SCB points out that the Arabic text of the UAE Civil Code suggests that set-off under Articles 369 and 370 is not compulsory or incapable of variation by party agreement. Instead, the provisions indicate that set-off will occur “involuntarily” when the conditions under Article 370 are satisfied.
122. In support of its submission that Articles 369 and 370 can be contracted out of, SCB makes the following arguments.
122.1. First, under UAE law, parties are free to contract out of provisions of the law unless the provisions relate to a matter of public order. SCB submits that the issue of set-off under a contract between two sophisticated commercial entities is not an issue of public order.
122.2. Second, Article 371 allows parties to agree to a set-off even if the conditions under mandatory set-off in Article 370 are not met. This therefore indicates that set-off is capable of variation by party agreement. In the present appeal, the anti set-off clause in the 2009 Loan shows that the parties have expressly agreed to exclude any form of set-off.
122.3. Third, there is no provision under the UAE Civil Code preventing parties from waiving their right to set-off.
C. Discussion
123. The starting point for consideration of this issue is the meaning of the word “mandatory” under Article 369. At the Appeal Hearing, the Parties agreed that the word “mandatory” means “applies by operation of law automatically”. The Parties further agree that, in the event of a dispute, mandatory set-off can occur if invoked by a party.[19]
“Transcript of the Appeal Hearing (p. 61 – 62)
CHIEF JUSTICE MICHAEL HWANG: Just before Mr Abbott starts, let us just be clear on the position of the appellant. We are trying to just clarify what is the appellant's position on the meaning of the word, which is translated by Whelan as "mandatory". I know what Clifford Chance's version is, and correct me if I am wrong, Mr Abbott, but I think Clifford Chance says that it means that what is translated by Whelan as "mandatory" would better be translated as "involuntary", which to me is no help, but meaning that it applies by operation of law without parties having to do anything. Have I got it correct?
MR ABBOTT: Yes, that is correct.
CHIEF JUSTICE MICHAEL HWANG: So, do the appellant's agree with that expanded definition of the term or do you want to stick to "mandatory" and do you want to qualify the term "mandatory" in any way?
MR BARRATT: Your Honour, our position --
CHIEF JUSTICE MICHAEL HWANG: Because I did not see it in your arguments.
MR BARRATT: No. I think what we say in our supplementary skeleton is that the words mean what they say, which is essentially "mandatory" which means that it applies by operation of law automatically, as it were, which I think is ‑‑
CHIEF JUSTICE MICHAEL HWANG: I think that is also in Clifford Chance's definition, right, automatically?
MR BARRATT: We differ in one respect in that we say it has to be - I can take you to the authority on this - invoked by the party.
MR ABBOTT: Yes, we actually agree with that.”
124. The next consideration is whether there are any express provisions prohibiting a waiver of the right to set-off.
125. It is clear that there are no express provisions in the UAE Civil Code prohibiting such a waiver. This is different from the position in the Egyptian Civil Code where exclusion of the right to set-off can only take place after the right to set-off has been established. Article 365 of the Egyptian Civil Code states as follows.
“Article 365
Compensation [set off] only takes place when set up by the interested party. Compensation [set off] cannot be renounced before the right thereto has come into existence.”
126. The position under Syrian law is similar to Egyptian law as the Syrian Civil Code only permits parties to agree to exclude the right of set-off after the right of set-off has come into existence. Article 363(1) of the Syrian Civil Code states as follows.
“Article 363
127. SCB has referred the Court of Appeal to Alsanhouri’s Commentary on Egyptian Law which explains the reason behind the position taken in Egyptian Law. The Egyptian legislator’s decision to restrict waiver before the right arises was meant to address situations where there was an imbalance of bargaining power, such as between a bank and an individual customer who contracted on the bank’s standard terms. The footnote in Alsanhouri’s Commentary on Egyptian Law explains this in the following terms.
