April 18, 2018 Court of Appeal - Judgments
Claim No: CFI-014-2016
THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS
In the name of His Highness Sheikh Mohammad Bin Rashid Al Maktoum, Ruler of Dubai
IN THE COURT OF FIRST INSTANCE
BEFORE DEPUTY CHIEF JUSTICE SIR DAVID STEEL
BETWEEN
(1) MR RAFED ABDEL MOHSEN BADER AL KHORAFI
(2) MRS AMRAH ALI ABDEL LATIF AL HAMAD
(3) MRS ALIA MOHAMED SULAIMAN AL RIFAI
Claimants
and
(1) BANK SARASIN ALPEN (ME) LIMITED (IN LIQUIDATION)
(2) BANK J SAFRA SARASIN (FORMERLY BANK SARASIN & CO)
Defendants
Hearing: 21 March 2018 and 22 March 2018
Counsel: Orlando Fraser QC instructed by Hamdan Al Shamsi Lawyers & Legal Consultants for the Claimants
Ewan McQuater QC and Camilla Binghman QC instructed by Clifford Chance LLP for the Second Defendant
Judgment: 18 April 2018
JUDGMENT OF DEPUTY CHIEF JUSTICE SIR DAVID STEEL
ORDER
UPON the Second Defendant’s application no. CFI-014-2016/9 to strike out these proceedings (the “2016 proceedings”) pursuant to RDC 4.16(2) and in the event that the strike out application fails, an order striking out the Second and Third Claimants as parties to the 2016 proceedings and an order striking out the First Claimant’s claim for breach of contract and breach of statutory duty
IT IS HEREBY ORDERED THAT:
1.The application to strike out the Second and Third Claimants as parties to the action is dismissed.
2. The Second Defendant’s application to strike out these proceedings pursuant to RDC 4.16 (2) as an abuse of process is dismissed.
3. The Second Defendant’s application to strike out the claims for breach of contract and of statutory duty be allowed on the grounds of time-bar.
Issued by:
Natasha Bakirci
Senior Assistant Registrar
Date of Issue: 18 April 2018
At: 1pm
JUDGMENT
1.In this application the Second Defendant (the “Bank”) seeks to strike out these proceedings (the “2016 proceedings”) pursuant to RDC 4.16(2) on the grounds that they constitute “an abuse of the Court’s process” essentially on the basis that the claims made in the 2016 proceedings could and should have been made earlier and included in other proceedings instituted by the Claimants (the “2009 proceedings”). In the alternative, in the event that the strike out application fails, the Bank seeks an order striking out the Second and Third Claimants as parties to the 2016 proceedings and an order striking out the First Claimant’s claim for breach of contract and breach of statutory duty.
2. The primary focus of the 2016 proceedings is a claim in deceit arising from events in August 2007 which emerged in the evidence tendered in the 2009 proceedings which was a mis-selling action brought by the Claimants against both Defendants. The mis-selling complaint arose from the investment by the Claimants of some USD 200 million in financial products marketed by the Bank (“the Notes”). In September/October 2008 the Bank made margin calls in regard to the Notes. When the calls were not met, the Bank closed the transaction out and sold the underlying assets leaving the Claimants with a significant loss.
3. It is not necessary to set out the detail of the 2009 liability proceedings which are contained in the long judgments of the former Deputy Chief Justice Sir John Chadwick (“DCJ”) in CFI 026/2009 dated 21 August 2014 and of the Court of Appeal in CA 003/2015 dated 3 March 2016. Against the background of findings that both Defendants had breached their regulatory duties, it was held that the Bank was liable to pay damages in the amount of about USD 35 million (the Bank’s appeal against the quantum judgment being eventually dismissed on 29 January 2017). The figure of USD 35 million was made up of USD 10.5 million of losses on the Notes themselves and about USD 24.5 million in respect of interest and bank charges incurred in relation to borrowing to fund the purchase of the Notes.
4. It is to be noted that in the run-up to the quantum judgment of DCJ (the hearing being in March 2015 and judgment on 7 October 2015) and to the liability judgment on appeal (the hearing being in September 2015 and judgment on 3 March 2016) the Claimants sought to introduce a head of loss amounting to USD 37 million said to have been sustained in regard to a real estate venture called the Al Khorafi Tower (the “Tower Project”). The contention was that this had foundered as a result of the purchase of the Notes.
