March 23, 2015 court of first instance - Judgements
Claim No: CFI 014/2010
THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS
In the name of His Highness Sheikh Mohammad Bin Rashid Al Maktoum, Ruler of Dubai
IN THE COURT OF FIRST INSTANCE
BEFORE JUSTICE SIR DAVID STEEL
BETWEEN
TAALEEM P.J.S.C.
and
(1) NATIONAL BONDS CORPORATION P.J.S.C.
First Defendant
(2) DEYAAR DEVELOPMENT P.J.S.C.
Second Defendant
Hearing: 23 – 24 November 2014
Counsel: Vernon Flynn QC assisted by Tom Montagu-Smith with Hugh Lyons, Mohamed Elghatit, Olivia Rose and Ahmed Hammadi (Hogan Lovells (Middle East) LLP) for the Claimant.
Nicholas Tse assisted by Ravinder Thukral and Roger Kennell (Brown Rudnick LLP) for the First Defendant.
Robin Knowles QC assisted by Khadija Ali (Afridi & Angell) for the Second Defendant.
Judgment: 23 March 2015
SECOND JUDGMENT OF JUSTICE SIR DAVID STEEL
Summary of Judgment
| This judgment stems from a hearing between 23-24 November 2014, the purpose of which was to finalise the orders relating to quantum consequent on an earlier judgment on liability handed down on 19 February 2014. Justice Sir David Steel reiterated, as explained in the liability judgment, that Deyaar, NBC and Taaleem had agreed for the transfer to Deyaar of all of Taaleem’s rights and obligations in respect of Sky Gardens, including the obligation to repay NBC, all of which was achieved by a novation of the existing finance structure. As regards Deyaar’s further assertions that for a range of reasons the transfer to Deyaar should have been held to be invalid, all these defences should have been raised at trial and it was an abuse of process to raise them later. |
Given the finding that Taaleem’s interest in Sky Gardens (together with its obligations to NBC) had been transferred to Deyaar by way of novations, any issues of quantum arose only between Deyaar and NBC. The repayment of the instalment of just over AED 81 million paid by NBC in September 2008 was an obligation of Taaleem which had likewise been transferred to Deyaar. Moreover, an assertion that any associated Murabaha Agreement was invalid as a matter of Sharia law was not open. In any event it was misconceived because the agreement was subject to DIFC Law: Sharia is not a national system of law, and cannot “trump” the law of jurisdiction.
Taaleem was liable for Murabaha profit on the monies advanced by NBC and the profit was to be assessed at 5.5% of the sums outstanding. The lump sum payment in any individual Murabaha agreement merely reflected the profit due at that rate as at the anticipated date of repayment. The absence of executed Murabaha agreements post August 2008 was no bar to the claim for profit.
This summary is not part of the Judgment and should not be cited as such
JUDGMENT
UPON hearing Counsel for the Claimant, Counsel for the First Defendant and Counsel for the Second Defendant on 23 and 24 November 2014
AND UPON reading the submissions and evidence filed and recorded on the Court file
IT IS HEREBY ORDERED THAT:
1. On 4 December 2008 the Claimant and the Second Defendant concluded an agreement (“the Agreement”) pursuant to which:
(a) the Claimant’s interest (the “Interest”) in the units in the property known as “Sky Gardens” (the “Units”, which are listed at Annex A to this order) was transferred to the Second Defendant; and
(b) the Claimant’s obligation to repay the First Defendant the principal monies advanced to finance the purchase of the Interest, as well as Murabaha profit and late payment charges were transferred to the Second Defendant.
2. By virtue of the Agreement:
(a) The Claimant ceased to be the owner of the Interest on 4 December 2008;
(b) The Second Defendant became the owner of the Interest on 4 December 2008; and
(c) The Claimant is not liable to the First Defendant for any finance provided by the First Defendant for the purchase of the Interest, whether under the terms of a Murabaha agreement entered into between the Claimant and the First Defendant and dated 6 July 2008 or at all.
3. The First Defendant’s claim against the Second Defendant for the repayment of the principal monies advanced to or on behalf of the Claimant for the purchase of the Interest in the Units, in addition to Murabaha profit and late payment charges, succeeds and in respect of which the Second Defendant shall, within 14 days, pay to the First Defendant AED 227,379,430.68, which sum is calculated as follows:
(a) Principal advanced on 12 April 2009 (AED 216,529,698.50) less the principal repaid by Second Defendant on 12 April 2009 (AED 42,763,351.60): AED 173,715,963.25
(b) Outstanding total Murabaha profit charges to date of judgment: AED 50,926,992.43
(c) Total late payment charges to date of judgment: AED 2,736,475
4. From the date of judgment, namely 19 February 2014 and until paid in full, the amount of AED 227,379,430.68 shall bear interest at 3% above the EIBOR as at the date of the judgment.
5. The First Defendant’s counterclaim against the Claimant is dismissed.
6. The Second Defendant’s counterclaim against the Claimant and the First Defendant is dismissed.
7. The Second Defendant shall pay the Claimant’s and the First Defendant’s costs of the claim and the counterclaims (including the costs of the hearing on 23 and 24 November 2014) on the standard basis to be assessed if not agreed.
8. The Claimant and the First Defendant may make an application to the Registrar for the Second Defendant to make interim payments on account of costs.
