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Claim No: CFI 055/2018

IN THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS

IN THE COURT OF FIRST INSTANCE

BETWEEN

CATERPILLAR FINANCIAL SERVICES (DUBAI) LIMITED

Claimant

and

(1) NATIONAL GULF CONSTRUCTIONS LLC
(2) NATIONAL GULF INVESTMENT LLC

Defendants

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AMENDED JUDGMENT OF H.E JUSTICE SHAMLAN AL SAWALEHI

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UPON the Claimant’s Re-Re-Re-Amended Claim Form dated 26 September 2019

AND UPON the Claimant’s Amended Particulars of Claim dated 26 September 2019

AND UPON the Defendants’ Amended Statement of Defence and Counterclaim dated 2 October 2019

AND UPON the Claimant’s Amended Reply and Defence to Counterclaim dated 16 October 2019

AND UPON the trial of the matter which took place by way of tele and videoconference on 21 and 22 July 2020

AND UPON reviewing the relevant documents on the Court file

AND UPON Dubai Resolution No. 13 of 2020

IT IS HEREBY ORDERED:

1. Judgment for the Claimant against the Defendants for the outstanding sums due under the Advances, as defined below, in the total sum of USD 11,266,653.49.

2. Contractual interest due from the Defendants on late payments of instalments of the Advances pursuant to clause 3.3 of the relevant loan agreements in the total sum of USD 4,829,263.65 to 13 February 2020 which continues to accumulate at USD 5,556.16 per day from 13 February 2020.

3. The Defendants to pay the sum of AED 82,286.35 in respect of the repossession, maintenance and preparation for sale of the Returned Vehicles, as defined below, and/or incurred in respect of the Claimant's enforcement of its rights under the relevant agreements or otherwise in connection with the agreements.

4. Contractual interest on those sums.

5. A full indemnity for the Claimant’s costs of these proceedings and all other sums incurred enforcing its rights under or in connection with the relevant loan agreements to the extent permitted under the terms of the relevant agreements.

6. The same sums from the Second Defendant under the Corporate Guarantees to the extent it is not otherwise primarily liable.

7. In respect of the vehicles subject to mortgages in favour of the Claimant:

8. To the extent not covered by the indemnity mentioned at paragraph 5, above, the Defendants to pay the Claimant’s costs.

9. This judgment is stayed.

Issued by:
Nour Hineidi
Deputy Registrar
Date of Issue: 13 October 2020
Date of re-issue: 27 October 2020
Time: 9am

JUDGMENT

Introduction

10. Two years of litigation will be concluded with an exercise not far removed from rubber stamping. At the trial of this matter on 21 and 22 July 2020, the Defendants (henceforth referred to together as “National Gulf” in the singular) appeared to concede to the Claimant’s (“Caterpillar”) arguments while not seriously pursue those of its own until, for all intents and purposes, National Gulf’s position became indistinct from that held by Caterpillar. Rather than determining a dispute, I think my task now is better described as giving force to the parties’ mutual understanding, being the understanding that underpinned Caterpillar’s claim and which justifies judgment in its favour.

11. National Gulf was not legally represented at the trial, however, and its representative, Mr Nasser Ali, the CEO of both the First Defendant and the Second Defendant ( “NGC” and “NGI,” respectively), was forthcoming about his insufficiency in the language in which the proceedings were conducted, being English, as well as the fact that he is not legally trained. For these reasons, I will re-enter into matters in this judgment which were contentious at least until the trial, ascertainable in National Gulf’s Amended Statement of Defence and Counterclaim dated 30 September 2019 (the “Defence” or the “Counterclaim” as applicable), in which National Gulf requested the Court to dismiss the entirety of Caterpillar’s claim and instead award National Gulf damages, and to a lesser extent its Skeleton Argument for the trial dated 16 July 2020, a brief submission into which not all of National Gulf’s previous arguments survived, and in which a much less adversarial position had already emerged:

The formation of a special judicial committee

12. On 23 July 2020, His Highness the Ruler of Dubai issued Resolution No. 13 of 2020 (the “Resolution”) by which, by Article 1, a special judicial committee concerned with claims and disputes relating to NGI, companies owned by it and its subsidiaries was formed (the “Committee”).

13. The Court learnt of the Resolution by way of an email from Caterpillar’s legal representatives, Hadef & Partners, on 29 September 2020. It will have been noted that the Resolution was issued one day after the trial of this matter had concluded. This is a significant point, as I will demonstrate below.

14. Regarding the material provisions of the Resolution for present considerations, by Article 2(a)(1), the Committee was given exclusive jurisdiction to hear and determine claims and applications, urgent or otherwise, by or against National Gulf which are not already the subject of final decisions.

15. By Article 4(a) of the Resolution – Article 4 concerning the obligations of courts, judicial stakeholders and enforcement departments – all courts and judicial authorities in the Emirate of Dubai, including the DIFC Courts, are prohibited from hearing claims, applications or appeals falling within the Committee’s jurisdiction, and any such hearings are required to be stayed.

16. By Article 4(b), all judgments and orders issued before the Resolution came into force, coinciding with the issuance of the Resolution, are required to be stayed, including those issued by the DIFC Courts.

17. It will be noted that that while Article 4(a) of the Resolution prohibits the hearing of claims, applications and appeals, it does not prohibit their determination once heard. The hearing of the trial of this matter was, again, concluded the day before the Resolution was issued. All that was left for the Court by that stage was the determination of the claim, a process not prohibited by the Resolution.

18. Moreover, while Article 4(b) of the Resolution requires that judgments and orders issued before the Resolution came into force be stayed, there is no such requirement for, as in this case, judgments issued after the Resolution came into force.

19. On my reading of the Resolution, it is evidently the Ruler’s intention that matters already heard should be determined, and so I proceed to do exactly that.

20. In my view, also, the Resolution does not set out to stay judgments issued after 23 July 2020. Out of precaution, however, and in so far as I have not had the benefit of submissions from the parties on this question, I will stay this judgment.