“The preparatory works included two interpretations of the inadmissibility of the set off before establishment and confirmation thereof… “The Committee has considered that the set off is one of the settlement methods, and it is advisable that the eligible party does not waive his right except after establishment of such right”…Therefore, the Senate Committee reflected this statement, and did not permit the waiver of the set off before establishment and confirmation of the right therein because the “banks, in their dealing with individuals, adhere, in the contracts concluded with them, to mention inadmissibility of their adherence to the set off, which materially harms these individuals…”
128. The UAE Civil Code is silent on the restriction of waiver before the right of set-off arises. SCB suggests that this was a deliberate intention by the UAE legislators to depart from the Egyptian and Syrian position. Owing to the lack of evidence on the intention of the UAE legislators, I am not in a position to speculate on their intention in this regard. Simply because the UAE Civil Code is silent on the waiver of set-off does not mean it prohibits such a waiver.
129. The next question is whether the restriction of the right to waiver of set-off stems from any fundamental principle under the UAE law such as the right of recourse to justice. At the Appeal Hearing, co-Counsel for IGPL, Mr Ali Al Aidarous, argued that the imposition of any restriction is not allowed as it restricts the right of recourse to justice.[20] Mr Ali Al Aidarous then went on to provide some examples such as the concept of time bar and the concept of arbitration where parties are allowed to seek recourse under arbitration as opposed to a national court as legislation exists to permit arbitration. Mr Ali Al Aidarous concluded that having the anti set-off clauses were “null and void against the constitutional right of the UAE.”[21]
130. Noting that there had been no previous submissions on Mr Ali Al Aidarous’ point except at the Appeal Hearing, I questioned IGPL whether it was in fact arguing that there was a denial of a constitutional right or a violation of public order.[22] In response, co-Counsel for IGPL, Mr Barratt, submitted that IGPL’s position is that the anti set-off clauses were not contrary to public order. Instead, the anti set-off clauses fell under another category where the clauses are ineffective as there is “no express promulgation in the law permitting one to do so.”[23]
131. It is clear that anti set-off clauses are not contrary to public order. This position is also reflected in the Egyptian Civil Code as stated by Al Alsanhouri’s Commentary on Egyptian Law. I am also not convinced by Mr Barratt’s explanation of the existence of the category where such clauses are ineffective. Despite asserting this position, IGPL has failed to substantiate this point with any legal authorities in its pleadings.[24]
132. Accordingly, I find that, while the word “mandatory” means “automatically by operation of law”, exclusion by party agreement of mandatory set-off is not contrary to public order. In the absence of any express provision prohibiting a waiver of a right to set-off under UAE law, mandatory set-off does not override the Parties’ freedom to contract under Articles 257, 259 and 265(1). The anti set-off clauses are therefore effective in preventing mandatory set-off from occurring.
XI. GROUND 4: MANDATORY SET-OFF CONDITIONS GROUND
133. In [22] of his judgment, the Deputy Chief Justice held that, even on the assumption that mandatory set-off cannot be excluded by party agreement, IGPL had not established the conditions required for mandatory set-off pursuant to Article 370 of the UAE Civil Code.
134. Article 370 provides as follows.
“Article 370
In the case of mandatory set-off, each of the parties must be both the obligor and the obligee of the other, and the obligations must be of the same type and description, must be equally due and of equal strength or weakness; and the making of the set-off must not be prejudicial to the rights of third parties, whether the cause of the arising of the obligations is the same or different.”
135. The Deputy Chief Justice’s reasons for his finding were as follows.
135.1. The obligations were not of the same type and description: SCB had an undisputed debt claim while IGPL had a disputed and unparticularised debt claim.
135.2. The obligations were not equally due and were not of equal strength.
A. IGPL’s (Appellant’s) Position
136. IGPL disagrees with the Deputy Chief Justice’s conclusion and bases its arguments on two main points.
137. First, IGPL takes the position that the obligations are of the same type and description.
137.1. The obligations by both parties are contractual obligations based on the same transaction. IGPL reasons that IGPL was obligated to pay money while SCB is obligated to return shares.
