CA 006/2017 MAG Financial Services LLC v Theron Entertainment LLC

May 07, 2018 Court of Appeal - Orders

Claim No: CA-006-2017

THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS

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

IN THE COURT OF APPEAL

BEFORE THE CHIEF JUSTICE MICHAEL HWANG, JUSTICE SIR RICHARD FIELD AND H.E. JUSTICE OMAR AL MUHAIRI

BETWEEN

MAG FINANCIAL SERVICES LLC

Appellant

and

THERON ENTERTAINMENT LLC

Respondent / Cross-Appellant

Hearing: 6 December 2017

Counsel: Harris Bor assisted by Alastair Graham of Mayer Brown for the Appellant

Sarah Malik (instructed by Taylor Wessing) for the Respondent/Cross-Appellant

Judgment: 7 May 2018

RULING ON COSTS

ORDER

UPON both parties having filed submissions on costs following the Court’s judgment determining the appeal and cross-appeal brought against the decision of H.E. Justice Ali Al Madhani dated 11 May 2017

IT IS HEREBY ORDERED THAT:

1.The Appellant shall have 65% of its costs on appeal.

2. The Respondent/Cross Appellant shall have 40% of its costs below.

Issued by:

Natasha Bakirci

Senior Assistant Registrar

Date of Issue: 7 May 2018

At: 11am

SCHEDULE OF REASONS

JUSTICE SIR RICHARD FIELD:

1.In paragraph 44 of the Court’s judgment determining the appeal and cross-appeal brought against the decision of H.E. Justice Ali Al Madhani (“the Judge”) dated 11 May 2017, it was stated that unless either party filed written submissions to the contrary within 10 days of the date of the judgment, the order for costs made below should be set aside and in place thereof there should be no order as to costs both below and on the appeal.

2. In the event, both parties have filed submissions within the stipulated time contending that each ought to have all or substantially all of its costs both below and on appeal.

3. It is necessary to set out in Rules 38.6 to 38.9 of the DIFC Courts (the “RDC”)–

“38.6

Subject to Rules 38.15 to 38.16 the Court has discretion as to:

(1) whether costs are payable by one party to another;

(2) the amount of those costs; and

(3) when they are to be paid.

38.7

If the Court decides to make an order about costs:

(1) the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; but

(2) the Court may make a different order

38.8

In deciding what order (if any) to make about costs, the Court must have regard to all the circumstances, including:

(1) the conduct of all the parties;

(2) whether a party has succeeded on part of his case, even if he has not been wholly successful; and

(3) any payment into Court or admissible offer to settle made by a party which is drawn to the Court’s attention and which is not a Part 32 offer.

38.9

The conduct of the parties includes:

(1) conduct before, as well as during, the proceedings;

(2) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(3) the manner in which a party has pursued or defended his case or a particular allegation or issue; and

(4) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim.”

4. The Respondent (“Theron”) submitted that it ought to be awarded 60% of its total costs both below and on appeal given: (i) the net recovery it had achieved at the end of the day having regard to the sums it had been awarded on appeal including the return of the security deposit that had been earlier conceded and the sums awarded by the Judge that had not been challenged on appeal; (ii) it had succeeded on the issues whether the Appellant (“MFS”) was liable in damages for the delay in obtaining the necessary change of use of the premises and whether the Tenancy Contract had been validly terminated pursuant to Article 36; and (iii) various alleged aspects of the conduct of the Appellant (“MFS”) in the course of the proceedings.

5. Theron submitted that its net recovery so far totaled AED 1,033,149.68. Pre-trial, Theron’s claim for damages was for AED 10,310,407.

6. As to the conduct of MFS relied on by Theron, Theron alleged that MFS had been obstructive and thereby had slowed down the progress of Theron’s claim by failing to file an Acknowledgement of Service, failing to respond to a specific document request and a two-month extension of the timetable upon changing its lawyers, and amending its pleadings late in the day.