Judgment

21. To proceed, this case concern Caterpillar’s claim to recover sums lent to and allegedly subsequently due and owing from National Gulf and to exercise certain security rights in connection with that lending. There is agreement between the parties that the total borrowing was in excess of USD 10 million. The exact sums which remain outstanding, however, are disputed.

The parties

22. Caterpillar is part of the well-known Caterpillar group of companies, known for their yellow excavators and other heavy construction equipment. Caterpillar Financial Services (Dubai) Limited, as its name suggests, does not manufacture or sell such equipment; rather, it provides finance to businesses which are buying that equipment in Dubai.

23. NGC, founded in 1979, carries on business in the construction sector and has been employed in many major constructions in the UAE since then. NGI is part of the same group.

The parties’ relationship

24. Caterpillar equipment is sold in Dubai by Mohamed Abdulrahman Al Bahar LLC ( “Al Bahar”). Where a customer wishes to purchase Caterpillar vehicles or equipment from Al Bahar with the use of credit, and where credit is offered by Caterpillar, the general commercial pattern, as was followed in this case, is as follows.

25. Caterpillar offers credit via either a one-off loan agreement or, for certain customers, a “master agreement” which allows multiple advances of credit to be drawn down under a single agreement up to a pre-agreed limit. The general terms and conditions of the borrowing are as set out in documents entitled “Master Loan and Security Agreement” or “Loan and Security Agreement.” Those terms, to the extent most relevant, are set out below.

26. In either case, the customer may put up some money for the purchase price of the relevant vehicle, with the balance of the purchase price being provided by Caterpillar. To those sums provided by Caterpillar will be added up-front fees and interest on the borrowing, reflecting the duration of the financing plan, and that total sum will be repaid by the customer pursuant to a pre-agreed instalment plan.

27. The total borrowing and the terms for repayment for each acquisition of a vehicle or each batch of vehicles where more than one is purchased in a single transaction is recorded on a “Schedule 1” form, sometimes called a “Vehicle Schedule.” These Schedule 1s may relate to a draw-down under a master agreement or a one-off transaction. In the former case, these Schedule 1s do not strictly record or relate to a new agreement. Nevertheless, it was Caterpillar’s practice to give each “Schedule 1” or “Vehicle Schedule” its own “contract” or “agreement” number.

28. Each “Schedule 1” was accompanied by a “Schedule 2” in the form of a “Payment Promissory Note.” By that document, the customer in each case recognised its indebtedness in the amount of the total borrowing and the terms of the repayment plan and promised to repay those sums on demand.

29. A “Schedule 3” was also provided in each case, by which the customer confirmed and acknowledged a mortgage over the vehicles in favour of Al Bahar, as security agent for Caterpillar, as security for the borrowing.

30. There were in the relevant dealings between the parties for the purposes of these proceedings 24 different advances between 2014 and 2017, that is, financing put in place under 24 different “Schedule 1s” or “Vehicle Schedules,” each given different “Agreement Nos” or “Contract Nos” by Caterpillar. 23 have outstanding balances and are the subject of this claim (the “Advances”). These Advances were pursuant to four different “Master Agreements” and four one-off Loan and Security Agreements (collectively the “Agreements”). Save that the credit limit in the Master Agreements varied, each of the governing Agreements was in materially the same form. In the instances where NGI was not a co-borrower under the relevant Loan Agreement or Master Loan Agreement, it provided a separate corporate guarantee for NGC’s borrowing.

31. The detail of which loan agreement governed which advance and which advances NGI was liable under as co-borrower and which it was liable under as guarantor is set out in Caterpillar’s amended Particulars of Claim dated 26 September 2019. None of this is controversial. Because the relevant terms of each agreement are the same, the detail is also ultimately not something on which anything turns in these proceedings.

The default

32. National Gulf, Caterpillar says, had historically been a good and reliable customer. In 2017, however, National Gulf fell into default with their obligations to Caterpillar to meet the instalments due. Mr Ali attributes this default to the death of his father, the former CEO of NGC and NGI, and the implications of that on National Gulf. Caterpillar says it has no reason to disbelieve that the death of Mr Ali’s father caused, or was a significant contributor to, those problems.

The Restructuring Agreement

33. Caterpillar agreed to restructure the terms for repayment of 20 of the 23 outstanding Advances. Three of the Advances were not restructured because the instalment plan under them was for semi-annual payments which were not then due.

34. The terms of the restructured indebtedness for the 20 restructured Advances was as set out under “the First Amendment to Loan Agreements” dated 16 June 2017 (the “Restructuring Agreement”). Despite the name, there was no subsequent amendment.

35. The Restructuring Agreement is signed by both NGC and NGI as well as by Caterpillar and Mr Ali and his brother, Mr Maher Ali, in their capacities as personal guarantors (the “Personal Guarantors”). By the Restructuring Agreement, the parties defined the 20 “Loan Agreements” listed in the recitals – technically, the 20 separate Schedule 1/Vehicle Schedules which had been given different agreement numbers as explained above – as “the Loan Agreement[s]”; by clause 2, the parties agreed that “the payments due under the Loan Agreements shall be in accordance with the Payment Schedule attached hereto”; and agreed, by clause 4c, that

36. For each of the 20 relevant Advances, a revised instalment plan was set out for the life of the borrowing which included a number of USD 0 instalments to ease National Gulf’s financial predicament, before instalments in agreed amounts resumed at some stage in the future. The fact that entry into this restructuring arrangement took place to assist National Gulf’s financial situation is uncontroversial.

Default under the Restructuring Agreement

37. It is also uncontroversial that National Gulf failed to meet the new instalment plan under the Restructuring Agreement.

38. In fact, aside from some ad hoc payments made in February and August 2018 in a total sum of USD 108,695.66, National Gulf failed to make any further payments under any of the 23 outstanding Advances after entry into the Restructuring Agreement.

39. The result of National Gulf’s failure to meet the instalments due under the terms of the Restructuring Agreement was that as the instalment dates under each of the Advances came and went, National Gulf failed to pay in time. The same was true in the case of the instalment dates under the three unrestructured Advances.

