September 19, 2023 COURT OF FIRST INSTANCE - ORDERS
Claim No. CFI 004/2023
IN THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS
IN THE COURT OF FIRST INSTANCE
BETWEEN
ZUZANA KAPOVA
Claimant
and
(1) MILOSLAV MAKOVINI
(2) PHARM TRADE HOLDING LTD
Defendants
ORDER WITH REASONS OF JUSTICE ROBERT FRENCH
UPON the Claimant’s Claim Form CFI-004-2023 dated 11 January 2023 (the “Claim Form”)
AND UPON the Defendant’s Application No. CFI-004-2023/3 dated 10 April 2023 contesting the DIFC Courts’ jurisdiction (the “Jurisdiction Application”)
AND UPON the Claimant’s Application No. CFI-004-2023/4 dated 18 May 2023 seeking an order that the First Defendant’s Fourth Witness Statement and Exhibit MM4 be declared inadmissible and be excluded from evidence in the proceedings (the “Claimant’s Application”)
AND UPON reviewing the documents filed in the Claimant’s Application
IT IS HEREBY ORDERED THAT:
1. The Claimant’s Application is dismissed.
2. The costs of the Claimant’s Application are reserved for the Jurisdiction Application hearing.
Issued by:
Ayesha Bin Kalban
Registrar
Date of Issue: 19 September 2023
At: 1pm
SCHEDULE OF REASONS
Introduction
1. By a Claim Form issued on 11 January 2023, the Claimant, Zuzana Kapova (the “Claimant”) sought an order for the payment of USD 4,268,000.
2. The brief details of the claim set out in the Claim Form stated that the Claimant is a Slovakian businesswoman resident in Dubai, United Arab Emirates (UAE). The First Defendant is a Slovak national registered to practice law in Slovakia and a resident of the UAE. He was said to have represented himself to the Claimant as a lawyer and taxation expert and offered to provide tax optimalisation (sic) advice for her companies in Slovakia and the Czech Republic to assist in legally reducing her tax burden.
3. The Claimant says she relied upon the First Defendant’s status as a registered lawyer in Slovakia and acted upon his advice. The First Defendant accordingly became a fiduciary to the Claimant as her tax and legal adviser.
4. The Claimant alleged that she subsequently discussed a potential partnership arrangement with the First Defendant. The Second Defendant was incorporated as a holding company in the DIFC, with equal shareholding for the Claimant and the First Defendant. They also became directors of the Second Defendant on its incorporation with a view to it acting as a holding company for the Claimant’s businesses in Slovakia.
5. The First Defendant was said to have advised that Pharm Trade spol s.r.o., a company wholly owned by the Claimant, be converted into Pharm Trade a.s. (“PT”), in which the Claimant and the First Defendant would each hold 5% of the shares. The Second Defendant would acquire 90% of the shares. This evidently occurred. Thus, it was said, the First Defendant gained a substantial interest in PT through his shareholding in the Second Defendant.
6. Particulars of the claim went on to allege that the Claimant and the First Defendant entered into a Joint Venture Agreement dated 27 January 2020 under which the First Defendant was to pay a joining fee of EUR 800,000 to the Claimant for acquiring any interest in the Claimant’s companies. The joining fee was said never to have been paid.
7. The Claimant alleged that the First Defendant, in violation of his fiduciary obligations to her, drafted and advised the Claimant to execute documentation that enabled him to avoid making any payment to the Claimant to acquire an interest in the Claimant’s companies.
8. The First Defendant was also said to have advised the Claimant to enter into several transactions, including payments to the Second Defendant by the Claimant’s companies in Slovakia and the Czech Republic by raising invoices issued by the Second Defendant on those companies without the provision of any underlying services. This was said to have been purportedly part of a tax optimalisation scheme.
9. The Claimant alleged that the First Defendant utilised funds received by the Second Defendant from the Claimant’s companies to pay himself an “exorbitant salary”. He continued to be a fiduciary of the Claimant during this period and the Claimant relied on him for taxation and legal advice.
