Claim No. CFI 016/2012
THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS
In the name of His Highness Sheikh Mohammed Bin Rashid Al Maktoum,
Ruler of Dubai
IN THE COURT OF FIRST INSTANCE
BETWEEN
CAROL
Appellant
and
CHRIS
CIRO
Respondent
Judgment: 26 November 2012
JUDGMENT OF CHIEF JUSTICE MICHAEL HWANG
1. This is an application made under Rule DIFC
The Dubai International Financial Centre.
" href="/glossary/difc/">DIFC-Complinet/difccourts.complinet.com/global-rulebooks/display/display5c9f.html?rbid=2725&element_id=7966" target="_blank" rel="noopener noreferrer">44.182 of the Rules of the
DIFC Courts ("RDC") for permission to make an application under RDC
44.180 to reopen the decision of Justice Sir John Chadwick made on 9 September 2012.
2. The decision of Justice Chadwick came about in this way. The
Claimant, CAROL, commenced an action in the Small Claims
Tribunal (
"SCT") in SCT 075/2011 against both CHRIS (
"First Defendant") and CIRO (
"Second Defendant") claiming unpaid bonus due to him. The Defendants submitted an application to dispute the jurisdiction of the DIFC Courts on 15 December 2011. This was on the ground that the Claimant's employment, which had originally been with the First Defendant, had subsequently been transferred to the Second Defendant. The First Defendant was incorporated in the DIFC, and accordingly the DIFC Courts had jurisdiction over a claim against this Defendant; however, if the Claimant's employment had indeed been transferred to the Second Defendant, which was not established in the DIFC or licensed to operate within the DIFC, then the DIFC Courts would not (in the Defendants' submission) have jurisdiction over this claim.
3. HE Justice Omar Al Muhairi accepted the contentions of the Defendants, and held that the SCT had no jurisdiction over the Claimant's claim.
4. The Claimant (hereafter called "
the Appellant") then appealed to the
Court of First Instance in
CFI 16/2012. Justice Chadwick found that the Appellant's right to his bonus had accrued due against the First Defendant, and his claim remained extant against that company, and had not become an obligation of the Second Defendant (the two Defendants will hereafter be called "
the Respondents").
5. Having made that finding, Justice Chadwick invoked RDC
53.78, which provides;
"Where an appeal is allowed the appeal court will, if possible, dispose of the case at the same time without referring the claim to the lower court or ordering a new hearing. It may do so without hearing further evidence."
6. Justice Chadwick took the view that, given the evidence and arguments that had been presented to him, there was no purpose in allowing this claim to return to the SCT for determination at a trial. He relied in particular on the overriding objective set out in
Part 1 of the RDC, which required cases to be dealt with justly. That factor included saving expense and dealing with a case in a way proportionate to the amount of money involved and the financial position of each party, so as to resolve it expeditiously and fairly, and allotting it the appropriate share of the Courts' resources.
7. He did not feel that there was any advantage in sending the case back to the SCT to start a new trial, and the only defence of which he had been made aware was on a point of construction of the Bonus Letter dated April 2008 from the First Respondent to the Appellant ("Bonus Letter") which he felt he was in as good a position as the SCT to deal with. He was further unaware of any dispute as to facts, and, since Counsel for the Respondents was not in a position to advise him of the Respondents' substantive defence, there was therefore nothing unfair in the Appellate Court deciding a point of construction that would otherwise have to be decided in the SCT. All other factors pointed to the matter being dealt with immediately.
8. Accordingly, he found the First Respondent liable to pay the Appellant US$87,500 (being the appropriate quantum of the Appellant's claim for reasons which will be discussed later) to be made within 14 days. That order has been stayed pending the outcome of this application.
9. The two Respondents now ask to reopen that determination by Justice Chadwick on the grounds that the hearing before him was procedurally unfair, and that there was no reasonable basis on which Justice Chadwick could have determined the merits of the substantive dispute in circumstances where the Respondents had no opportunity to plead their defence.
DECISION
10. The Respondents are aggrieved by the judgment because they say that they have not been given an adequate opportunity to present a defence. The arguments presented by the Respondents in the application to reopen the case ("Application") are summarized below.