40. That failure to pay was in each case an “event of default” under the terms governing each of the Advances. The terms were materially the same in each case and can be taken, for example, from the first 2014 Master Agreement. (I will draw examples from this Master Agreement where required, though referring to “the Agreements” rather than “the first 2014 Master Agreement” in order to avoid confusion, or, in dispelling confusion, prolixity.) Save for the repayment dates, the Agreements were unaffected by the Restructuring Agreement.

41. By clause 3.1 of the Agreements:

The capitalised terms bear the definitions in clause 1 of the Agreement and on their proper construction, the “Total of Payments” and “Payment Schedule” refer to the “Total Amount” recorded in Schedule 1 and the instalment plan recorded in Schedules 1 and 2 in each case.

42. Clause 9.1 defined a number of “Events of Default.” They included:

As each instalment due date under each advance came and went without payment, there was an Event of Default under clause 9.1.a. Further, as the sum remained unpaid for seven days, there was a further default under clause 9.1.b.

43. The effect of such Events of Default was as set out in Clauses 9.2. and 9.3. In short, the effect was inter alia that that the obligation to re-pay all outstanding sums under the advance in question i.e. the total of all outstanding instalments was accelerated such that the total amount became due without any further demand.

44. The date of default in respect of each advance is recorded as “the Date of Default.” Each and every advance was in default by February 2018 and, in most cases, significantly before that. The fact that National Gulf has not made any repayments other than those sums recorded is also not controversial.

Legal action

45. Earlier, on 17 December 2017, Caterpillar sent National Gulf a “Legal Notice” of default. This was followed, on 13 February 2018, by a “Final Legal Notice” of default.

46. On 5 March 2018, National Gulf returned six vehicles it had purchased with Caterpillar lending to Al Bahar (the “Returned Vehicles”). There is dispute between the parties as to the effect of National Gulf having done so.

Procedural history

47. On 6 August 2018, Caterpillar issued a claim in this Court in the principal sum of USD 5,047,901.11, plus legal fees. The Claim Form was first amended on 8 August 2018 to include a new address for National Gulf (the “Amended Claim Form”). That Amended Claim Form was re-amended on 24 September 2018 to the sum of USD 11,512,487.26 (the “Re-Amended Claim Form”).

48. On 23 October 2018, Caterpillar commenced proceedings in the Dubai Civil Court against certain Personal Guarantors of the National Gulf’s obligations.

49. On 31 October 2018, and in the absence of an Acknowledgment of Service or a Defence filed by National Gulf in these proceedings, Caterpillar requested default judgment.

50. On 8 November 2018, default judgment was entered against National Gulf in the sum claimed by Caterpillar (the “Default Judgment”).

51. On 20 January 2019, National Gulf received notice of execution proceedings commenced by Caterpillar in the Dubai Civil Court through which Caterpillar sought to enforce the Default Judgment.

52. On 5 March 2019, National Gulf applied to the DIFC Court to set aside the Default Judgment.

53. On 17 April 2019, the Execution Officer of the Dubai Courts levied an attachment on certain vehicles in National Gulf’s possession by way of enforcement of the Default Judgment (the “Attached Vehicles”).

54. The Default Judgment was set aside on 14 May 2019. By the order of His Excellency the Deputy Chief Justice Omar Al Muhairi of that date, National Gulf was permitted to file a Statement of Defence within 28 days.

55. Between 14 and 27 May 2019, National Gulf’s legal representatives, Lutfi & Co., and Hadef & Partners exchanged correspondences in which the former sought from the latter a return of the Attached Vehicles and the latter insisted that they could not be returned without a court order ordering the release of the items from attachment.

56. On 12 June 2019, National Gulf filed a Defence and Counterclaim.

57. On 2 July 2019, Caterpillar filed a Reply and Defence to Counterclaim.

58. Between 6 and 7 August 2019, the Attached Vehicles were returned to National Gulf under the supervision of the Execution Officer.

59. The Re-Amended Claim Form was again amended on 9 September 2019 so as to include a claim in respect of the unrestructured Advances and to rely upon Particulars of Claim in support of that claim (the “Re-Re-Amended Claim Form”) (the “First Particulars of Claim”).

60. On 26 September 2019, the Re-Re-Amended Claim Form was again amended (the “Claim Form”) as well as the Particulars of Claim (the “Particulars of Claim”).

61. On 2 October 2019, National Gulf amended its Defence and Counterclaim.

62. On 16 October 2019, Caterpillar amended its Reply and Defences to Counterclaim.

63. On 16 March 2020, Lutfi & Co applied to cease representing National Gulf in the matter.

64. On 27 April 2020, National Gulf applied to adjourn the trial listed to commence on 8 June 2020 “to appoint a new law firm.”

65. On 9 July 2020, there was a pre-trial review.

66. On 21 and 22 July 2020, the trial of this matter took place.

Issue 5: lack of need for a notice of termination

67. I will begin my determination of this claim by addressing Issue 5 in the agreed List of Issues. That is the question: “Does the fact that the Claimant has not given notice of termination of any of the contractual arrangements in place between the Claimant and the Defendants have any impact on the claim and the Defendants’ liability?”

68. In its Statement of Defence, National Gulf has argued:

National Gulf, therefore, answers the question in Issue 5 in the affirmative.

69. Caterpillar says that the answer to this question is “no.” It submits that the nature of the contractual regime of “events of default” is that, when National Gulf was in default in respect of an advance, all outstanding sums immediately fell due and owing to Caterpillar without the need for a “notice of termination” or any other notice. Indeed, Caterpillar does not contend that any agreement has been terminated; rather that all sums advanced under the Agreements are now due and owing.

70. In my judgment, this claim of National Gulf’s is misconceived. The absence of any notice of termination of any of the arrangements in place between it and Caterpillar has no impact on National Gulf’s potential liability in the claim. Caterpillar does not take the position that any of the relevant agreements has been terminated and nor does it need to. Indeed, Caterpillar sues under the agreements. National Gulf’s default does not necessitate termination of the agreements and nor does Caterpillar’s claim for all sums due upon National Gulf’s default presuppose or require the same. The agreements, themselves, provide that National Gulf becomes liable for all sums due under an advance in the event of default. It is upon these provisions that Caterpillar’s claim as it is pleaded is founded.