10. The Claimant alleged that in the first quarter of 2021 she sought independent legal advice from within Slovakia and the Czech Republic and was disturbed to discover that the transactions carried out pursuant to the advice of the First Defendant were illegal. She sought to reverse them. She was required to make substantial payments from her own funds to rectify the books of account of her Slovakian and Czech Republican companies. She called upon the First Defendant to transfer all payments that he had received from the Second Defendant. He failed to do so.
11. The Claimant alleged that she incurred significant loss and damage on account of the First Defendant’s acts and omissions.
12. The Claimant said that she notified the First Defendant that she did not wish to renew the registration of the Second Defendant. However, the First Defendant in defiance of her instructions, renewed the registration and allegedly continued to act for his personal benefit and in breach of his obligations as a fiduciary of the Claimant and the Second Defendant.
13. Further, the First Defendant allegedly removed the Claimant as a director of the Second Defendant and initiated several legal proceedings, civil and criminal, against the Claimant personally or on behalf of the company in the courts of Slovakia. Some of those legal 5 of 12 proceedings were still pending before the courts of Slovakia when the application was issued.
14. The Claimant alleged that the First Defendant has wrongfully refused to reinstate her as a director of the Second Defendant and to cancel all legal proceedings that he had unilaterally initiated against her on behalf of the Second Defendant.
15. The Claimant alleged that the First Defendant was in breach of his obligations as a fiduciary of the Claimant and had abused his status as a fiduciary for his personal gain at the expense of the Claimant. He was therefore said to be liable to make good all losses caused to the Claimant on account of the breach of his fiduciary duties and to further account to the Claimant for gains he had made at her expense.
16. There was a further claim for aggravated damages and interest. The Claimant further sought to request that the Court direct her reinstatement as a director of the Second Defendant and restrain the First Defendant from acting as a director
17. In relation to the jurisdiction of the DIFC Courts, the Claim Form asserted that:
“The dispute between the parties occurred after the establishment of Defendant No 2 and primarily relates to Defendant No 1’s conduct as a fiduciary of the Claimant and Defendant No 2. In the circumstances, the DIFC Courts have jurisdiction under Article 19(1)(a) and 19(1)(c of the DIFC Court Law.”
18. The Claimant also alleged that the facts of the case and the sequence of events described in the Particulars of Claim, revealed that the dispute arose principally on account of the First Defendant’s acts and omissions as a director of the Second Defendant. In those circumstances and absent any express choice of law by the parties, the laws of the DIFC were said to govern the disputes.
The Jurisdiction Application
19. By an application issued on 10 April 2023, the Defendants sought to contest the jurisdiction of the DIFC Courts. A Procedural Order made by consent and issued on 15 June 2023, provided that the Claimant and the First Defendant agreed to relist the jurisdiction application for a hearing in July 2023 following the decision of a security for costs application. The parties were to file their skeleton arguments for the Jurisdiction Application when a new date for that application had been determined by the Court.
20. The Jurisdiction Application made by the Defendants asserted that:
“The Court lacks jurisdiction in relation to the claims advanced by the Claim (sic) in the proceedings before the DIFC Courts and accordingly the Defendants respectfully request the Court to order and declare as follows: 1.The Claim Form dated 11 January 2023 is set aside. 2. The service of the Claim Form dated 11 January 2023 is set aside. 3. The Claimant shall pay the Defendants’ costs of the Application and the costs of the proceedings on an indemnity basis.”
21. The Claimant’s claims were said not to fall within the jurisdiction of the DIFC Courts for reasons set out in a witness statement called the “Third Witness Statement of Miloslav Makovini”.
22. In the Third Witness Statement, the Defendants asserted that all the Claimant’s claims concerned companies and individuals in Slovakia and the Czech Republic. In view of the evidence presented in the Witness Statement, it was said to be clear that the claims did not fall within the jurisdiction of the DIFC Courts for reasons explained further in the statement.
23. The Third Witness Statement then set out some factual background which took issue with various facts and aspects of the Claimant’s claim.
