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Claim No: CA 011/2020

IN 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 CHIEF JUSTICE ZAKI AZMI, JUSTICE ROGER GILES AND JUSTICE ROBERT FRENCH

BETWEEN

HANA HABIB MANSOOR HABIB AL HERZ

Defendant/Applicant

and

(1) SUNSET HOSPITALITY HOLDINGS LIMITED
(2) PEATURA FZ LLC

Claimants/Respondents

JUDGMENT

ORDER

UPON the Appellant’s Appeal Notice filed on 19 October 2020 seeking permission to Appeal against the Order of H.E Justice Shamlan Al Sawalehi issued on 1 October 2020 (the “Appeal”)

AND UPON the Order of H.E Justice Shamlan Al Sawalehi issued on 12 November 2020 granting permission to appeal

AND UPON hearing counsel for the Appellant and counsel for the Respondents at the hearing on 18 January 2021 (the “Hearing”)

AND UPON reading the submissions and evidence filed and recorded in the Court file

IT IS HEREBY ORDERED THAT:

1. The Appeal is allowed.

2. Set aside the Judge’s orders, and in lieu thereof order:

3. Claimants to pay the Defendant’s costs of the applications and of the appeal, to be assessed by the Registrar if not agreed.

Issued by:
Nour Hineidi
Registrar
Date of issue: 21 February 2021
At: 3.30pm

CHIEF JUSTICE ZAKI AZMI

1. I had the privilege of reading Justice Roger Giles judgment and I agree with it. I have nothing to add.

JUSTICE ROGER GILES

1. This is an appeal from the dismissal of the Defendant’s applications for transfer of Part 8 proceedings to the Part 7 procedure, for permission to file a counter claim, and for permission to file and serve additional evidence. For the reasons which follow, in my opinion the appeal should be upheld and the applications granted.

Background

2. The Defendant (“HAH“) is the majority shareholder in Fix Sense Management LLC (“Fix Sense“). According to her, it provides consultation, managerial, design and operational services for the hospitality, retail and development industries, and through it she has had a long-standing business relationship with Mr Gonzalez Ortuno setting up business ventures in Dubai.

3. Mr Ortuno is the General Manager of the First Claimant (“Sunset“). During the relationship there came into being Heads of Agreement dated 1 July 2016 (the “HoA“) under which Fix Sense agreed to provide services to Sunset, which was said to own “a portfolio of restaurants, cafes and bars in the hospitality and entertainment sector“. The services included that Fix Sense –

“… shall be a shareholder for the registration of 51% of the shares in Sunset Group companies (in the name of a UAE national or corporate entity wholly owned by UAE nationals) in order to ensure that the relevant Sunset Group companies comply with the requirements of the UAE CCL [ Commercial Company Law ]”.

4. The HoA provided that Fix Sense would be paid a fee of AED 40,000 per month for its services.

5. Apparently pursuant to the HoA, although the interrelationship may be contentious, upon its incorporation HAH became the holder of 102 shares in Black Tap Restaurant & Coffee LLC (“Black Tap“), being 51% of its issued share capital. The remaining 49% was held by Sunset. HAH also became upon its incorporation the holder of 102 shares in Brick Oven Restaurant LLC (“Brick Oven“), being 51% of its issued share capital. The remaining 49% was held by the Second Claimant (“Peatura“), the major shareholder in which is Sunset. Mr Ortuno is the Managing Director of Peatura.

6. HAH executed two Nominee Agreements (the “NAs“), dated 18 December 2016 and 25 May 2017, in relation to the Black Tap and Brick Oven shares respectively. The circumstances of her doing so are contentious. In the NAs she agreed to assign to Sunset or Peatura, as the case may be, all her economic and beneficial rights and interest in her shareholdings, but with the shares remaining registered in her name for the purposes of compliance with the CCL and acknowledgement that she held them as “custodian, fiduciary agent and trustee“ and an undertaking to transfer them as required by the beneficial owner. The NAs provided for consideration by payment of an annual fee, AED 10,000 in the case of the Black Tap shares and AED 70,000 in the case of the Brick Oven shares, “for the assignment of the economic and beneficial rights and interests in the Nominee Shares and for the services of remaining the registered owner of the Nominee Shares…”.