71. In any event, this of National Gulf’s claims appears to have fallen by the wayside at some point before the trial.

Issue 1: Principal Sums Due

72. Issue 1 in the agreed List of Issues is encapsulated in the question: “What are the outstanding principal sums due from the Defendants to the Claimant (whether as principal obligor(s) or guarantor) on the 23 advances made from the Claimant to the Defendants detailed in the Particulars of Claim?”

73. The sums now claimed by Caterpillar as the principal outstanding amounts under the Advances are set out and explained in the witness statement of former accountant of Caterpillar’s, Ms Tendayi Chigutsa, filed in February 2020.

74. Ms Chigutsa explains that she has carried out a careful exercise of calculating precisely what was due under each of the 23 outstanding Advances, including by reconciling the sums due under the Restructuring Agreement. She then has given credit for all instalments paid in respect of each advance and the subsequent ad hoc cash payments made, as well as the net proceeds of Returned Vehicles which were sold in October 2018 and July 2019, about which more will be said below.

75. On Ms Chigutsa’s calculation, the principal sum due after that exercise, i.e. the outstanding sums due under the Advances before interest, is USD 11,266,653.49. This is the figure which Caterpillar contends should be found for the purposes of Issue 1 of the List of Issues.

76. National Gulf has not sought to challenge these calculations as such in responsive evidence or otherwise. The only challenges to Ms Chigutsa’s figure are on the alleged bases, firstly, that additional credit should have been given for the sold Returned Vehicles and, secondly, that the only sums which are due are for missed instalments rather than the whole outstanding balance. Those matters are covered by issues 3 and 5 of the List of Issues and dealt with elsewhere herein, but there is no suggestion that the calculations are otherwise incorrect.

77. It is worth noting that the sums claimed by Caterpillar appear to tally with those that National Gulf accepted were due in correspondence with Caterpillar’s US parent company in 2018. On 27 August 2018, Mr Ali sought assistance from Caterpillar Inc.’s CEO, Mr Jim Umpleby, in restructuring the “balance payment of USD 12.2 million.” That was approximately the principal then due, before the application of the net sale proceeds from the sale of the Returned Vehicles, which sums totalled around USD 1 million. Approximately USD 12.2 million less USD 1 million equals the approximate USD 11.2 million principal sums that Ms Chigutsa calculates to be due.

78. The principal sums claimed are in fact still slightly less than those initially claimed by the Re-Amended Claim Form which founded Default Judgment, namely the principal sum of USD 11,512,487.26, plus interest. Regarding this, Caterpillar seeks permission to amend its claim to ensure that the sums set out in the Re-Re-Re-Amended Claim Form and Amended Particulars of Claim tally with the sums set out in Ms Chigutsa’s evidence. In as much as the proceeding will be stayed upon issuance of this judgment, I relieve Caterpillar of any obligation to re-amend its current Claim Form. There is no prejudice to National Gulf in this course.

Issue 2: interest due upon an event of default

79. Returning to the terms of the loans, as already noted, the effect of an Event of Default is, by clause 9.2(b)-(c), that:

80. Issue 2 asks the question: “What additional sums are due from the Defendants to the Claimant (whether as principal obligor(s) or guarantor) in respect of interest on [the Advances], whether under the terms of the relevant agreements or ss.17 & 18 of the Law of Damages and Remedies?”

81. Caterpillar submits that, upon the Event of Default, the “Default Rate” applied to the whole outstanding balance under each advance for so long as it was outstanding. The “Default Rate,” by clause 3.3 of those terms, was 1.5% per “Month,” with a “Month” being defined as 30 days. That is a rate of around 18% per annum.

82. Ms Chigutsa has calculated interest due to the date of her witness statement. Default interest was, she says, USD 4,829,263.65 to 13 February 2020 and increases in respect of each advance thereafter in the figure set out in the “Daily Rate” of default interest. That rate of interest is, she says, USD 5,556.16 per day.

83. National Gulf has intimated in its Defence that a contractual interest rate claimed must “reflect the damages suffered by the Claimant.”

84. Caterpillar has submitted in reply that there is no need, as a matter of law, for a contractual interest rate to reflect damage suffered and that National Gulf has so far identified no legal basis for that suggestion.

85. Caterpillar is correct in both of its assertions. If there is some legal basis for the proposition inferred from National Gulf’s Defence regarding a relationship between recoverable contractual interest and damage suffered, it has not been put before the Court. In the absence of any legally credible suggestion as to why the contractually agreed Default Rate should not apply, it applies. There is, therefore, no need to consider the provisions of DIFC Law No. 7 of 2005, being the Law of Damages and Remedies.

86. Ms Chigutsa’s figure, updated to the date of judgment, is, I find, the figure for the purposes of Issue 2 of the Agreed List of Issues.

87. In any event, this suggestion of National Gulf’s appears to have been abandoned at some point before the trial.

Conclusions on Issues 1, 2 and 5

88. National Gulf raises certain complaints as to whether more credit ought to have been given for the six vehicles which were returned and sold. These complaints are reflected in Issue 3 of the Agreed List of Issues. Caterpillar claims some modest miscellaneous expenses incurred in enforcing its rights under the agreements. This claim is reflected in Issue 4. These issues will be dealt with below.

89. Putting those matters to one side, regarding the sums that Caterpillar contends should be found to be due under the Advances for the purposes of Issues 1 and 2 of the Agreed List of Issues, in my view, not only are the figures Ms Chigutsa has calculated apparently objectively reliable, but National Gulf also agreed by the clause 10 of the Agreements that:

90. As Ms Chigutsa explains in her evidence, the sums she has calculated to be due on the Claimant’s behalf have been derived from the Agreements between the parties, the Schedules thereto and the information maintained on Caterpillar’s “Oracle” system. In my judgment, the spreadsheets Ms Chigutsa has prepared and exhibited showing the extent of National Gulf’s intendedness are “Lender’s statements” for the purposes of clause 10.