11. The Respondents argue that the grounds for reopening an appeal under RDC
44.180 are satisfied in this case,
viz.
(i) it is necessary to reopen the determination in order to avoid real injustice;
(ii) the circumstances are exceptional and make it appropriate to reopen the appeal; and
(iii) there is no alternative effective remedy.
12. The Respondents maintain that each of the above grounds is met in the case for the reasons set out below.
(i) There is an obvious injustice when the Court makes a determination at a hearing on the merits when it was only scheduled to hear an appeal on a jurisdictional point, and the Court nevertheless renders a judgment on the merits without the Respondents having had the opportunity to properly plead their case.
(ii) These are exceptional circumstances as it is not usual for one party to be entirely deprived of the opportunity to present its case before judgment is given.
(iii) As the Appeal Judgment was an appeal, there is no alternative effective remedy, and the only option is for the appeal to be reopened.
13. The Respondents support their argument by highlighting a letter dated 18 March 2012 that their lawyers wrote to the Court
Registry concerning the Appeal Hearing, In that letter, the Respondents acknowledged that, under RDC
53.78, the Appeal Court was permitted to dispose of the case in its entirety at the same time as deciding the appeal without referring the claim to the SCT, Furthermore, it could do so without hearing further evidence. The Respondents, however, stated in the letter that, in the event the appeal were allowed, it would be inappropriate for the substantive merits of the case to be heard without further submissions as well as additional time to file those submissions. The Registry responded in an email dated 1 April 2012, in which it advised that, if the appeal were allowed, the
Judge would then invite the parties to submit further observations on the remaining issues in the case within certain time-frames.
14. On this basis, the Respondents expected the Appeal Hearing to rule solely on the question of jurisdiction. However, as the Appeal Court decided to go on to rule on the merits, the Respondents maintain that a reasonable opportunity should have been given to make substantive submissions.
15. The Respondents also highlight that Justice Chadwick pressed their Counsel during the Appeal Hearing to state what the defence might be. This was done despite Counsel repeatedly stating that he had not taken his clients' instructions. Counsel eventually provided a broad outline of the defence during the Appeal Hearing. In the Application, the Respondents' Counsel emphasize that this outline was only an indication of their substantive defence, and was subject to further clients' instructions. However, having now had ample opportunity to take full instructions, the Respondents' Counsel have provided a brief summary of their defence in the Application and, in support, have submitted the witness statement of the Second Respondent. The highlights of this brief summary and witness statement are as follows.
(i) The only relevant contractual relationship concerning the Appellant's claim is the employment contract between the Appellant and the Second Respondent, dated 30 October 2008. This contract gave Second Respondent discretion to award bonuses. It states that leave and other discretionary entitlements were transferred from the First Respondent to the Second Respondent.
(ii) The Bonus Letter was not an independent contract, but an administrative notification to the Appellant. It sought to explain that the bonus payments were discretionary, and were dependent on the financial performance of the Second Respondent. Furthermore, the nature of the deferred element of the bonus payment was again explained to the Appellant by Sanjay Sen, Head of Human Resources, in an email dated 24 February 2010.
16. After comparing the brief summary of the Respondents' intended defence as outlined in the Application with the arguments presented before Justice Chadwick, one can only conclude that they are essentially the same.
17. The crux of the Respondents' proposed defence, as advanced at the hearing before Justice Chadwick and reiterated in the Application, is that the entitlement to bonus payments, whether referring to the deferred bonus payments or any future bonus payments, are obligations of the Second Respondent which are entirely discretionary and dependent on the performance of the Second Respondent. Counsel made this argument before Justice Chadwick1 and repeat it in the Application2. However, no coherent explanation has been given of how a contractual relationship with the Second Respondent arising by virtue of the 30th October employment contract could affect the Appellant's rights under the earlier Bonus Letter dated April 2008, particularly since the First Installment of the bonus for 2007 (see para 21 (b)(i) below) was paid a few days after the Bonus Letter was sent.