24. Grounds for challenging the jurisdiction were set out. Reference was made to Articles 19(1)(a) and 19(1)(c) of the DIFC Court Law and the particulars of claim which have already been outlined.
25. The Defendants, in the Third Witness Statement of the First Defendant asserted:
(a) The Joint Venture Agreement and an Assignment Agreement were clearly subject to the courts of Dubai, UAE or Slovakia as they primarily concerned issues and companies in Slovakia. The Joint Venture Agreement and the Assignment Agreement were not concluded in the DIFC.
(b) The declaratory relief concerning alleged mismanagement of the Second Defendant by the First Defendant was said actually to be a means for the Claimant to affect the civil and criminal proceedings in Slovakia. This was said to amount to abuse of process. The use of the DIFC Courts in that context was not appropriate.
(c) A DIFC Court order would not be binding on tax authorities and criminal investigators of a financial crime within Slovakia. Nor would it be binding on the Slovak prosecutor or the criminal courts of Slovakia.
(d) The First Defendant denied providing any legal or tax advice in Slovakia or the UAE to the Claimant. Nor did the First Defendant provide any legal services to the Claimant in Slovakia through his law firm there. He denied any assertion that he was a fiduciary of the Claimant.
26. In further support of his challenge to jurisdiction, the First Defendant submitted a Fourth Witness Statement with an Exhibit designated ‘MM4’. It is that Fourth Witness Statement and the Exhibit which the Claimant seeks to exclude from consideration in the jurisdiction application.
The Application to Exclude the Fourth Witness Statement
27. The Claimant seeks orders against the First Defendant that:
“1. The Fourth Witness Statement of Miloslav Makovini and Exhibit MM4 filed by the First Defendant as evidence in reply in Application Number CFI-004-2023/3 be declared to be inadmissible and be excluded as evidence in these proceedings.
2. The First Defendant pay the costs of this Application and these proceedings to the Claimant on an indemnity basis.”
The Grounds for the Claimant’s Application
28. The Application Notice asserts that the Fourth Witness Statement of the First Defendant and Exhibit MM4 filed with it in support of the jurisdiction challenge, are in violation of the Rules of the DIFC Courts (“RDC”) and will cause prejudice to the Claimant. The reasons for which prejudice is asserted are as follows:
(a) The First Defendant has produced highly misleading excerpts of a document in pages 1–23 of Exhibit MM4 to the Fourth Witness Statement has not been provided to the Claimant — allegedly in violation of Rule 28.4 of the RDC.
(b) Page 35 of Exhibit MM4 is a document in the Slovak language without an English translation. This is said to violate Rule 2.3 of the RDC.
(c) In pages 33–34 of Exhibit MM4 the First Defendant has produced copies of email correspondence between the Claimant and her legal representatives. These are said to be privileged, and to have been accessed and used by the First Defendant without the knowledge and consent of the Claimant. The Claimant alleges that they were illegally procured by the First Defendant and their production as evidence in these proceedings would violate the overriding objectives of Rule 1.6 of the RDC.
(d) The Fourth Witness Statement is said to quote extensively from the documents produced in Exhibit MM4 which are inadmissible for the reasons listed above and in the Claimant’s Witness Statement in support of this Application. The Claimant claims that the Fourth Witness Statement of the First Defendant is also inadmissible and ought to be excluded from evidence.
29. The Claimant’s Application is supported by a witness statement of the Claimant entitled ‘Fourth Witness Statement of Zuzana Kapova’ and dated 17 May 2023. The statement includes an allegation that the Defendants have consistently failed to meet agreed deadlines and failed to comply with the Rules in other respects. That complaint does not seem to be germane to the application relating to admissibility.
30. The Claimant attached to her witness statement email correspondence between her legal representative and the DIFC Court Registry in which her legal representative asked the Court to declare the First Defendant’s Fourth Witness Statement and Exhibit MM4 to be inadmissible. The relevant email is dated 11 May 2023. A response email from the Defendants’ legal representatives dated 11 May 2023 was also enclosed, together with a further response email. In essence, the Defendants’ position was that the admissibility of the evidence was a legal issue and that the Claimant should address it by issuing an application in the proper manner.