91. ‘Conclusive Evidence’ provisions such as clause 10 of the Agreements are subject to an exception where they show “manifest error” being one which is “obvious or easily demonstrable without extensive investigation”: North Shore Ventures Ltd v Anstead Holdings [2012] Ch 31, by reference to IIG Capital LLC v Van De Merwe [2007] EWHC 2631 (Ch). Plainly, they would also not apply in the case of fraud, but there has been no suggestion of that. National Gulf is, therefore, bound by the figures Ms Chigutsa advances.

92. The foregoing covers and concludes Issues 1, 2 and 5 in the List of Issues. The remaining issues are considered in turn below.

Issue 3: The ‘return’ of the Vehicles

93. “What was the nature and effect in law of Al Bahar’s (the Claimant’s security agent) repossession of six vehicles in or around March 2018?”

94. It is common ground that National Gulf granted mortgages over the vehicles it purchased with borrowing from Caterpillar in favour of Al Bahar, as security agent for Caterpillar.

95. In fact, there is no dispute that on or around 5 March 2018, National Gulf returned, in the physical sense of taking back, to Al Bahar six vehicles it had purchased with Caterpillar lending, being the Returned Vehicles. The dispute between the parties is the effect of it having done so.

96. National Gulf’s position is that it is entitled to credit in what it says was the value of the Returned vehicles at the date they were returned. In its Statement of Defence, National Gulf has submitted:

97. For its part, Caterpillar says that National Gulf’s position is “plainly unsustainable” and that the obvious reality is instead as follows. Upon National Gulf’s default, Caterpillar was entitled to possession of these vehicles as with all of the others over which it had security; under clause 9.3 of the applicable terms, National Gulf was obliged to return the vehicles to Caterpillar.

98. Caterpillar contends that National Gulf was passing assets over which Caterpillar had security by way of Caterpillar’s enforcement of that security, and not by way of return to Al Bahar as the vendor, as is clear, it submits, from the fact that National Gulf had not bought them from Caterpillar, so could not return them to it.

99. In my view, Caterpillar is entirely correct. Indeed, that Caterpillar was taking the vehicles in its capacity as a holder of security over them was expressly acknowledged by NGC when it signed four “Voluntary Delivery, Consent, Surrender and Acknowledgment” forms in respect of the Returned Vehicles at the time. Amongst other things, NGC acknowledged “that it remains fully liable for all payments and for the performance of all obligations under the Contract, including all remaining amounts owing after disposal of the Collateral.”

100. As reflected in those documents, the effect of a charge holder taking possession of charged assets is not to relieve the debtor of liability up to the value of the assets at the date that possession was taken. That is an obvious proposition. Instead, a secured party may inter alia sell the charged collateral in a commercially reasonable manner (Article 51(1)-(2) of DIFC Law No. 8 of 2005, being the Law of Security), and it is only following such a disposal, and after meeting expenses of the sale and prior securities, that the debtors obligations are reduced.

101. National Gulf complains that the sale proceeds received were lower than they should have been, particularly when compared with the initial purchase price of the equipment when new. National Gulf has, however, adduced no evidence of what the actual value of those vehicles was either at the date they were returned to Caterpillar or at the date they were sold. Permission was granted to National Gulf to adduce expert evidence on that question, but it has not availed itself of that opportunity. National Gulf therefore has no factual basis to support any assertion that Caterpillar did not discharge its duties as chargee to behave commercially reasonably in selling its security, as required by Article 51(2) of the Law of Security. Conversely, Caterpillar has set out in detail the process that it went through in order to establish a reliable valuation of the vehicles and then to obtain best price for them. I am persuaded by Caterpillar that this process was thorough and conscientious.

102. As to National Gulf’s complaint that there was delay in the sale of the Returned Vehicles, with some being sold more than 18 months after they were delivered to Caterpillar, it was for National Gulf to make good its contention that there would have been depreciation in the value of the assets in the period they remained unsold. National Gulf has adduced no such evidence, however, and in fact appears to take the opposite position, as Mr Tom Roscoe for Caterpillar pointed out in his submissions. In its Defence, when arguing that the proceeds of the Returned Vehicles’ sale was unjustifiably low, and no doubt unwittingly, National Gulf stated, “[t]hese vehicles have a life span of a minimum [of] ten years with a relatively low depreciation rate.”

103. In any event, the reason for the delay in selling the vehicles appears to be in part attributable to National Gulf. Caterpillar submits there were two causes of delay, one of which National Gulf was responsible for. I see no reason to conclude otherwise nor indeed any evidence to the contrary.

104. The first cause was that National Gulf had not cleared traffic fines on the Returned Vehicles, which prevented legal title of the vehicles being transferred to Al Bahar to allow them to be sold. That five to seven-month delay was itself a breach of the terms of the agreements: clause 9.e. required National Gulf to “promptly execute all documents and perform all actions reasonably requested by Lender or its designee, and use its best endeavours, to facilitate the sale of the Vehicles by Lender….”

105. The second cause was the process of valuing and selling the vehicles in circumstances where it seemed that there was little market demand for them. Caterpillar may well have been able to sell the vehicles more quickly for a lower price, Caterpillar submits – about which National Gulf would no doubt also complain – but there is no evidence that Caterpillar has failed to act in a commercially reasonable manner.

106. My findings in respect of Issue 3 are, therefore, shortly stated as follows.

107. National Gulf was not entitled to “return” the vehicles to Al Bahar; they were required to deliver the assets to Al Bahar as Caterpillar’s security agent so that the security could be realised.

108. National Gulf did not comply with its obligations to facilitate the sale of the vehicles in that they failed to pay traffic fines to enable Al Bahar to be registered with title to the vehicles. Caterpillar was not acting unreasonably in failing to sell the vehicles while it did not have title to them by reason of National Gulf’s traffic fines.

109. There is no basis for giving National Gulf any credit beyond the net proceeds which were realised on the sale of those vehicles. The net proceeds were USD 1,040,625.33, but National Gulf has been given some further credit, in the total sum of USD 1,097,101.85, with the difference being due to the fact that not all expenses have been offset by Caterpillar against the proceeds.