18. Justice Chadwick has found that the bonus awarded under the Bonus Letter for 2007 created a vested right in the Appellant to that bonus subject to the shadow fund provision of the employment contract. Accordingly, there was no discretion any more in either Respondent whether or not to pay bonus for 2007; that discretion had been exercised, and the 2007 bonus had been fixed at US$350,000. It therefore follows that, when the employment contract dated 30 October 2008 provided in Clause 2 that "Leave and other discretionary entitlements will be transferred from Second Respondent [i.e, the First Respondent]", the vested right to the 2007 bonus of US$350,000 (including the deferred installments) were not "discretionary entitlements" that were transferred to the Second Respondent.
19. The Respondents have shown no indications of any new evidence (other than the witness statement of Second Respondent) which would give a reviewing court cause to believe that, if the case were reopened, credible and relevant fresh evidence would emerge which would change the outcome of the Appeal.
20. In effect, the Respondents are seeking to appeal against the finding of Justice Chadwick relying on exactly the same arguments and with no real additional evidence to justify its claims of denial of justice.
21. The Respondents further complain that Justice Chadwick awarded more (US$ 87,500) than what was claimed by the Appellant (US$ 52,500). However, this must be seen in context. Given Justice Chadwick's decision that there was a valid contract between the First Respondent and the Appellant, it is then important to look at the terms of the Bonus Letter and to see whether the promised payments were subject to any conditions.
22. The terms of the Bonus Letter are as follows,
a) The Appellant was awarded a discretionary incentive bonus amounting to US$350,000 for the services rendered during the 2007 period.
b) The incentive bonus would be paid in three installments:
(i) First Installment: An initial cash payment of 50% of the incentive bonus (amounting to US$175,000) would be paid in April 2008.
(ii) First Deferred Payment: 25% of the incentive bonus (amounting to US$87,500) would be paid in January 2009.
(iii) Second Deferred Payment: 25% of the incentive bonus (amounting to US$87,500) would be paid in January 2010.
c) The deferred payments would be invested in a shadow fund that would have a return by reference to the aggregate performance of Second Respondent (i.e. the Second Respondent). There would be no capital protection applied to the discretionary bonus award and, as a result, any future negative returns achieved by the Second Respondent would result in a reduction of the deferral award.
23. The Appellant was paid the First Installment (US$175,000) in April 2008, and this sum is therefore not in dispute. With respect to the First Deferred Payment (which was supposed to be US$87,500) there was a 30% reduction resulting in the Appellant only being paid US$61,250 pursuant to a letter dated February 2008 (presumably in error for February 2009)3 in which the Appellant was informed that the estimated negative return for 2008 was -30% and would apply to the Second Deferred Payment in 2009. However, although the Appellant sought the release of the 2008 financial results of the Second Respondent in his statement of claim, he did not press for the payment of the full US$87,500 at the hearing and it must therefore be taken that this reduction was accepted by the Appellant.
24. With respect to the Second Deferred Payment, the onus is again on the Respondents to demonstrate that the Second Deferred Payment in the amount of US$87,500 should not be paid. The terms of the Bonus Letter state that the deferred element awarded (including the Second Deferred Payment) would be objectively determined by reference to the aggregate performance of the Second Respondent. Thus, only by providing the Second Defendant's financial results could it be determined whether the amount of US$87,500 should be maintained or decreased. Mr witness statement says (in material part):
"10. In 2008, the global financial crisis was devastating to Second Respondent impacting severely on portfolio company valuations, particularly in the Dubai Financial Group portfolio ... In 2009, Dubai Group's losses amounted to approximately USD 4.2 billion and we had no choice but to reduce the number of our employees from approximately 240 individuals to 24. The Appellant was one of the employees that was made redundant through this process....
12. It was against this background that the first part of the Deferred Bonus [i.e. First Deferred Payment], paid in February 2008, was reduced by 30% ... By the time payment of the second part of the Deferred Bonus in 2010, the aggregate performance of the Dubai Group was such that no amount of the remainder of the Deferred Payment was payable. This was explained to the Appellant by Carol, head of Human Resources, in an email discussion between 21 February 2010 to 6 March 2011."