5. To understand the manner in which this matter was dealt with it is necessary to go back to the terms of the order dated 28 October 2014 made by DCJ following the publication of the liability judgment. This provided that the amount of the Bank’s liability in respect of losses sustained by the Claimants other than losses on the Notes should be made up of “losses arising out of the Claimants’ relationship with ABK”. The order also provided:
“8. The Claimants shall file and serve on the Defendants any evidence in support of their claims on quantum for the Quantum Determination ordered under paragraph 7 above by no later than 4pm on 20 November 2014. Subject to further order of the Court (for which the Claimants may apply in writing with a draft of the further evidence on which they seek to rely), such evidence shall be limited to evidence of events which have occurred since 10 July 2013 (being the last day of the trial in these proceedings).”
6. By way of explanation the DCJ said in his ruling:
“9. The second matter which requires explanation is the restriction on further evidence I have included under paragraph 8 of my order. There is force in the Defendants’ submission that this is not a case in which the Court was asked to order, or did order, a split trial. The evidence on which the Claimants are entitled to rely for the purpose of assessing the quantum of their claims is the evidence that was before the Court at the trial; subject to the possibility that the quantification of those claims may be affected by reason of post-trial events. It is for that reason that I think it right to restrict the evidence which the Claimants may adduce in support of their contentions on the Quantum Determination to post-trial matters, but I leave open the possibility that there may be some further matters which justice requires the Court to consider; and, if there is, the claimants may apply in writing to rely on evidence of those matters. But such application is to be made in advance of the Quantum Determination; and, in order to determine such application (if any), the Court will require to see, in draft at least, the further evidence which the Claimants seeks to rely.”
7. In due course on 20 November 2014 the Claimants served a witness statement of the First Claimant (RAK4) in support of the Tower Project claim. In a ruling dated 13 January 2015 the DCJ excluded the claim (or rather the evidence in support of it). His reasoning was as follows:
“23. In those circumstances, the question for determination on this application is whether Mr Al-Khorafi’s claim to losses which he suffered by reason of the forced sale under the order of the Kuwaiti Court of the plot on which the Tower was to be built is within the scope of paragraphs 3(b)(ii) and 5(b)(ii) of the Order of 28 October 2014. That is to say, whether those losses are “losses arising out of the Claimants’ relationship with ABK”.
24. In my view, the answer to that question is “No”. In the context in which the Order of 28 October 2014 was made, including in particular the categories of loss which the Claimants had sought to recover as described in paragraph 428 of my judgment of 21 August 2014, the “Claimants’ relationship with ABK” is properly to be understood as the relationship between ABK and the Claimants – in particular the First and Second Claimants – as borrowers from ABK in relation to the funding of their purchase of investments from the Second Defendant. The description “Claimants’ relationship with ABK” cannot, in my view, be understood to include the relationship between Mr Al-Khorafi as guarantor of the RAFCO loan and ABK as lender to RAFCO under the agreement of 1 November 2007; nor to include the relationship between Mr Al-Khorafi as beneficial owner of RAFCO as borrower under that agreement and owner of the plot charged to secure that borrowing and ABK as lender.
25. In those circumstances, RAK 4 contains no evidence relevant to the claims which are to be quantified at the Quantum Determination. For that reason I exclude reliance on RAK 4 at the hearing of the Quantum Determination.”
8. The issue was considered on appeal by Justice Sir Richard Field. In his ruling dated 21 May 2015, he said as follows:
“34. As to the Claimants’ remaining submission that in any event the DCJ should not have excluded RAK 4 as he did, effectively as a strike out, but should have considered whether the RAFCO losses were recoverable at the quantum hearing, in my opinion there is nothing in this contention. The 28 October Order was a matter of necessary (albeit unexceptional) case management with the object, inter alia, of giving directions for the quantum hearing both as to issues and admissible evidence. In promulgating those directions the DCJ proceeded as he was undoubtedly well entitled to do by reference to: (i) the fact that the trial had not been a split trial; and (ii) the recoverable losses as identified in his judgment which, so far as they arose out of the Claimants’ relationship with ABK, were founded exclusively on losses arising out of the relationship between ABK and the Claimants as borrowers from ABK in relation to the funding of their purchase of the Sarasin investments.”
9. The 2016 proceedings were issued in April 2016. The claims pursued are distinct from the claims made in the 2009 proceedings although they also arise at least indirectly from the mis-selling of the Banks’ financial products. The 2009 proceedings focused on the regulatory framework and the suitability of the Notes having regard to the Claimants’ profile and investment objectives. As regards the Bank the claims were advanced on the basis:
(a) That the Bank was in breach of DIFC regulatory law in carrying out unauthorised financial services.
(b) That the Bank acted in breach of contract since the acts and omissions of the First Defendant (Sarasin-Alpen) and its employees in giving negligent and improper advice as to the financial products which it sold to the Claimants was to be attributed to the Bank.