The Proceedings

7. The Claimants commenced the proceedings on 12 March 2020, claiming specific performance of the NAs by orders requiring transfer of HAH’s shares in Black Tap and Brick Oven to a named third party, or damages in the alternative. They nominated the Part 8 procedure, while filing Particulars of Claim together with the Claim Form, asserting in the Particulars of Claim that they sought the Court’s decision on a question which was unlikely to involve a substantial dispute of fact.

8. HAH filed a detailed Defence dated 20 April 2020. She did not dispute the use of the Part 8 procedure when filing her acknowledgment of service, in accordance with RDC 8.17, but the Defence included that there were substantial disputes of fact but she would “defer to the Court’s discretion under RDC 8.4 as to whether to continue with the Part 8 procedure…”.

9. In the Defence, HAH resisted the claims on the grounds that:

10. The Claimants filed a Reply dated 5 May 2020. In substance, they denied root and branch the grounds on which HAH resisted the claims, including alleging that agreement upon compensation under the NAs had been reached being the AED 40,000 per month in the HoA and an “Anticipated Profit Fee of up to AED 41,000 per month“ under the HoA and a Shareholders Agreement dated 1 July 2016.

11. The Particulars of Claim were accompanied by a witness statement of Mr Ortuno. The Defence was accompanied by a witness statement of HAH. The Reply was accompanied by a second witness statement of Mr Ortuno. There was extensive and manifest factual dispute. Notwithstanding the factual dispute, nothing was done to raise for consideration whether the proceedings were appropriate for the Part 8 procedure.

12. On 12 May 2020 HAH emailed the Registry requesting “14 days time to respond on“ the Reply. On 20 May 2020 she again emailed the Registry, saying that she would “like to file a counterclaim” and asking for “permission to apply for the counterclaim”. A little later on that day she emailed the Registry asking for time “to respond on the Claimants [sic] further witness statement“. The Registry replied that a formal application to file the counterclaim should be filed, and asked that reasons be provided for the request for time. Nothing came of these approaches to the Registry.

13. On 28 May 2020, the Registry ask the parties to provide their mutual availability for a hearing. Following their responses, the proceedings were fixed for hearing on 11 August 2020.

The Applications

14. The applications the subject of this appeal were filed on 26 July 2020.

15. The proposed counter claim was expressed to be without prejudice to the Defence, and dependent on whether the NAs were found to be valid and enforceable. In part, it claimed “rescission” of the NAs by reason of the misrepresentations alleged in the Defence. But it also claimed damages for failure to pay the stated consideration under the NAs; for failure to pay compensation additional to the stated consideration under what was alleged as the “whole and actual agreement”, more than the NAs alone, with Sunset or Peatura (it seems put forward as damages for loss of a chance); and for loss of the value of the shareholdings and dividends therefrom.

16. The substantive proposed further evidence was a second witness statement of HAH replying to Mr Ortuna’s second witness statement, and a witness statement of HAH in support of the proposed counterclaim. There was considerable overlap with HAH’s first witness statement, but particular challenge to Mr Ortuno’s evidence concerning agreement on compensation.

17. A witness statement of HAH in support of the applications put forward three reasons for failure to make them at an earlier time. One was that HAH had recently given birth; another was Covid-19 restrictions including a period of complete lockdown in Dubai; and the third was the need to care for HAH’s elderly mother who was in poor health – the three acting together when the health of those concerned was paramount. It was said that HAH had been unable “to trace out and collect all the documents“, or to have the counterclaim prepared or apply for transfer to the Part 7 procedure, at an earlier time.