Issue 4: Indemnities & other expenses

110. Issue 4 asks: “What additional sums, if any, are due from the Defendants to the Claimant pursuant to clauses 5.1, 5.2, 9.3(d) and/or 20(c) of the loan agreements governing the advances in respect of its costs, fees and expenses of enforcing its rights? (And what interest is due on those sums?)”

111. Caterpillar claims the costs incurred in recovering and servicing three of the six Returned Vehicles as well as the costs incurred in connection with the transportation and inspection of the vehicles subject to the execution proceedings. Caterpillar says that though these execution proceedings were ultimately abortive because the Default Judgment pursuant to which they were carried out was subsequently set aside, there can be no doubt that they were nevertheless incurred, for example, in “in connection with the… enforcement of” Caterpillar’s rights; or, alternatively, costs that Caterpillar incurred, suffered, sustained or was put to in connection with the Agreements; or were incurred in the recovery of payments due; or were costs incurred in enforcing the terms of the Agreement, each, it submits, as indemnified by them.

112. The Agreements relevantly provide, with a large degree of overlap:

The contractual arrangements between the parties, therefore, requires National Gulf to indemnify Caterpillar for costs and expenses it incurs in connection with recovering possession and realising its security over the vehicles and otherwise enforcing its rights.

113. National Gulf denies this aspect of the claim, however, on the basis that the expenses in question were incurred unilaterally. In its Statement of Defence, National Gulf submitted:

114. In my judgment, it is plain from the wording of the Agreements that there was no requirement to give National Gulf notice of these costs before they were incurred. The costs are, therefore, recoverable.

115. The sums incurred under these heads total AED 76,305.55. The breakdown is explained in the evidence of Ms Chigutsa and the supporting invoices for the sums claimed have been filed.

116. Interest is also due on those sums: expressly under clause 20.c. or because they are otherwise “due under this Agreement” for the purposes of clause 3.2. The interest calculation to 13 February 2020 totalled AED 8,989.75 and the rate continues at AED 37.40 per day.

Issue 6: Caterpillar’s entitlement to possession of the remaining vehicles

117. Issue 6 concerns Caterpillars security interests over vehicles which remain in the possession of National Gulf and asks, in particular, whether Caterpillar is entitled to orders: that the National Gulf should give Caterpillar possession of those vehicles; requiring all necessary steps to transfer registration and/or title to Caterpillar’s security agent, Al Bahar, and all other reasonably necessary steps to enable the vehicles to be sold; and/or permitting the sale of the vehicles and, if so, on what conditions?

118. In my judgment, Issue 6 can be dealt with easily. There can be no doubt that Caterpillar is entitled to be given possession by National Gulf of all remaining vehicles which National Gulf purchased with the Advances. In each case, National Gulf has agreed to register and it is understood has in fact registered mortgages over those vehicles in favour of Al Bahar as Caterpillar’s agent.

119. More straightforwardly, there is no dispute that National Gulf is in breach of its obligations to repay each of the relevant loan agreements. It cannot be disputed that an “Event of Default” has occurred in each case. In such event, National Gulf is obliged, by clause 9.c. of the Agreements, to “deliver all Vehicles in good condition, repair and working order to Lender or its designee” and “Lender or its designee shall be entitled, without notice, to take possession of the Vehicles and to sell them or otherwise dispose them as Lender thinks fit.”

120. National Gulf is also obliged by clause 9.e. to take all steps to facilitate the sale of the vehicles by Caterpillar or its designee, Al Bahar. Those steps include transferring registration to the vendor so that they may be sold.

121. All that Caterpillar is seeking under this head, therefore, is an order that National Gulf complies with its contractual obligations. That is the relief sought by paragraphs (7) a. and b. of the prayer for relief to the Particulars of Claim. If National Gulf disputes this entitlement, the basis for that dispute is not clear.

122. Caterpillar has submitted, moreover, that in circumstances where there must now be a real question as to National Gulf’s solvency, it would also be just and convenient for the Court’s order to record Caterpillar’s entitlement to possession of these assets pursuant to their security rights. This is a reasonable request which I accede to.

123. Regarding the question of whether Caterpillar should be able to sell the vehicles and, if so, on what conditions, in my judgment, Caterpillar is plainly entitled to sell the vehicles, unless the charges on them are more swiftly redeemed via National Gulf’s discharge of the sums due.

124. As to the conditions of sale, they have already been covered in the context of Issue 3 above. The short point is that, in accordance with the provisions of the Security Law, Caterpillar is required to use the net proceeds of sale, after expenses, to discharge its own liabilities, there being no higher ranking charges, with any surplus being due to National Gulf, in the absence of any subsequent charges.

125. None of this ought to be controversial.

Issue 7: the relevance of the separate proceedings against the Personal Guarantors in the Dubai Civil Court

126. “In circumstances where there are proceedings between the Claimant and the Defendants’ personal guarantors afoot before the Dubai Civil Court, should the Claimant be required to pursue the Defendants in that forum?”

127. National Gulf contends in its Defence that the existence of separate proceedings brought by Caterpillar against the personal guarantors in the Dubai Civil Courts (to which National Gulf is not a party) amounts to a defence to these proceedings.

128. Caterpillar says there is no legal basis for this contention and that the existence of the separate proceedings before the Dubai Civil Courts is prayed in aid by National Gulf in response to the present claim. It submits, moreover, that even if their existence may at one time have been relevant, they are no longer relevant because they have come to an end.

129. Caterpillar is correct. I will make mention of the parties’ submissions as I provide my reasons for finding so.

130. The starting point in the analysis is that there can be no dispute that the DIFC Courts have jurisdiction over the disputes between these parties, and nor has National Gulf suggested otherwise: the Agreements contain a non-exclusive jurisdiction clause in favour of the DIFC Courts. For those agreements where NGI has entered into a separate guarantee agreement, they also contain a jurisdiction clause in favour of the DIFC Courts. Confirming the same, His Excellency the Deputy Chief Justice Omar Al Muhairi held, at paragraph [34] of his decision setting aside default judgment on 14 May 2019, that “it is clear to me that the DIFC Courts do in fact have jurisdiction over this matter.”