7. Theron also alleged that MFS filed a “frivolous” criminal complaint in respect of the rent cheques that had bounced and also refused to give an assurance that it would not present the November 2014 rent cheque for payment pending the trial at first instance. By reason of these actions, Theron’s sole shareholder, Mr Igor Krayushkin, had felt it necessary to leave Dubai to escape criminal proceedings and Theron had had to make a (successful) application for an order that the November 2014 rent cheque be placed into the custody of the Court and the remaining rent cheques be handed over to Theron, an order that MFS did not comply with for over five months. Moreover, after the criminal proceedings were withdrawn on 19 April 2016, by which time Mr Krayushkin had had to leave Dubai, MFS had applied for security of its costs. Further, when faced with a subsequent order made on 11 May 2017 to release the AED 300,000 paid by Theron as security for its (MFS’s) costs, MFS had not complied with this order until 17 September 2017.

8. Theron also advanced the untenable position that because the costs order made below was not appealed, it could not be disturbed regardless of MFS’s success in having the loss of profit award set aside.

9. MFS’s principal submission is that, pursuant to RDC 38.8 (3), Theron should pay all or a substantial proportion of MFS’s costs below and on appeal by reason of Theron having rejected a settlement offer made by MFS through its lawyers on 31 March 2016 “without prejudice as to costs”. MFS’s offer was to settle Theron’s claim by paying AED 4,000,000 all in and by agreeing: (i) not to present any rent cheques issued by Theron that were still valid; (ii) to instruct its lawyers, Abdullatif Al Hammedadi, to take whatever steps were required for the existing criminal charges against Mr Krayushkin to be lifted as soon as possible; (iii) that a representative of Theron’s then lawyers could work with Theron’s lawyers to ensure the removal of the charges as quickly as possible.

10. MFS’s settlement offer was made in the light of Theron’s AED 10,310,407 damages claim as revealed in the documents, plus costs of AED 775,000.

11. Theron rejected this offer by an email dated 7 April 2016 sent by its lawyers.

12. MFS concedes that its offer to settle was not an RDC Part 32 offer.

13. On 15 April 2016, MFS’s solicitors enquired of Theron’s solicitors without prejudice save as to costs whether Theron would be interested in discussing a longer term for the lease at an attractive rent and/or some contribution to reflect delay, to which the reply dated 19 April 2016 was that Theron was not amenable to any negotiations while the criminal case was pending. In a responsive email dated 19 April 2016, MFS stated that the criminal proceedings had been withdrawn and this was followed up by a letter of the same date repeating that the proceedings had been withdrawn by the relevant authorities which could be verified by attendance at Bar Dubai Police at which a representative of MFS or its lawyers would assist if necessary. Thereafter, Theron made no further response to MFS and on 4 May 2016 MFS’s solicitors wrote to Theron’s solicitors without prejudice save as to costs stating that if the latter were interested in narrowing the gap between the parties the former could be available in an hour. Theron’s response to this was to say that there was no point in a discussion because the parties were so far apart.

14. MFS submits that the amount payable to Theron following this Court’s judgment is AED 953,904.85 and that it is highly unlikely that Theron would have recovered the legal fees of AED 775,000 that it claimed to have incurred down to 31 March 2016.

15. MFS also contends that the Court should take into account Theron’s conduct in, inter alia: (i) not having made an irrecoverable election before or at the trial between its loss of profits claim and its wasted expenditure claim; and (ii) having sought to terminate the Tenancy Contract on the primary ground of repudiatory breach shortly after MFS had paid AED 6 million in fees to procure the change of the permitted use of the premises from office use to use as a bar and restaurant.

Discussion and Decision

16. First, I assess the total sums awarded to each party following the decision on appeal, taking into account those sums awarded below that were not challenged on appeal.

17. Theron succeeded in being awarded AED 2,311,424.96 as follows: (i) AED 1,448,528.30 in respect of rent paid during the period 10 November 2014 to 9 February 2015 on which latter date the permitted use of the premises was changed to use as a bar and restaurant; (ii) AED 289,705.66 in respect of the returnable security deposit, subject to rent owed to MFS; (iii) AED 485,691 awarded by the Judge for additional works, this award not having been challenged on appeal; (iv) AED 50,000 awarded by the Judge for storage costs, this award not having been challenged on appeal; (v) AED 37,500 awarded for storage and fit-out costs, this award not having been challenged on appeal.