(c) That the Bank was vicariously liable under DIFC law for the misrepresentation and negligence claims against Sarasin-Alpen.
10. In the event the Court concluded that the Bank had dealt with the Claimants in breach of the Financial Services Prohibition and thus was liable to pay compensation pursuant to Article 65(2)(b) of the Regulatory Law. As regards the contractual claims the Court held that although a Financial Advisors Contract arose between the Bank and the Claimants as a matter of Swiss law, any breach occasioned no damages as compensation was payable under the Regulatory Law. As regards the allegations of negligence against the Bank, the Court was again not persuaded that a valid claim could be satisfied by reason of any alleged failure to give advice as a matter of Kuwaiti law and in any event given the absence of any loss or damage in the face of the compensation claim there was no valid claim.
11. As regards misrepresentation claims the Court concluded as follows:
“427.I am not satisfied that the Claimants have established the misrepresentation claims which they advance, either against Sarasin-Alpen or against Bank Sarasin. I take the view that the applicable law in relation to the claims against Sarasin-Alpen is the Law of Kuwait; and I am not persuaded that, in the absence of fraud, those claims are actionable under that Law. If and in so far as the applicable law in relation to the claims against Bank Sarasin is that of Switzerland, there is no evidence before the Court upon which I can hold that that Law differs (and, if so, in what respects) from the Law of DIFC I hold that the statements relied upon, being statements of opinion rather than statements of fact, give rise to no cause of action under the DIFC Law of Obligations.”
12. The new claim as advanced in the 2016 proceedings focuses on a dishonest statement made by an agent of the Bank, Mr. Walia, in August 2007. The claim is made in deceit or alternatively negligence or negligent misstatement. The First Claimant relies in this respect on findings made by the judge at paragraphs 207 to 212 of the judgment:
“207.As I have said earlier in this judgment, by mid-August 2007, there was already a collateral shortfall on Mrs Al Hamad’s account. On 14 August 2007 sent an internal email to Mr Zeuggin (at Bank Sarasin) in these terms:
“I have set up a conference call between the financial advisor & Client’s son (Rafed Al Khorafi) for tomorrow afternoon. We will review the Portfolio in the current market conditions & also discuss the margin call. Mrs Amra [Al Hamad] continues to be on vacation in the South of France.”
208. Mr Walia’s evidence, at paragraph 163 of his witness statement, was that telephoned Mr Taha (but not Mr Al Khorafi) on 15 August 2013. He said this so far as material:
“163.Due to Mr Al Khorafi’s leveraging strategy as at 15 August 2007 a collateral shortfall existed on Mrs Al Hamad’s account. The position on the accounts was brought to the attention of Mr Taha in a telephone call on 15 August 2007 with . This call was foreshadowed by in his email dated 14 August to Benjamin Zeuggin of Sarasin Switzerland’s Credit Department…”
In the course of cross-examination (transcript, 26 May 2013, page 168, lines 7 to 23) Mr Walia Asserted that there was a formal margin call in August 2007. He said this:
“We called the client and said, ‘your account is short by $10 million. You need to send in the money.”
. . .
There was a telephone call. I don’t exactly recollect when it was, but there was a telephone call where both would have informed Alaa [Taha] and I myself called Mr Al Khorafi.”
209.Neither Mr Taha nor Mr Al Khorafi accepted that there was a conference call (or any call) from on 15 August 2007. Mr Taha said this, at paragraph 86 of his witness statement:
“86. I understand that the First Defendant’s internal documents suggest that I had a call with and Mr Al Khorafi about a margin call. I was not involved in any such call and there was no suggestion at the time that there was any margin call on the account.
That evidence was not challenged in cross-examination (transcript, 22 May 2013, page 94 line 16 to page 103 line 6).
210. At paragraphs 88 and 89 of his fourth witness statement Mr Al Khorafi referred to a telephone call from Mr Walia:
“88. In around mid-August 2007, Rohit [Walia] called me on the telephone. It was usual for him to call me from time to time. I was in my car in London at the time with Mohammed [Nour] and was using a hands-free headset. Rohit asked me whether I had used all of the US$ 35 million that the bank had advanced to me in the previous month. He asked whether I was willing to invest a further US$ 10 million. He said it would make him look good in front of the bank if I was continuing to invest money. In particular, it would enhance his position before senior management in Switzerland. He also said it would be good generally for my relationship with the bank and would show that I was a special client. He said that, in the future, this would also mean that those at the bank would look on the relationship favourably and would put him in a stronger position with the bank when dealing with my interests. For example, if I wanted to borrow more money in the future, this would mean that senior management would look on me favourably. Since I had not used all of the US$ 35 million, I was happy to put some of that money back into Bank Sarasin. I told Rohit that I would do so. At that stage I was unaware of any problems with the account and thought that Rohit and Bank Sarasin were fantastic. I was happy to do what I could for Rohit since, on a personal level, I liked him very much, and I appreciated what he had already done for me. In particular, I believed that he had already offered me investment products which they only offered to select clients. I also thought it was a good idea to maintain and enhance my relationship with the bank. I do not recall being on that call. If he was, he was simply listening in as I don’t think he said anything and Rohit did not mention that he was participating.