137.2. IGPL disagrees with the Deputy Chief Justice’s description that SCB’s claim is “an undisputed debt claim” while IGPL’s claim is a “disputed damages claim”. According to IGPL, SCB’s debt is due to its own failure to return IGPL’s shares. This shows that the obligations were not only of the same type, but were intertwined. IGPL therefore needed “full opportunity to defend its position” as this issue could not be dealt with in a summary proceeding.
138. Second, IGPL argues that the obligations are equally due and of equal strength.
138.1. IGPL argues that its obligation to repay the principal and SCB’s obligation to return the shares were due in the past. Both debts are therefore due now.
138.2. As regards the strength of the claims, IGPL argues that the set-offs pleaded in its Defence ought to be taken into account. In support of its contention, IGPL reiterates that, under RDC 17.33, the court is required to consider set-off claims which are brought by way of defence. This is a matter of procedure, and not substantive law.
B. SCB’s (Respondent’s) Position
139. SCB maintains its primary position that the anti set-off clauses are the complete answer to IGPL’s set-off claims. In the alternative, SCB argues that the conditions required for mandatory set-off have not been satisfied.
140. First, SCB takes the position that the obligations are not of the same type and description.
140.1. SCB’s debt claim arises from the 2009 and 2010 Loans which IGPL admits had not been paid. On the other hand, IGPL’s claim is in the form of damages for alleged breaches of the 2009 and 2010 Loans.
140.2. Furthermore, SCB’s debt claim is a claim for a specific sum due while IGPL’s claim is for a release of pledged shares under the Share Pledge, the collection of dividends in a timely manner and the application of receivables in a certain way. One is a straightforward claim for repayment of an agreed monetary sum while the other may include non-monetary compensation in the form of the return of shares.
141. Second, SCB argues that the obligations are not equally due and of equal strength and weakness. IGPL’s claim “continues to be entirely unparticularised” while SCB’s claim is fully quantified, immediately due and payable.
C. Discussion
142. As mentioned in paragraph 132 above, I agree with the Deputy Chief Justice that the anti set-off clauses are the complete answer to IGPL’s argument that mandatory set-off should take effect. I therefore do not find it necessary to launch into a full discussion of the conditions of mandatory set-off under UAE law.
143. Nonetheless, I will briefly discuss my views in the event that mandatory set-off is effective.
144. Even without referring to the comparative law analysis by the Parties, case law in the Dubai Court of Cassation provides sufficient commentary on the requirements under mandatory set-off.
144.1. In Dubai Case No. 77/2011 Commercial Appeal by Cassation, the court held that for legal set-off (as translated) (i.e. mandatory set-off) to occur, the debt needs to be “indisputable, payable and known.” The Court found that legal set-off could not occur because there was a dispute by the appellant as to the debt and the respondent’s entitlement of the claimed amount. In particular, the Court mentioned that the need to appoint an expert to estimate the defects claimed meant that the conditions for making legal set-off were absent.
144.2. In Dubai Court of Cassation on appeal no. 129/2009 (Labor), the court compared legal set-off (as translated) (i.e. mandatory set-off) and judicial set-off. While it was not expressly stated that legal set-off needed to be quantified, this conclusion could be inferred from the judgment as follows.
“…In legal set-off the two parties should be a debit (sic) and a creditor towards each other, and the two debts should be conformed in terms of type, description, maturity, force, weakness. While in judicial set-off, the two parties should be a creditor and debit (sic) towards each other only, but it doesn’t requires (sic) any connection in terms of subject or reason between the two debts even if anyone (sic) of the two debts is disputed or of a non-determined value, as it shall be sufficient to be payable…” (emphasis added)
145. It is clear that the requirements for mandatory legal set-off under the UAE Civil Code were not satisfied. The Parties’ obligations were not of the same type and description as IGPL’s claim was not “indisputable, payable and known.” IGPL has continually asserted that it requires an expert to quantify its counterclaims. Furthermore, even if SCB’s claim and IGPL’s counterclaim are already due, it is not possible to ascertain the strength of IGPL’s counterclaim at this point.