25. The relevant email is from Carol dated 24 February 2012 to the Appellant where he says (in material part):
"Dear Carol,As you are aware, deferred payments under the Second Respondent Deferred Compensation Plan are not capital guaranteed and face adjustment, by way of increase or decrease, in line with Second Respondent's financial performance. The extremely difficult business conditions during 2008 and 2009 have severely impacted Second Respondent's financial performance leading to a significant devaluation in the value of the portfolio. As a result, there will be no payments made from the plan in respect of the final installment of the 2007 award [i.e. Second Deferred Payment].Regards Carol"
26. None of the above statements specifies any details of the extent of the negative returns of the Second Respondent, nor have any supporting financial statements been supplied to the Appellant. Accordingly, it is understandable why Justice Chadwick considered that there was no acceptable evidence of any proper basis for reducing the quantum of their Second Deferred Payment from US$87,500 to zero.
27. When the Appellant made his claim for US$52,500 for 2010 it was on the basis that the Appellant was guessing4 what he believed would have been the negative return on equity of the Second Respondent in 2009. However, the Appellant reserved his position that, should a higher or lower sum be decided by the Court5, he would make his claim based on the actual performance of the Second Respondent. This was communicated to Justice Chadwick during the Appeal Hearing. Justice Chadwick was informed that the Appellant had calculated the US$52,500 figure based on an assumption, and was prepared to have it adjusted if the Court proceedings revealed a different return on the equity position6 nor in the present Application.
28. As a result, Justice Chadwick stated that, if the Second Deferred Payment were to be reduced, then the Respondents should have explained to the Appellant how the shadow fund performed that justified non-payment of the Second Deferred Instalment.7 However, no explanation (let alone supporting documents) was produced by the Respondents to Justice Chadwick.
29. In the light of the failure of the proposed Application to raise any new grounds of defence and in the absence of any evidence as to the extent of the financial decline of the Second Respondent in 2009, Justice Chadwick was correct that he could only presume that no such evidence existed, and he understandably awarded the sum of US$ 37,500 in favor of the Appellant.
30. The Respondents' Application does not satisfy the first element set out in paragraph 12(i) above because the Respondents:—
a) Were unable to inform Justice Chadwick of the general nature of their defence on which it was wholly unreasonable for Counsel not to have taken instructions; and
b) Have been unable to add substantively to the skeleton summary of their defence now fleshed out in the Application, If the proposed defence as set out in the Application had been placed before Justice Chadwick at the Appeal Hearing, he would clearly have taken the same view as he did then viz. that there was no triable defence that would be proffered in answer to the Appellant's claim. Since no adequate defence has been made out in the Application, which has been filed some weeks after the date of the Appeal Hearing, the Respondents had clearly suffered no prejudice from being asked to disclose the gist of their defence at the Appeal Hearing. In the light of the fuller explanation of the defence that is set out in the Application, Justice Chadwick was correct in dealing with that defence without the need for Counsel's further elaboration at a later date.
31. The nature of the jurisdictional objection raised by the Respondents was exclusively based on the argument that the Claimant had sued the wrong party as the contract giving rise to the bonus entitlement was made with the Second Defendant. The nature of the substantive defence that the Respondents now say they want to plead is at least, in material part, based on the same allegation that the correct contracting party with the Claimant was the Second Defendant and not the First Defendant. It was therefore incumbent on the Defendants to have assembled and adduced all their evidence to support that allegation before Justice Omar Al Muhairi, and later before Justice Chadwick, and it is now too late for them to raise additional facts to support essentially the same allegations. In any event, such new facts as have been raised have not made the defence any more credible. The other point of their proposed defence on merits is the quantification of the claim, whichever was the correct contracting party. On this point, there is nothing in the Application which raises any new credible arguments or evidence which was not raised before Justice Chadwick. Neither the witness statement of Mr SAM nor the email of Carol creates a viable defence on quantum for the reasons stated above.
32. As the Respondents have been unable to demonstrate that, had they been given an additional opportunity to file their defence, it would have made a difference to the outcome, I see no reason why I should permit a reopening of Justice Chadwick's decision. The issue of alleged lack of procedural fairness simply vanishes in the face of the lack of a credible defence even at this stage of the case, and no question of injustice therefore arises.
33. In the circumstances, I dismiss the Application with costs to be assessed if not agreed. The stay of execution on Justice Chadwick's Judgment made on 9 September 2012 is also lifted.
Issued by:Mark BeerRegistrarDate of issue: 26 November 2012At: 5 pm