The Hearing Is Vacated

18. The Judge noted more than once in his reasons that the late filing of the applications had caused the hearing to be vacated. By an email sent by the Registry on 4 August 2020, the parties were informed that the hearing listed for 11 August 2020 had been vacated. It appears that this was on the Court’s initiative, although we were informed that it was common ground that the date could not be maintained.

19. The applications were heard on a date after 11 August 2020. The judgment was issued on 1 October 2020.

The Judge’s Reasons

20. The Judge outlined the reasons put forward for late application and said that it was not clear where the evidence HAH wished to file and serve stopped and the evidence supporting the applications started. He said, however, that he did not think that a detailed investigation into the evidence she had submitted was required, as the applications “each fail at earlier junctures“.

21. The Judge then took the applications in turn, starting with the evidence application, then the counterclaim application, and then the application to transfer to the Part 7 procedure. In short, the “earlier junctures“ were that the applications had been made late without satisfactory explanation.

22. As to the evidence application, the Judge said that it was not necessary to outline the evidence that HAH wished to file, because the application “fails for unrelated reasons“. He referred to the May emails noted above, and to the fixing of the hearing date, from which he concluded that HAH had at that time no longer intended to make the applications. He agreed with the Claimant’s submission that HAH had failed to make the evidence application as soon as it became apparent that it was necessary or desirable, in compliance with RDC 23.16. He explained that he was not satisfied that the causes of delay on which HAH relied “qualify as justification“. He concluded –

“For me, the Evidence Application appears to be an afterthought at best, the entertainment of which would be inconsistent with the streamlined procedure that Part 8 of the RDC is supposed to facilitate. The Evidence Application is accordingly dismissed.”

23. As to the counterclaim application, after brief reference to the submissions the Judge said -

“I agree with the Claimants and apply my reasons for rejecting the Evidence Application mutatis mutandis. I add one further point. The Counterclaim Application appears to me to be particularly hopeless in as much as, on the Defendant’s own case, the prospective counterclaim arises ‘out of the same facts and transactions which have given rise to the Claim… and which have, to a large extent, been referred to in the Particulars of Claim, Defence and Reply.’ In short, on the Defendant’s own case, her proposed counterclaim had already largely been pleaded.”

24. The Judge’s reasons went on to the effect that the evidence supporting the prospective counterclaim contained little additional to the evidence already filed, which was “entirely inconsistent with an application submitted so late that it was part responsible for the vacation of a hearing of the Claim“.

25. As to the application to transfer to the Part 7 procedure, after referring to the Claimant’s submissions the Judge said –

It is unclear why, therefore, the Causes of Delay rendered her unable to make the Transfer Application earlier. In my judgment, the Defendant changed her position and this is what accounts for the delay in making the Application.”

The Judge’s Discretion Miscarried

26. In deciding the applications, the Judge was exercising a discretion, in the sense of arrival at what was just between the parties having regard to the overriding objective and all relevant circumstances. It is not enough that this Court, if in the Judge’s shoes, would have come to different decisions. It must appear that the Judge has erred in acting under a mistake of fact or law, or in taking into account irrelevant matters or failing to take into account material considerations; or if no such error is evident, that he has come to decisions which are clearly unreasonable or unjust: see for example Royal & Sun Alliance Insurance plc v T & N Ltd [2002] EWCA Civ 1964 at [38].

27. Lateness of the applications without satisfactory explanation (“lateness“), as the Judge saw it, was a relevant matter. But it was relevant primarily for its effect on the disposal of the proceedings in a just manner and in accordance with the overriding objective, not of itself a reason for dismissing the applications without regard to other material considerations. With respect, in his focus on lateness the Judge failed to take account of other considerations material to his decisions.

28. This was not a case in which the decision involved lateness jeopardising an extant hearing date. There is no point in speculating on the outcome if it had; when the Judge heard the applications, the hearing had already been vacated. While the Judge noted that it had been vacated, he did so as a mark of the lateness, counting against the applications. But rather than a constraint upon granting the applications, the earlier vacation of the hearing date meant that the Judge was in a position to grant them, if it were appropriate to do so on their merits, without the constraint of an imminent hearing.