89. I understand that the Defendants now allege that the purpose of this call was to discuss a collateral shortfall on the account and call for margin. I did not know what margin was until the bank made margin calls in September 2008 so I dispute that there was any mention of a collateral shortfall or margin at this point. I did not know until this dispute arose that the bank was comparing the value of the investments to the value of the loans. I also understand that the bank’s documents indicate that they were trying to get hold of my mother but were unable to get hold of her because she was in the South of France and so they had the call with me. That cannot be correct. The bank had my mother’s contact details and I was not aware of any effort to contact her. Further, my mother was not in the South of France then. My mother does not holiday in the South of France. I understand that she has only been once and that was about 10 years before.”
That evidence was not challenged in cross-examination (transcript, 20 May 2013, page 85, line 23 to page 86, line 21).
211. Mr Nour, who was in the car with Mr Al Khorafi at the time of this telephone call stated, at paragraph 42 of his witness statement, that he overheard part of the conversation and that Mr Al Khorafi told him about it afterwards. He said this:
“42. Mr Walia asked me (sic) whether Mr Rafed had used all of the US$ 35 million that the bank had advanced to him in the previously month. He asked whether he was willing to invest a further US$ 10 million with Bank Sarasin back into Bank Sarasin. Mr Walia said that it Mr Walia and Mr Rafed look good in front of the bank if Mr Rafed was continuing to invest money. Mr Rafed told me that he had US$ 10 million and he was happy to invest it with Bank Sarasin. Mr Rafed did not mention to me that there was a collateral shortfall or margin call on the account. If he had, I would have asked what they were. I am also sure that I would have remembered if he had said that he needed to pay more money to keep the investments going.”
That evidence was not challenged in cross-examination (transcript, 21 May 2013, page 84, line 24 to page 87, line 2).
212. On the basis of that evidence I am satisfied (i) that there was no conference call between , Mr Taha and Mr Al Khorafi on 15 August 2007, (ii) that called neither Mr Taha nor Mr Al Khorafi individually, (iii) that Mr Walia called Mr Al Khorafi, (iv) that there was no mention of collateral shortfall or the need for a margin payment in the course of that telephone conversation and (v) that Mr Al Khorafi made the payment of US$ 10 million to Bank Sarasin on 31 August 2007 for the reasons which he gave in his witness statement.”
13. This account of the events of August 2007 has been adopted in the Particulars of Claim in the 2016 proceedings on the basis that it reflected a straightforward deceit (and/or breach of duty) by Mr Walia. It will be the First Claimant’s case that there is in effect an issue estoppel as to the validity of those causes of action:
(a) The suggestion by Mr Walia that the payment was entirely voluntary so as to make the First Claimant “look good” and demonstrate that he was a “special client” was dishonest in that unknown to the First Claimant but to the knowledge of Mr Walia there were significant losses on the investment in the Notes and the Bank was making a margin call.
(b) Mr Walia was also in breach of duty in failing to advise the First Claimant that a margin call was being made or otherwise in providing accurate information as regards any collateral shortfall upon which the margin call was based.
14. The pleaded case further contends that the Bank is either directly or vicariously liable for Mr Walia’s deceit and breach of duty. This is based on the proposition that Mr Walia was acting in the capacity of agent of the Bank. The attribution of responsibility on the part of the Bank was confirmed it was contended by the terms of the liability judgments in the 2009 proceedings.
15. As regards allegations of damage flowing from the deceit and/or breach of duty, the First Claimant pleads that he sustained substantial losses in regard to two real estate projects being carried out by Rafco International Real Estate Company (“RAFCO”) in which he was the sole beneficial shareholder. The two projects were Tower Project referred to above and a shopping mall project in Kuwait (the Al Salmiyah Project). These projects were financed in part by a loan from Al Ahli Bank Kuwait (“ABK”). The First Claimant’s case is that he was intending to meet repayments on this loan (“the RAFCO loan”) from his own funds. The payments amounted to about USD 2 million bi-annually. But due in part to the payment of USD 10 million to the Bank as described above and/or other payments incurred in respect of the Notes, the First Claimant was unable to service repayments on the RAFCO loan as from June 2009. In the result, ABK foreclosed on the RAFCO loan and as a consequence the Tower was sold at a significant discount in June 2014 and the Al Salmiyah project terminated. Losses in regard to the Tower project are said to amount to about USD 150 million and in regard to the Al Salmiyah project to about USD 250 million. Further very substantial losses are claimed in respect of the failure of a share placement and listing of a company called RAK Real Estate on the London PLUS market the assets of which were to be made up of RAFCO’s interest in the Tower and the Al Salmiyah project.