31. The substance of the Claimant’s Fourth Witness Statement dealing with the merits of this application made reference to a number of matters including the initiation by the First Defendant of criminal proceedings in Slovakia on behalf of the Second Defendant following the allegedly unlawful removal of the Claimant as a director of the Second Defendant. Proceedings initiated by the First Defendant in Slovakia were said by the Claimant to be “without any basis” and for the purpose of putting pressure on the Claimant.
32. Extracts of minutes of a confrontation between the Claimant and the First Defendant, which are included in the Fourth Witness Statement the subject of this objection, were said to be taken out of context. Documents produced at pages 1–23 of Exhibit MM4 as copies, did not conform fully to the original.
33. Again, reference was made to the production of a document in the Slovak language and the absence of any credible justification for the First Defendant’s failure to submit an English translation of the document.
34. Documents at pages 35–44 of the Fourth Witness Statement were said to represent confidential and privileged email correspondence between the Claimant and her then legal representative pertaining to the ouster of the First Defendant from the Claimant’s company. There was no explanation by the First Defendant as to how he had managed to procure the emails.
The Statement objected to — the First Defendant’s Fourth Witness Statement
35. In the First Defendant’s Fourth Witness Statement, the First Defendant said it was solely concerned with the Defendants’ application challenging the jurisdiction of the DIFC Courts in relation to the claim. There was a disclaimer of any submission to the DIFC Courts’ jurisdiction.
36. The First Defendant’s Fourth Witness Statement attached a paginated bundle of documents designated ‘MM4’, which, as noted above, was also the subject of the Claimant’s objection.
37. The First Defendant’s Fourth Witness Statement referred to an attendance by the Claimant and the First Defendant at Regional Police Headquarters in Prešov, Slovakia, to give testimony under oath. The First Defendant provided what he called “key passages from the Claimant’s testimony which is relevant to the Application.”
38. The first extract referred to the transfer of shares of PT owned by the Second Defendant to her son. The Claimant was said to have made a statement about that transfer.
39. Then there was a statement in which the Claimant had allegedly said that she and the First Defendant had agreed to wind up Pharm Trade Holdings (“PTH”). Nevertheless, the 10 of 12 Claimant in her testimony at the Police Station had made statements inconsistent with that claim.
40. Further, PTH had never provided any legal services to the Claimant. Her contention that as her legal representative, the First Defendant was also her fiduciary was said to be entirely baseless.
41. The Fourth Witness Statement went on to refer to a statement by Mr Sebastian Kapa dated 2 April 2023. He is the defendant in a civil case in Slovakia initiated by the Second Defendant following the Claimant’s allegedly unlawful transfer of PTH’s shareholding in PT to him without consideration. The First Defendant quoted a few passages from Mr Kapa’s statement before the Prešov District Court in Slovakia.
42. The next element of the Fourth Witness Statement dealt with advice given by White & Case to PT. This followed an Engagement Letter dated 3 June 2021 between PT and White & Case seeking legal advice arising out of PT’s business relationship with PTH and with the First Defendant.
43. Then there was a reference to an alleged Tax Optimalisation (sic) Scheme. The First Defendant said it was common ground between the parties that he was not the Claimant’s legal representative and did not provide advice. There was a reference to a consultancy agreement allegedly prepared by the First Defendant as part of a tax optimalisation scheme. The First Defendant said that was incorrect.
44. The Fourth Witness Statement went on to deal with a meeting between the Claimant and the Second Defendant in or around November 2019. According to the First Defendant the meeting was likely to have taken place in or around October 2019 in Dubai.
45. There was then a reference to discussions between the First Defendant and the Claimant about a joint venture company. A Joint Venture Agreement was signed on 17 December 2020. The statement discussed the alleged illegal transfer of PT shares to the Claimant’s son, Sebastian Kapa without any consideration in May 2021 and without informing the First Defendant or seeking the First Defendant’s consent as a 50% shareholder and director of PTH. Argumentative statements about the purposes of the Claimant followed, which were said to include the removal of the First Defendant as a director of the Second Defendant and the transfer of 50% shares owned by the First Defendant in PTH to the 11 of 12 Claimant. This was all said to be with a view to the deregistration of PTH and the appointment of liquidators.