131. Caterpillar, on 23 October 2018, had commenced separate proceedings against the Personal Guarantors in the Dubai Civil Courts. At clause 10, the personal guarantees conferred non-exclusive jurisdiction on the civil courts of the United Arab Emirates. The Dubai Civil Courts proceedings were commenced at a time when National Gulf had to that date failed to engage with these proceedings, such that a request for default judgment was imminent.

132. On 26 November 2019, the Dubai Court of First Instance found in Caterpillar’s favour and awarded it the principal amount of AED 43,885, 227.76 and interest at 9% per annum from the date of filing the case on 23 October 2018 until full payment.

133. The guarantor defendants filed an appeal on 2 January 2020. The appeal was rejected by the Dubai Court of Appeal on 4 March 2020 and the Court of Appeal upheld the judgment of the Court of First Instance.

134. Caterpillar’s legal representatives at Hadef & Partners opened an execution file in the Dubai Execution Court on 15 March 2020. The execution proceedings are currently on foot.

135. In my view, to the extent that there might have been merit in National Gulf’s argument that the proceedings issued under the personal guarantees would have been a better forum for these claims under the Agreements, the argument is now academic in that the Dubai Civil Court proceedings have been resolved and are in their enforcement phase.

136. National Gulf’s arguments under this head were, in any case, always misguided. National Gulf had complained that the Dubai Civil Court proceedings were not disclosed in Caterpillar’s Request for Default Judgment. It is correct that they were not mentioned in that Request; but they were irrelevant to it as the existence or not of those proceedings had no relevance to Caterpillar’s entitlement to default judgment in these proceedings.

137. Secondly, National Gulf argued that the Dubai Civil Courts are the appropriate Courts for the resolution of this claim. Such an argument, if it were true, could not operate as a defence to this claim. It might have given a basis for an application for a stay of these proceedings in favour of those in the Dubai Civil Courts, but no such application has been made.

138. The Personal Guarantors are not parties to the agreements under which Caterpillar sues National Gulf. Caterpillar’s rights against National Gulf and vice versa are unaffected by the terms of the personal guarantees or the Dubai proceedings. The Personal Guarantors are also not party to these proceedings. They have no standing to be heard.

139. National Gulf’s case refers to Article 1094(2) of the UAE Civil Code which it asserts applies. This provision provides that a surety must join a principal obligor to a claim against them, and that if he does not, the principal obligor may raise against the surety any defences that he could have raised in the claim brought by the obligee.

140. I do not see how this provision assists National Gulf in these proceedings. If the Personal Guarantors did not elect to seek to join National Gulf to the Dubai Civil Court proceedings, and particularly in circumstances where those proceedings have now been determined, it is unclear how or why Article 1094(2) is engaged or in any way otherwise determinative in these proceedings. National Gulf was free to raise such defences to Caterpillar’s claim as it thought fit in these proceedings and the Personal Guarantors were free to raise such defences to Caterpillar’s claim as they thought fit in the Dubai Civil Court proceedings.

141. It might have been, therefore, that the Personal Guarantors could have elected to join National Gulf to the proceedings before the Dubai Civil Courts. They did, however, not done so. That cannot be to the prejudice of the parties to these proceedings and so is no basis on which this Court might not proceed with the proceedings before it and over which it has jurisdiction.

142. In any event, this part of National Gulf’s defence appears to have been abandoned before the trial.

Issue 8: National Gulf’s Counterclaim

143. National Gulf’s Counterclaim arises from the fall-out of the execution proceedings which followed Caterpillar obtaining Default Judgment on 8 November 2018.

144. It is important to note from the outset that the Default Judgment was not irregular. As emerges from the Order with Reasons of H.E. Al Muhairi DCJ dated 14 May 2019, it was not a case where default judgment should not have been obtained, requiring it to be set aside. Rather it was a case where the Court exercised its discretion to set aside judgment in circumstances where it was satisfied that, despite proper service, National Gulf was unaware of the claim until after default judgment had been ordered.

145. The key chronology following the Default Judgment and its enforcement is as follows. I will make findings as I go along.

146. Pursuant to a decision of the Dubai Execution Court dated 9 April 2019, the Execution Officer proceeded on 17 April 2019 to execute the attachment decision against NGC against the 28 vehicles listed in the Execution Officer’s report of that date plus, it is understood, two attachments to vehicles, and so 30 items in total.

147. Caterpillar says that that was not a step taken by Caterpillar. Caterpillar is correct; the step was taken by the Court’s Execution Officer.

148. Due to the size and number of the vehicles, they were left with Caterpillar for safe keeping and transported to Al Bahar’s yard for that purpose, but that does not change the position. The vehicles were not given to Caterpillar for Caterpillar’s own benefit. As much is apparent from the concluding words of the Execution Officer’s Report:

149. On 22 April 2019, and in response to a request from Lufti & Co for National Gulf, Caterpillar declined to suspend the enforcement action unless and until the Default Judgment was set aside, but noted, in an letter from Hadef & Partners to Lufti & Co, that “to the extent that any items attached by the Court Bailiff can be proved to belong to a third party other than the judgment debtors then we will immediately inform the Court bailiff that such assets should be returned to the third party.”

150. On 24 April 2019 2019, the attachment of one of the vehicles was lifted by the Dubai Execution Court at the request of a third party, Grand Gate Transport, to whom the vehicle appears to have belonged. This vehicle was returned to Grand Gate on 19 May 2020, as supervised by and recorded in the report of the Execution Officer of that date.

151. The Default Judgment was set aside on 14 May 2019.

152. The same day, Lufti & Co wrote to Hadef & Partners seeking confirmation that Caterpillar would cease enforcement action and the return of assets that were subject to the attachment proceedings. This was followed by a letter to the same effect a week later, which also intimated a counterclaim for damages for the retention of the assets.