146. In the circumstances, even if mandatory set-off could take place, the conditions for mandatory set-off are not fulfilled.
XII. GROUND 5: QUANTIFICATION GROUND
147. The Deputy Chief Justice highlighted in [24] of his judgment that “IGPL accepts that even after 6 years an expert is needed to assess the quantum of their counterclaim.”
A. IGPL’s (Appellant’s) Position
148. IGPL contends that the Deputy Chief Justice failed to take into account that the question of set-off was considered on an application for immediate judgment and not finally determined at trial. The question before the Deputy Chief Justice was whether, should the claim proceed to trial, SCB could show that IGPL had no real prospect of successfully defending the claim.
149. The question now before the Court of Appeal ought to be whether IGPL, with the expert evidence of quantification that would have been reasonably available at trial, had a reasonable prospect of succeeding in its defence of set-off.
150. In support of its position, IGPL highlights RDC 24.2(2) which states as follows.
“24.2
An application for immediate judgment under Rule 24.1 may be based on:
(1) a point of law (including a construction of a document);
(2) the evidence which can reasonably be expected to be available at trial or the lack of it; or
(3) a combination of these.” (emphasis added)
151. IGPL submits that the court should refrain from conducting a “mini-trial” and had to take into account the evidence that could reasonably be expected at trial: GFH Capital Limited v David Lawrence Haigh, CFI-020-2014, 18 October 2016 citing JSC CTB Bank v Skurikhin [2014] EWHC 271 which summarised the principles in an application for immediate judgment.
152. IGPL further argues that, if the Deputy Chief Justice were correct that a defendant had to have a fully quantified set-off claim at the time of application for immediate judgment, any claim advancing equitable set-off as a defence would be liable to adverse immediate judgment, despite the claim having a real prospect of success once full evidence is available.
B. SCB’s (Respondent’s) Position
153. As regards IGPL’s argument that a defence of equitable set-off would be liable to an adverse immediate judgment, SCB asserts that principles of equitable set-off are irrelevant to the consideration of set-off under UAE law.
154. SCB points out that it has been more than 19 months since the Immediate Judgment Application was filed, and over 3.5 years since the proceedings were commenced. However, up to this point, IGPL has failed to put forward any witness or expert evidence on SCB’s alleged breaches to form the basis of its claim for set-off. For instance, requests for release of alleged surplus shares and SCB’s responses, SCB’s alleged failure to collect and apply dividends either at all or in a timely manner and the alleged misapplication of credit card receivables and/or the alleged quantitative effect of any of these breaches.
155. To further delay the determination of SCB’s entitlement would be inconsistent with the DIFC Courts’s overriding objective to deal with cases expeditiously and fairly under RDC 1.6(4).
C. Discussion
156. In my opinion, IGPL’s ground on quantification is sound to the extent that a court should, in an application for immediate judgment, take into account expert evidence which would reasonably be expected to be available at trial.
157. However, I agree with SCB that IGPL has not put forward any witness statements or expert evidence in support of its defence or counterclaim. Even though the legal burden is on SCB to prove that immediate judgment rested with it, IGPL still has the evidential burden to show that it has a “real prospect of success” in defending SCB’s claim.
158. In Korea National Insurance Corporation (see paragraph 59 above), the claimant was granted a summary judgment on certain issues which arose in the action and this led to the striking out of parts of the defendant’s defence and counterclaim. The defendant based its defence mainly on a meeting which took place in London on 23 December 2005 and alleged that the parties had entered into a binding agreement to compromise the claim. In his summary judgment, the judge concluded that the defendant had no real prospect of establishing its defence. The defendant argued before the English Court of Appeal that the judge failed to make allowance for the likelihood that additional evidence would be made available at trial. The English Court of Appeal dismissed the appeal as the defendant had “chosen to stand on the defence and counterclaim on the grounds (sic) that it contains all that is necessary for their purpose.”