46. The Fourth Witness Statement then engaged with the Claimant’s Third Witness Statement about whether the Courts of Slovakia had jurisdiction to hear the claims pertaining to the exercise of the First Defendant’s powers as a director of the Second Defendant to commence a claim on its behalf and invalidate the Claimant’s transfer of shares from PTH to Mr Kapa.
47. The First Defendant went on to allege Slovakia was the proper forum to hear all the disputes concerning the illegal transfer of PTH’s shareholding.
The Defendants’ Response to the Claimant’s Application
48. The First Defendant filed a witness statement entitled ‘Fifth Witness Statement of Miloslav Makovini’ in opposition to the Claimant’s Application to exclude the Fourth Witness Statement. In this Fifth Witness Statement he referred to a paginated bundle of documents designated ‘MM5’.
49. The First Defendant said that the Second Defendant’s lawyer in Slovakia had advised him that in order to comply with Slovakian law, he should not disclose the entire transcript of minutes of a confrontation between him and the Claimant at the Regional Police Corps Headquarters at Prešov, Slovakia on 21 April 2023. He was advised to submit only parts of the transcript of the minutes of the confrontation. The Second Defendant’s Slovak legal counsel produced a detailed explanation for this, which is exhibited at MM5/1/2. This had been expressly mentioned at footnote 1 of the contested Fourth Witness Statement. The extracts relied upon were said to set out clearly the questions posed to the Claimant and the answers provided by her. In any event, the Claimant had failed to explain or particularise what part of the extract was “out of context”, inaccurate or incorrect.
50. The First Defendant had also exhibited an email chain, at page 35 of Exhibit MM4. He relied only upon emails written in English. There were two short emails, said by the First Defendant not to be material, that were in the Slovak language. After the Claimant had raised her objection to those emails with the Registry on 11 May 2023, the Defendants’ counsel provided her with English language translations of them.
51. Pages 35–44 of Exhibit MM4, which were the subject of the Claimant’s claim for legal professional privilege, were said not to be covered by privilege because they were sent by White & Case to PT, for whom White & Case was acting and not the Claimant. The First Defendant exhibited an Engagement Letter between PT and White & Case dated 3 June 2021. These were not privileged communications between the Claimant and her lawyers.
52. The First Defendant said that in any event, as the Chairman of PT, he had access to those documents. He discovered copies of the emails as the Chairman of PT when he retrieved all the company emails for the purposes of internal audit. This was requested by the company’s Supervisory Board. He rejected any suggestion that he illegally gained access to the documents. He referred to a further email between the Claimant and PT’s counsel, White & Case, in respect of which no objection had been raised based on legal professional privilege.
Consideration
53. The Fourth Witness Statement is said solely to concern the Defendants’ application to challenge the jurisdiction of the DIFC Courts in relation to the claims advanced by the Claimant. The witness statement does not make clear how the factual issues which it canvasses bear upon the question of jurisdiction. However, relevance is a matter best determined in the context of the jurisdictional hearing when that occurs. On the face of it there is much of the statement which is unlikely to stand the test of relevance. Any question of procedural fairness arising from incomplete transcripts of interviews can be determined in the context of all matters before the Court in the jurisdictional challenge. It may be, in any event, that the question of relevance will render the objections academic.
54. I am not prepared to reject the statement as inadmissible in advance of the jurisdiction hearing itself when its relevance can first be determined before questions of admissibility, if any remain, need to be considered. I will not order costs against the Claimant at this stage. The costs of this application can await the outcome of the challenge to jurisdiction. If it turns out that the statement is largely irrelevant, then the Court hearing the jurisdictional challenge may direct that the costs of this application be borne by the First Defendant. That, however, will be a matter for that Court.