153. Hadef & Partners responded on 23 May 2019. They explained that the attachment had been by the “Court Bailiff” (i.e. Execution Officer), and it was for that court officer, not Caterpillar, to return the assets when authorised by the Execution Court to do so. They explained:

154. A further round of correspondence on 27 May 2019 was to essentially the same effect.

155. On 6 August 2019, and pursuant to a decision of the Dubai Execution Court on 23 July 2019 for the return of the Attached Vehicles, the Execution Officer supervised the return of 26 remaining machines to National Gulf. The process was completed and the final three machines returned the following day, at which point that Execution Officer confirmed in his report that “all the machineries subject matter of the execution order have been delivered.”

156. National Gulf’s complaint, by way of is Counterclaim, is that Caterpillar did not return the Attached Vehicles that the Execution Officer had enforced the Default Judgment against by way of attachment. In its Counterclaim, National Gulf says that, upon the Default Judgment being set aside:

In the Counterclaim, National Gulf quantified its damages as AED 331,200 together with interest at a rate of 12% per annum.

157. Caterpillar says that that claim faces at least the three insurmountable problems. I find each of them to be correct and accordingly dismiss National Gulf’s counterclaim on their bases. The problems are as follows.

158. First, National Gulf has not identified the cause of action against Caterpillar. It was not Caterpillar that took these assets, but the Dubai Court’s Execution Officer. That was by way of execution of a lawfully obtained default judgment. There can be no complaint about that.

159. Caterpillar’s security agent, Al Bahar, took physical possession of the vehicles; but these were not held to Caterpillar’s order. Rather, it seems that Al Bahar acted as “custodian” of the assets and unlikely anything more than this.

160. When the Default Judgment was set aside, it gave rise to no obligation on the part of Caterpillar to arrange the return of assets which had been subject to the Execution Officer’s attachment: or, at any rate, National Gulf has identified no basis for such an obligation. Al Bahar remained the custodian of the Attached Vehicles under the Dubai Execution Court’s processes.

161. Caterpillar’s position throughout was that the return of the vehicles needed to be pursuant to the direction of the Execution Court: the attachment had been pursuant to the processes of the Execution Court, and the vehicles needed to be returned according to the same procedure. This was the correct position to assume.

162. It appears that National Gulf belatedly accepted as much and therefore took the relevant steps in the enforcement proceedings between 21 May 2019 and 10 June 2019, when National Gulf applied for the return of the Attached Vehicles. It took until 1 August 2019 for the relevant order to be made, which was then executed on 6 August 2019. The failure of National Gulf to make the requisite applications and/or the time it took the Execution Court to process them is not something that can or should be laid at Caterpillar’s door.

163. Second, National Gulf has not adduced any credible evidence of loss and damage.

164. Assuming some breach of DIFC Law No. 5 of 2005, being the Law of Obligations, could be made out, National Gulf would need to demonstrate, by Article 25 of DIFC Law No. 7 of 2005, being the Law of Damages and Remedies:

165. Caterpillar submits, and the Court agrees, that there is no principled basis for pursuing a claim based on the alleged lease rental value of the equipment if National Gulf has not, in fact, incurred such sums renting replacement equipment. If National Gulf would not otherwise be using the vehicles and has suffered no loss by its inability to use them, a claim on that basis would amount to an impermissible windfall.

166. An assertion by Mr Ali in his witness statement dated 13 February 2020 that AED 8,102,330.99 of loss and damage had been suffered by reason of National Gulf’s inability to work on a residential compound project at Ras Al Khaimah is not a case that was advanced in the statements of claim, and there is no documentary evidence whatsoever in support of the assertion.

167. Indeed, in circumstances where National Gulf had asserted that it could have hired replacement vehicles for all replacement vehicles at a total cost of around USD 330,000 per month, it is hard to see how National Gulf could have allowed a full AED 8.1 million project to be lost for the sake of hiring necessary replacements for the three months the vehicles in question continued to be subject to the attachment proceedings after the Default Judgment was entered.

168. National Gulf is not entitled to recover damages to the extent it could have reduced that loss by taking reasonable steps by way of mitigation: Article 30 of the Law of Damages and Remedies. Those steps must include hiring replacement vehicles to the extent it really needed them to carry out its contract.

169. Third, even if there were any merit in National Gulf’s complaints about the failure to return vehicles following setting aside the Default Judgment, it overlooks the fact that Caterpillar were in any case entitled to possession of the vehicles which had been purchased with the Advances.

170. In any event, in my regard National Gulf’s counterclaim is properly to be regarded abandoned. After Mr Roscoe had finished his cross examination of Mr Ali, who was National Gulf’s only witness in its Counterclaim, it really was not clear what the exact basis of National Gulf’s counterclaim was, whether it was premised on known or estimated losses, or both, or whether the counterclaim was pursued with conviction or otherwise.

Issue 9: Costs

171. Finally, Caterpillar has a contractual right to be indemnified for its costs. They were AED 1,974,499.77 as at 7 July 2020, and estimated to be AED 205, 018.84 to the date of trial.

Orders

172. Judgment for the Claimant against the Defendants for the outstanding sums due under the Advances as defined below in the total sum of USD 11,266,653.49.

173. Contractual interest due from the Defendants on late payments of instalments of the Advances pursuant to clause 3.3 of the relevant loan agreements in the total sum of USD 4,829,263.65 to 13 February 2020 which continues to accumulate at USD 5,556.16 per day from 13 February 2020.

174. The Defendants to pay the sum of AED 82,286.35 in respect of the repossession, maintenance and preparation for sale of the Returned Vehicles as defined below and/or incurred in respect of the Claimant's enforcement of its rights under the relevant agreements or otherwise in connection with the agreements.

175. Contractual interest on those sums.

176. A full indemnity for the Claimant’s costs of these proceedings and all other sums incurred enforcing its rights under or in connection with the relevant loan agreements to the greatest extent permitted under the terms of the relevant agreements.

177. The same sums from the Second Defendant under the Corporate Guarantees to the extent it is not otherwise primarily liable.

178. Orders, in respect of the vehicles subject to mortgages in favour of the Claimant:

179. To the extent not covered by the said indemnity, the Defendants to pay the Claimant’s costs.

This judgment is stayed.

Issued by:
Nour Hineidi
Deputy Registrar
Date of Issue: 13 October 2020
Date of re-issue: 27 October 2020
Time: 9am