159. The English Court of Appeal held that, while it was not necessary to put forward “compelling evidence”, the defendant should have put forward “simply enough evidence to raise a real prospect of being able to persuade the court that the circumstances of the words spoken at the meeting gave rise to a binding agreement.” Lord Justice Moore-Bick stated at [18] and [19] of his judgment as follows:
"18. For the reasons I have already given, I do not think that that is a satisfactory approach to an application of this kind. It is the reinsurers’ case that the claim was compromised at the meeting of 23rd December and it was therefore incumbent on them to put before the court such evidence of the background to and course of the meeting as would, if standing alone, demonstrate that the case had a real prospect of success. On the face of it that could easily have been done because Mr. Payton and another partner of Clyde & Co. Mr. Lewis, had been present at the meeting…and had been closely involved in the events which had preceded it. It was not necessary to put forward compelling evidence, simply enough evidence to raise a real prospect of being able to persuade the court that in the circumstances the words spoken at the meeting were intended to give rise to a binding agreement. As it is, they have chosen to stand on the defence and counterclaim on the grounds that it contains all that is necessary for their purpose.
19. In those circumstances I think the court must proceed on the basis that nothing else is likely to emerge at trial that will affect the construction to be placed on what was said at the meeting…Once it becomes clear that the facts are in dispute, neither the parties nor the court should succumb to the temptation to investigate them in depth, since the dispute can normally be resolved at trial; but that position will not be reached at all until the parties have set out their competing positions and the evidence on which they are based.” (emphasis added)
160. In the present appeal, the following factual circumstances ought to be taken into consideration:
160.1. IGPL was given an opportunity to quantify its counterclaim in its application for counterclaim. However, IGPL failed to fulfil the conditions stated by the Deputy Chief Justice when he gave IGPL conditional permission to file its counterclaim. As a result, the draft counterclaim could not be filed.
160.2. IGPL has had numerous opportunities to engage a quantum expert since the commencement of proceedings in 2014 when SCB’s claim form was issued on 6 August 2014.
160.2.1. On 12 January 2015, IGPL commenced proceedings against SCB in the Sharjah Civil Court with the contention that the Share Pledge was invalid as it was executed without authority.[25]
160.2.2. IGPL later issued a claim against SCB in the Centre for Amicable Settlement of Disputes in the Dubai Court for a claim in respect of AED 200 million for alleged loss and damage by way of set-off against any debt owed.[26]
160.2.3. On 6 March 2018, the Deputy Chief Justice ordered that IGPL’s counterclaim would be entertained only on the basis of certain undertakings.[27]
161. At the Appeal Hearing, IGPL pointed out that it had previously given a rough quantum of the market value of shares held by IGPL in [21] of its Defence which states as follows.
“At the time of the 16 September 2014 request, the market value of the Shares held by the Defendant [IGPL] was approximately US$189 Million as security for a loan, with a balance of principal and interest, even on the Claimant’s case, of approximately US$62 Million. The required coverage under the BAL was 1.6X the outstanding amount or approximately US$99 Million. Thus there was an excess cover of approximately US$90 Million.”
162. In my view, if IGPL had been able to give an estimate of the market value of the shares held by it at the time of drafting its Defence, it would have been able to give an estimated quantum of its counterclaim, especially if the market value of the shares were obtainable from public records. However, IGPL failed to do so even up to the point when IGPL sought to file its counterclaim on 23 February 2017. Additionally, IGPL made numerous assertions in its Defence such as its requests for the release of excess shares or SCB’s failure to collect dividends for the pledged shares in time. However, no witness statements or evidence were tendered to support this position. I am therefore not convinced that there was sufficient evidence to show that IGPL had (or has) a real prospect of success in its Defence.
XIII. THE 2010 LOAN
A. IGPL’s (Appellant’s) Position
163. As noted in paragraph 62 above, IGPL has not challenged the Deputy Chief Justice’s findings under English law with regard to the 2010 Loan. However, it contended that the Deputy Chief Justice was wrong in granting the Immediate Judgment owing to the following errors:
163.1. The Deputy Chief Justice was wrong in concluding that IGPL offered no defence (i.e. Substantive Defence Ground);
163.2. The Deputy Chief Justice was wrong in his application of the law on judicial set-off (i.e. Judicial Set-off Ground); and
163.3. The Deputy Chief Justice was wrong to rely on the present state of the quantification of set-off (i.e. Quantification Ground).