18. MFS succeeded in being awarded AED 1,357, 520.15 as follows: (i) AED 1,278,275.28 awarded for rent due for the period 9 February 2015 to 14 July 2015; and (ii) AED 79,244.87 awarded by the Judge in respect of district cooling charges, which award was not challenged on appeal.

19. The net financial balance of awards in favour of Theron is therefore AED 953,904.81.

20. Theron has also given notice to MFS that it has claims amounting to AED 1,556,651 for wasted costs incurred in respect of employment of staff pursuant to the liberty to make such claims granted in paragraph 41 of the judgment on appeal. It is impossible at this stage to assess the credibility of this figure.

21. I now turn to whether Theron’s rejection of MFS’s settlement offer made on 31 March 2016 should constitute a ground for reducing what would otherwise be an appropriate award of costs in Theron’s favour. This offer was made at a time when there were police proceedings against Mr Krayushkin in respect of the unpaid rent cheques, proceedings which had been initiated by a complaint to the police by MFS. These proceedings were not terminated until 19 April 2016, after Theron’s rejection on 7 April 2016 of MFS’s settlement offer. In my view, the pending police proceedings resulting from MFS’s complaint to the police were at least in part calculated to bring pressure on Theron to honour the rent cheques regardless of the merit of Theron’s claims, and for that reason I conclude that Theron’s rejection of the offer should not count against it when considering the question of costs. It is true that in the settlement offer MFS undertook to take steps to have the police proceedings terminated, but in so doing MFS was continuing to apply pressure on Theron, namely: agree to settle or continue to face the criminal proceedings, which pressure had nothing to do with the strength or weakness of either side’s legal claims.

22. In my opinion, none of the communications sent on behalf of MFS to Theron’s solicitors in the period 7 April 2016 to 4 May 2016 contained sufficiently definite proposals to constitute offers of settlement which the Court should take into account pursuant to RDC 38.3.

23. I therefore move on to consider the parties’ conduct and the issues on which they succeeded and on which they lost. Theron brought an extravagant claim for loss of profits for which there was no proper evidential basis and which depended on the unsustainable contention that the 5 year Tenancy Contract had been repudiated. Theron lost at first instance on its repudiation case and lost in this Court on its loss of profits claim for the period during which the permitted use should have been use as a bar or restaurant down to its notice of termination. However, it succeeded below on its claim that MFS was in breach of an obligation to procure the change of the permitted use of the premises as from the inception of the Tenancy Contract dated 25 February 2014 and this finding was not challenged on appeal. It also succeeded below and on appeal on the issue whether it had lawfully terminated the Tenancy Contract and on appeal it succeeded in being awarded the return of the security deposit, although that latter claim was readily conceded by MFS before the appeal hearing.

24. Turning to MFS’s successes and failures, it succeeded at first instance on the repudiation issue and on appeal on the loss of profit issue. However, it lost below on the issue whether it was liable for failing to procure a change of permitted use and it lost below and on appeal on the important issue whether Theron had lawfully terminated the Tenancy Contract under Clause 36. It is also conceded on appeal that Theron was entitled to be awarded the return of the security deposit.

25. In my judgment, the additional complaints that each side makes about the conduct of the other in the course of the proceedings are not such that they should have a bearing on the costs order the Court ought to make.

26. Having regard to the net balance in Theron’s favour of AED 953,904.81 resulting from the sums awarded to Theron and to the matters canvassed in paragraphs 23, 24 and 25 above, I am of the view that Theron should have 40% of its costs below and that MFS should have 65% of its costs on appeal.

27. It may well be that the financial effect of the costs orders I propose should be made both here and below will be more or less equivalent to the effect of the Court’s proposal that each party should pay its own costs below and on appeal. I know not. But the parties having made detailed submissions on costs, I think it right to depart from the order originally suggested and to make the costs orders identified in the preceding paragraph.

CHIEF JUSTICE MICHAEL HWANG:

1.I agree with the above ruling and have nothing further to add.

H.E. JUSTICE OMAR AL MUHAIRI