Relevant principles
16. There was little if any dispute between the parties as to the relevant principles applicable to identifying the existence of the type of abuse of process relied upon by the Bank. The conventional starting point is Henderson v. Henderson (1843) 3 Hare 114:
“…where a given matter becomes the subject of litigation in, and of adjudication by, a court of competent jurisdiction, the court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation and which the parties, exercising reasonable diligence, might have brought forward at the time”: per Wigram V.C.
17. This form of res judicata in contrast to other forms was helpfully discussed by Lord Sumption in Virgin Atlantic Airways Ltd. v. Zodiac Seats [2014] AC 160. In the meantime the concept of abuse of process had been further developed in Johnson v. Gore Wood [2002] 2 AC 1. The commonly cited passage from Lord Bingham’s judgment is as follows:
“But Henderson v Henderson abuse of process, as now understood, although separate and distinct from cause of action estoppel and issue estoppel, has much in common with them. The underlying public interest is the same: that there should be finality in litigation and that a party should not be twice vexed in the same matter. This public interest is reinforced by the current emphasis on efficiency and economy in the conduct of litigation, in the interests of the parties and the public as a whole. The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all. I would not accept that it is necessary, before abuse may be found, to identify any additional element such as collateral attach on a previous decision or some dishonesty, but where those elements are present the later proceedings will be much more obviously abusive, and there will rarely be a finding of abuse unless the later proceeding involves what the court regards as unjust harassment of a party. It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive. That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focussing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before. As one cannot comprehensively list all possible forms of abuse, so one cannot formulate any hard and fast rule to determine whether, on given facts abuse is to be found or not. Thus while I would accept that lack of funds would not ordinarily excuse a failure to raise in earlier proceedings an issue which could and should have been raised then, I would not regard it as necessarily irrelevant, particularly if it appears that the lack of funds has been caused by the party against whom it is sought to claim. While the result may often be the same, it is in my view preferable to ask whether in all the circumstances a party’s conduct is an abuse than to ask whether the conduct is an abuse and then, if it is, to ask whether abuse is excused or justified by special circumstances. Properly applied, and whatever the legitimacy of its descent, the rule has in my view a valuable part to play in protecting the interests of justice.”
18. The essential questions that the Court should accordingly ask are:
(a) Could the new claims have been brought in the earlier proceedings?
(b) Was it unreasonable not to bring the new claims in the earlier proceedings?
(c) Does the bringing of the new claims unjustly harass the Bank?
However, these questions will usually overlap substantially and a positive answer to the first two questions does not lead to resolution of the fundamental issue identified by the third question.
19. As Lord Bingham observed the starting point has to be:
“Litigants are not without scrupulous examination if all the circumstances to be denied the right to bring a genuine subject of litigation before the court”: Yat Tung Investment Co. Ltd. v. Dao Heng Bank Ltd [1975] AC 581…”
This important consideration was taken up by Lord Millett in Johnson v. Gore Wood at p. 59:
“However this may be, the difference to which I have drawn attention is of critical importance. It is one thing to refuse to allow a party to relitigate a question which has already been decided; it is quite another to deny him the opportunity of litigating for the first time a question which has not previously been adjudicated upon. This latter (though not the former) is prima facie a denial of the citizen’s right of access to the court conferred by the common law and guaranteed by article 6 of the Convention for the Protection of Human Rights and Fundamental Freedoms (1953). While, therefore, the doctrine of res judicata in all its branches may properly be regarded as a rule of substantive law, applicable in all save exceptional circumstances, the doctrine now under consideration can be no more than a procedural rule based on the need to protect the process of the court from abuse and the defendant from oppression. In Brisbane City Council v Attorney General for Queensland [1979] AC 411, 425 Lord Wilberforce, giving the advice of the Judicial Committee of the Privy Council, explained that the true basis of the rule in Henderson v Henderson 3 Hare 100 is abuse of process and observed that it “ought only to be applied when the facts are such as to amount to abuse: otherwise there is a danger of a party being shut out from bringing forward a genuine subject of litigation”. There is, therefore, only one question to be considered in the present case: whether it was oppressive or otherwise an abuse of the process of the court for Mr Johnson to bring his own proceedings against the firm when he could have brought them as part of or at the same time as the company’s action. This question must be determined as at the time when Mr Johnson brought the present proceedings and in the light of everything that had then happened. There is, of course, no doubt that Mr Johnson could have brought his action as part of or at the same time as the company’s action. But it does not follow that he should have done so or that his failure to do so renders the present action oppressive to the firm or an abuse of the process of the court.”