29. The focus on lateness then led to failure to consider the merits of the applications. They were inter-related, to be considered holistically. For example, it was not correct to dismiss the evidence application independently of whether the counterclaim application should be granted, when the evidence was to support the proposed counterclaim; but the Judge dismissed it before turning to the counterclaim application. Moreover, he did so without regard to the proposed evidence for its part in the defence of the claim and prosecution of the proposed counter claim: he said it was not necessary to recount it because the application failed for unrelated reasons. He dismissed the counterclaim application for the same lateness reasons for which he had rejected the evidence application, without reference to whether the counterclaim was potentially viable and was so related to the claim and the defence to the claim that permission to bring it was warranted: his comment that the counterclaim application was “particularly hopeless“ was a supplementary point. Nor did the Judge engage with whether, even without the proposed counterclaim and on the Defence and the Reply alone, there was dispute of fact making the proceedings in truth inappropriate for the Part 8 procedure - he rather came to his decision from disfavour with what he saw as HAH’s failure properly and earlier to contend that the Part 8 procedure was not appropriate.

30. It was necessary to consider whether, despite what the Judge saw as lateness, justice between the parties should bring granting of the applications, and in that regard to address their merits. This was not done, and the Judge’s discretion miscarried.

31. It may also be said that, in his additional comment on the proposed counterclaim, the Judge appears to have proceeded on an incorrect basis. He reasoned that because the proposed counterclaim arose out of the same facts and transactions as those in issue in the claim and the defence to the claim, permission to file and serve the counterclaim should not be granted – in his words, because it had “already largely been pleaded”. But the proposed counterclaim was distinct from the defence, because HAH sought relief in her favour, and as well the relief she claimed rested in part on further matters. It was not correct to say that it had already largely been pleaded. In fact, the grounding of the proposed counterclaim in the same facts and transactions as were already the subject of the proceedings was a matter in favour of granting the application, rather than a matter against it.

The Discretion Must Be Re-exercised

32. This Court is in as good a position as the Judge to consider the applications and should re-exercise the discretion.

33. With the filing of the Defence and the Reply, at the latest, the proceedings were manifestly unsuited for the Part 8 procedure, there being substantial dispute of fact. The parties had filed pleadings, and to that extent had adopted the Part 7 procedure, but other elements of that procedure and in particular production of documents should have been available.

34. The proposed counterclaim, as the Judge said, arose out of the same facts and transactions as those already in the proceedings. Before the Judge, the Claimant made no submission against the potential viability of the proposed counterclaim, nor on appeal. It is clearly appropriate that the counterclaim be heard together with the claim, in the efficient disposal of both. Necessarily, HAH should be permitted to file and serve the evidence on which she relies for the counterclaim, and of course the Claimants should have the opportunity to file a defence to the counterclaim and to respond to that evidence. The addition of the counterclaim to the proceedings underlines the unsuitability of the Part 8 procedure.

35. Subject to the question of lateness, then, there is compelling reason to grant the applications. I do not think it necessary to decide whether the delay in bringing the applications is satisfactorily explained by the three reasons put forward by HAH, and apart from the delay itself the failure properly to contest the use of the Part 8 procedure and allowing the proceedings to be set down for hearing are marked deficiencies in her conduct of the proceedings. However, even assuming against HAH default in all these respects, I do not think it should lead to refusal to grant the applications. With the vacation of the hearing date, to refuse to grant them because of the default would be punitive upon HAH rather than a balanced arrival at justice between the parties.

Orders

36. I propose the following orders:

JUSTICE ROBERT FRENCH

37. I agree with the orders proposed by Justice Giles for the reasons which he gives.

Issued by:
Nour Hineidi
Registrar
Date of issue: 21 February 2021
At: 3.30pm