B. SCB’s (Respondent’s) Position
164. SCB maintains its argument that there was no basis for the application of any law other than English law in the determination of the amounts owed under the 2010 Loan and/or any right of set-off.
165. In support of its position, SCB relies on Philip R Wood’s English and International Set Off (Sweet & Maxwell, 1989) which states that the court should apply the law of the creditor’s claim to determine whether the debtor was entitled to discharge the creditor’s claim by set-off. A further reading of the paragraph referred to in the book stated that “the courts should not apply the lex fori except in relation to purely procedural matters.”
166. SCB further denies that the law of judicial set-off is relevant to the 2010 Loan.
167. SCB repeats its argument that the anti set-off clause in the 2010 Loan is contractually enforceable as it is “clear and unequivocal”. In support of its contention, SCB relies on several English cases for the holding that, where an anti set-off clause is “sufficiently clear”, the anti set-off clause should be enforced, in accordance with its terms: Caterpillar (NI) Ltd v John Holt & Company (Liverpool) Ltd [2013] EWCA Civ 1232; Skipskredittforeningen v Emperor Navigation [1997] C.L.C. 1151; FG Wilson (Engineering) Limited v John Holt & Company (Liverpool) Limited [2012] EWHC 2477 (Comm).
168. Furthermore, no legal set-off can occur when the debt is for an unliquidated sum: Aectra Refining & Marketing Inc v Exmar NV [1994] 1 WLR 1634.
169. As regards equitable set-off under English law, SCB argues that such set-off can be varied by contract and only exists where a claim and cross-claim are so closely connected such that it would be “manifestly unjust” to enforce one and not take account of the other: Geoldof Metaalconstructie NV v Simon Carves Ltd [2010] EWCA Civ 667.
C. Discussion
170. I note that there were no submissions made by IGPL on English law in IGPL’s written submission and at the Appeal Hearing. It is therefore clear that IGPL does not dispute the Deputy Chief Justice’s findings on English law. The only submissions made on the 2010 Loan relate to UAE law (i.e. Substantive Defence Ground, Judicial Set-off Ground and Quantitative Ground). I shall briefly reiterate my findings on the grounds of appeal below.
171. As explained in paragraphs 70 to 77 above, I disagree with IGPL that the Deputy Chief Justice failed to consider its substantive defence at the Immediate Judgment Hearing.
172. As regards IGPL’s argument on judicial set-off, I have explained in paragraphs 88 to 114 above that this Court will not be able to consider its application for judicial set-off as IGPL did not meet the requirement of filing a standalone claim or counterclaim.
173. Finally, the Deputy Chief Justice was correct in relying on the present lack of quantification of IGPL’s counterclaim to determine if IGPL had a real prospect of success.
XIV. CONCLUSION AND COSTS
174. For the reasons set out above, I would dismiss IGPL’s appeal as IGPL has no reasonable prospect of succeeding on any of its proposed defences at the trial, if the matter were allowed to proceed to a full hearing. The Immediate Judgment of the Deputy Chief Justice Sir David Steel dated 16 August 2017 (re-issued on 5 September 2017) is therefore upheld.
175. The stay of the proceedings granted in the Order of the Chief Justice dated 5 February 2018 is lifted.
176. Costs arising from this appeal shall be paid by IGPL to SCB, the amount of which shall be assessed, if not agreed, by the Registrar. Payment shall be made within 14 days of the date of this judgment or, if an assessment by the Registrar is required, then within 14 days of the date of the Registrar’s assessment.
H.E. JUSTICE ALI AL MADHANI:
177. I agree with the judgment and have nothing further to add.
JUSTICE SIR RICHARD FIELD:
178. I agree with the judgment and have nothing further to add.