20. In the result it is helpful to have in mind the observations of Buxton L. J in Taylor Walton v. Laing [2007] EWCA Civ 1146:
“The court … has to consider by an intense focus on the facts of the particular case, whether in broad terms the proceedings that it is sought to strike out can be characterised as falling under one or other or both of broad rubrics of unfairness or bringing of the administration of justice into disrepute”.
21. In considering the history of the matter, the Bank places some emphasis on the decision in Aldi Stores Ltd. v. WSP Group plc [2008] IWLR 748 in support of the proposition as set out in the head note:
“Where in complex commercial multi-party litigation a party wishes to pursue other proceedings whilst reserving a right in existing proceedings, the proper course is for the issue to be raised with the court seised of the existing proceedings. The court will be able to express its view as to the proper use of its resources and on the efficient and economical conduct of the litigation. It is in the interests of the parties, of the public and of the efficient use of court resources that that is done. There can be no excuse for failure to do so in the future.”
22. This approach is entirely consistent with the overriding objective and the consequent expectation that parties should put “their cards on the table”. But there is some force in the reservation advanced by the Claimants that failure to raise the matter with the Court to enable the Court to express its views on the efficient and just conduct of litigation would be of somewhat less weight in the DIFC Courts where there is no reference to the decision or its implications in its rules as compared to CPR 3.4 (2)(6).
23. In any event as explained in Otkritie Capital Int. Ltd v. Threadneedle Asset Management Ltd [2017] EWCA Civ 274:
(a) “No excuse” merely means “no exception”.
(b) However breach of the Aldi guidelines is merely a factor in a “broad merits-based judgment” albeit pertinent as supporting a conclusion of abuse.
(c) In assessing the implications of any breach the court would inevitably seek to assess what would have happened if the necessary applications had been made.
Pleading
24. The first question (namely could the claims have been brought in the earlier proceedings) raises a threshold question as to when the deceit claim could legitimately and safely have been pleaded. The Claimants rightly contend that this question must be answered in the context of the fact that the relevant plea of deceit is a plea of fraud. In this respect RDC 17.43 requires that “full and specific details of any allegation of fraud” be set out in a statement of case. To this must be added the requirement of the DIFC Courts Code of Best Professional Practice (March 2013) which prohibits a lawyer from pleading fraud unless he has clear instructions to do so and reasonably credible material establishing a prima facie case of fraud. I accept the Claimants’ submission that these limitations would have been of particular concern in this hard fought litigation bearing in mind the potential cost and time involved in resisting a strike out application on the basis of lack of sufficient particulars.
25. It is accepted by the Claimants that elements of the claim emerge in disclosure in August 2012. This was supplemented by Mr. Walia’s evidence served in April 2013. The Bank does not rely on any earlier dates. As regards disclosure it is right that two emails disclosed in August 2012 from of the Sarasin-Alpen to staff in the Bank dated 14 August 2007 and 2 September 2007 were consistent with the fact that the USD 10 million requested was to meet a margin call which if correct, was inconsistent with what the Claimant had been led to believe. But I accept that Mr. Walia’s role in this only began to emerge following service of his witness statement in April 2013 which stated as follows:
“163. Due to Mr Al Khorafi’s leveraging strategy, as at 15 August 2007 a collateral shortfall existed on Mrs. Al Hamad’s account. The position on the accounts was brought to the attention of Mr. Taha in a telephone call on 15 August 2007 with . This call was foreshadowed by in his email dated 14 August to Benjamin Zeuggin of Sarasin Switzerland’s Credit Department in which he states: “I have set up a conference call between the financial advisor & Client’s son (Rafed Al Khorafi) for tomorrow afternoon. We will review the portfolio in the current market conditions & also discuss the margin call. Mrs. Amra continues to be on vacation in the south of France.” A true copy of ’s email dated 14 August 2007 is exhibited at D1-41.
164. In late August 2007 I also met with Mr. Al Khorafi in London at a hotel in the West End to discuss the margin call on Mrs. Al Hammad’s account. Mr. Taha did not attend this meeting. I explained the position and performance of the portfolio and told him that the value of the products was declining which meant that there was a collateral shortfall on the account that need to be rectified with the deposit of additional funds. Mr. Al Khorafi did not express any surprise or confusion when I told him that a margin call has been made on the account and that additional funds were required to be deposited to cover the collateral shortfall. Indeed a few days following this meeting on 31 August 2007, the sum of USD 10 million was received on Mr. Al Khorafi’s Sarasin Switzerland account. As there was a cross pledge in place under the Deed of Pledge signed by Mr. Al Khorafi in London on 26 July 2007 the monies received to Mr. Al Khorafi’s account could under the terms of the Deed of Pledge satisfy the margin call on Mrs. Al Hamed’s account.”
26. In fact in due course the judge rejected this evidence both in regard to the phone call and the meeting. However taken at face value it gave some support for the proposition that Mr. Walia was guilty of making a false and dishonest statement. But even then the position was somewhat confused, a point developed by counsel in opening the Claimants’ case:
“I mentioned earlier that these investments were so risky that they were likely to go into margin call in very short order, and that’s exactly what happened. They’re in margin call by August, the very next month, and very oddly the margin call was in fact misrepresented to Mr. Al Khorafi. What was put to him was that he was being asked to invest a further $10 million rather than in fact paying 10 million as margin cover.
What’s particularly odd about it is that the investment of that 10 million was in fact accompanied by a further 30 million in lending in order to purchase a 40 million note, called a witch hat note. So that was, on any view, a very bizarre way to treat a margin payment, if it really was a margin payment, and it certainly backs up Mr. Al Khorafi’s case that he was never told that margin was being called.”
27. The First Claimant’s own evidence is to the effect that he was unaware until shortly before the trial that the USD 10 million constituted a margin call. On the material available (and the judge’s finding on credibility) I see no reason to reject that proposition. It is striking that the USD 10 million payment was part and parcel of a further lending of USD 40 million. As put to Mr Walia it is difficult to see how the First Claimant could have appreciated that the new loan included payment of an undocumented collateral call. Nevertheless I am prepared to consider matters on the basis that an amendment asserting deceit as regards Mr Walia could properly have been tendered in or around April 2013.
28. But a plea of fraud against Mr Walia is one thing. In order to plead a case of fraud against the Bank it was necessary to rely on credible material to support the proposition that Mr. Walia made the fraudulent misrepresentation on behalf of the Bank within the scope of his authority. In that connection it is right that the Particulars of Claim in the 2009 proceedings did indeed contain the contention that Mr. Walia was acting as an agent of the Bank in his dealings with the First Claimant. But this was rigorously challenged by the Bank. As the First Claimant submits there is something surprising about the suggestion that the First Claimant ought to have been sufficiently confident of the existence and extent of the agency (including the authority to exercise the contractual right to make margin calls) prior to the trial so as to expect to resist successfully a strike out application in regard to the fraud allegation. It was only in the course of his cross-examination that Mr. Walia outlined his role as customer relationship manager in giving a forewarning of a margin call prior to a formal margin call by the Bank. In short, leaving aside any difficulties in formulating quantum I am not persuaded that the new claims could, let alone should, have been pleaded prior to the 2009 trial.
29. There is a further consideration. In contemplating whether the Claimant could have brought the 2016 claim in the 2009 proceedings it is also right to have regard to his financial position and in particular his ability to meet the additional legal costs. The financial status of the Claimants’ family was much debated in the 2009 proceedings and it is inappropriate to attempt to resolve the issues here. But the fact remains that the costs of the litigation were very heavy. It would not be easy to meet them by realising non-liquid assets. Notably, in that context, resort had been had to litigation funding.
30. However, the relationship with Vannin as funder had been a very uneasy one. In February 2013, Vannin had terminated the litigation funding agreement following receipt of a gloomy counsel’s opinion. A new agreement (on substantially less favourable terms) was entered into on 21 April 2013 only a month before the trial. In my judgment it is almost inconceivable that Vannin would have been prepared to make funds available for a substantial enlargement of the claim at that stage. I certainly reject any suggestion that Vannin was in any sense contractually obliged to furnish additional funds.
31. But in case I am wrong I proceed on the assumption that an application to amend could have been funded and made in about April 2013 following service of witness statements. In doing so I cannot accept the Bank’s submission that the First Claimant took a tactical decision to withhold the claim let alone with a view to concealing his real estate losses. The crucial question that arises is what order (given the inevitable objections of the Bank) the Court would have made on the application. As I see it there were in effect only two alternative orders that could have been made:
(a) Leave to amend, adjournment of the 2009 proceedings, orders for disclosure, further witness statement and a new fixture
(b) Leave to amend but with a separate hearing (or alternatively insistence on the issuance of new proceedings)
32. I am confident that the judge would not have acceded to any adjournment of the 2009 trial. The timetable to that stage had been as follows:
(a) The trial date had been fixed for a year following a Case Management Conference in April 2012
(b) Disclosure lists had been exchanged in June 2012
(c) Applications for specific disclosure had been the subject of a hearing in August 2012: a ruling had been issued in January 2013
(d) Further disclosure issues were determined in February 2013
(e) Witness statements were exchanged in April 2013
33. A jurisdictional challenge by the Bank had delayed progress in the claim from 2009 to 2012. The impending trial in documentary terms, in weight of witness evidence and in legal complexity was already very substantial. It was set down for 2 to 3 weeks which would have been inadequate to deal with the new issues. It was not a split trial. Any further delay to allow for the completion of pleadings, additional disclosure and further witness evidence would have been viewed as wholly unacceptable: this would have been exacerbated by the need for the alleged real estate losses to have crystallised.
34. In the result the only realistic outcome of an application to amend would have been in effect a legitimate duplication of hearings in the same way as presently proposed by the Claimant in pursuing the 2016 proceedings: see Barrow v. Bankside Agency [1996] I WLR 257. I should add in this context that I do not regard the Claimants’ submissions as constituting a collateral attack on the DCJ’s decision in January 2015 which was simply to the effect that the losses did not arise out of the Claimants’ relationship with the Al Ahli Bank of Kuwait which was the scope of the dmages claim in 2009 proceedings. That decision is not challenged. As Justice Sir Richard Field put it, the real estate losses were “radically different”.
35. The complaint is made by the Bank that it would have cross-examined the Claimants’ witnesses differently if the deceit allegation had been raised. This is somewhat obscure given the challenge to Mr. Al Khorafi’s evidence that he was not told by Mr. Walia that the USD 10 million reflected a collateral shortfall (the contrary expressed by the judge in the judgment is mistaken). The difficulty facing the Bank is that the judge found Mr. Walia to be an evasive witness with no real interest in assisting the Court, a conclusion which the Court of Appeal found to be fully justified. In short the material does not make good the proposition that the claims in the 2016 proceedings could and should have been made in the 2009 proceedings.
36. There is no doubt that the 2009 proceedings were protracted (indeed they are yet to be completed) and expensive. But much of that was self-imposed by the Bank who challenged every aspect of the Claimants’ case – jurisdiction, disclosure, liability, quantum and costs followed by appeals on both liability and quantum. The 2016 proceedings are of narrow compass in terms of liability. Whether the Claimant is able to make good the substantial quantum of the claims remains an unknown. But standing back from the detailed argument, I am unable to accept that the 2016 proceedings amount to unjust harassment. The outcome is the need for a separate trial which is what would have happened in any event. It imposes no material let alone prejudicial burden. In this regard there is some force in the Claimants’ submission that the Bank’s reaction to the new claim somewhat belies any concern as to manifest harassment. It was only after seeking substantial extensions of time to serve a defence that the application was taken out. In my judgment, undertaking as required a broad merits-based assessment, the Bank has fallen well short of establishing an abuse of process.
37. I turn accordingly to the alternative limitation argument. There is no time limit where “a cause of action arises as a result of fraud: Art. 9(1) DIFC Law No. 5 of 2005. Otherwise the time limit is six years from the date of the events that give rise to the proceedings: Art. 38 of DIFC Law No. 10 of 2004. 9(2) of the DIFC Law of Obligations provides:
“(2) For the purpose of an action brought under Chapters 2, 3 or 4 of Part 3, a cause of action arises on the earliest date on which a claimant knows or might reasonably know about the loss that gives rise to the cause of action, provided that that any action is brought within 15 years of the date the cause of action in fact arose.”
38. The Claimant contends that Art. 9(1) applies to a deceit claim but is not limited to it. The argument goes on to contend that it is not limited to claims of which fraud is an essential ingredient but applies where as a matter of pleaded fact the claim has arisen from the defendant’s dishonesty. For this purpose a distinction is drawn between “arises from” which is said not to imply that the foundation of the claim is fraud in contrast to “based upon” fraud as used in Section 32(1)(a) of the English Limitation Act 1980 as construed in Beaman v. ARTS [1949] IKB 550. I am unable to accept this submission. The claims other than the deceit claim are time-barred.
39. I should add that although they advance no claim in deceit, the Second and Third Claimants should not be struck out as parties in the action. There are a range of issues in the proceedings which remain undetermined.
40. All questions of costs are reserved.