Issued by:
Mark Beer
Registrar
Date of Issue: 23 March 2015
At: 4pm
Introduction
1. The trial in these proceedings concluded in November 2013. Judgment was handed down on 19 February 2014. The purpose of this further hearing was to finalise the orders consequent on that judgment including those relating to quantum. Some of the difficulties in formulating the orders arise from the way in which the Second Defendants (“Deyaar”) sought to appeal the February judgment.
2. The most pertinent items in the agreed list of issues before the court at the liability trial were as follows:
(1) Did Deyaar and Taaleem enter into a legally binding agreement under which Deyaar assumed or agreed to accept Taaleem’s rights and obligations in respect of Sky Gardens, including Taaleem’s obligation to repay NBC in respect of the financing it had provided to Taaleem to purchase the interest in Sky Gardens?
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(5) if the answer to issue 1 is yes, was there (i) a novation or (ii) an assignment to Deyaar of Taaleem’s obligation to repay NBC and in either case did that enable NBC to sue Deyaar?
3. There was a significant measure of overlap between these two issues. It was the cornerstone of Deyaar’s that it did not enter into any binding contract with Taaleem. If Deyaar failed to make good that proposition, it would have been an absurd commercial outcome for Taaleem to remain responsible to NBC for the financing. Not surprisingly the focus of the argument was on the first question.
4. Paragraph 108 of the judgment stated:
“108: I leave it to the parties to prepare an appropriate order in the light of this judgment which should also deal with the manner of resolving all outstanding matters including quantum, interest and costs.”
In fact the parties were unable to agree an order nor did they bring the matter back to the court for resolution. Instead Deyaar issued an Appeal Notice on 5 March 2014. Although no point was taken on this procedure, I doubt whether it was legitimate to seek permission to appeal prior to issuance of the order to be appealed against.
5. Often this point would be of no significance. But in the present case it has given rise, in my judgment, to an unnecessary and unwelcome level of confusion and uncertainty.
6. In their application to the Court of Appeal for permission to appeal, Deyaar sought in Grounds 1 to 6 to challenge the finding that a contract with Taaleem was concluded on 4 December 2008. In his judgment on the permission application Justice Robert Giles rejected that challenge as offering no real prospects of success.
7. Ground 15 complained that there had been a failure to consider Issue 5 (and 6) of the list of issues. On this point, Justice Giles said as follows:
“52. The trial judge’s conclusion that a contract of sale or at least transfer was concluded in December 2008 and that “there was a concluded agreement for transfer of Taaleem’s interest in Sky Gardens to Deyaar on 4 December 2008” does not spell out the position as between Deyaar and NBC. There are a number of references in the reasons to that position: for example, an email from NBC on 20 October 2008 recording the structure of the transaction deals with Deyaar’s acquisition of Taaleem’s interest in Sky Gardens and also its undertaking the financial obligations to NBC, and an addendum to the Tripartite Agreement was prepared apparently involving NBC’s finance. Nonetheless, the position as between Deyaar and NBC is not made clear in the reasons, and to that extent I accept that the ground voices a valid complaint.
53. However, the consequence is not leave to appeal. As with Ground 3, Deyaar’s obligations towards NBC will be stated in the orders yet to be made. Nothing has been done towards making them; if the parties cannot agree on translating the trial judge’s reasons into (presumably) declarations as to whether Taaleem or Deyaar is liable to repay the AED 200 million to NBC and otherwise the financial obligations between the parties, the trial judge can be asked to resolve their dispute in settling the orders. That is Deyaar’s proper avenue, not appeal.”
It is this guidance from Justice Giles which has formed the backbone of Deyaar’s argument, albeit taken to extremes. As indicated earlier, it demonstrates the danger of seeking leave to appeal when there has been no attempt to finalise the relevant order.
Novation
8. Deyaar’s position (which met a level of acceptance from Justice Giles) was that the judgment “did not engage with the question of novation or assignment to Deyaar of Taaleem’s obligation to NBC”. In support of that proposition, particular reliance was placed on paragraph 98 of the judgment:
“98. In summary therefore the position is, in my judgment, that, as stated by Mr Azzam, there was a concluded agreement for the transfer of Taaleem’s interest in Sky Gardens to Deyaar on 4 December 2008:
(a) An amendment to the Tripartite Agreement to that effect had been prepared;
(b) The price and other essential terms had been agreed;
(c) There was no challenge to the authority of those involved in the transaction;
(d) It had been approved by Deyaar’s investment Committee;
(e) A premium of AED 72 million was paid being a non-returnable proportion of the total purchase price;
(f) This payment enabled Taaleem to arrange to include the payment in their accounts subject only to completion of documentation;
(g) In the aftermath of the agreement Deyaar made a series of further payments in relation to the transaction;
(h) There were no conditions to the transfer;
(i) The transaction was accepted to be irreversible.”
9. Taken in isolation it could be said that it does not expressly relate to the position as between Deyaar and NBC. But inferentially it is only consistent with Deyaar being liable to repay NBC since otherwise there would be no commercial value to Taaleem in concluding the transfer of Sky Gardens to Deyaar.
10. In this regard it is important to have in mind Taaleem’s pleaded case as set out in paragraph 25 of the Particulars of Claim:
“25. Thus, by an agreed process of novation arranged by NBC, Deyaar acquired the interest in the property and became liable to NBC for two payments of AED 81,198,637 made by NBC in respect of the sums due from ASG to First Dubai on 15 September and 15 November 2008. Entries recording this fact were made in the accounts of both NBC and Deyaar…”
11. Against that background, the submission based solely on paragraph 98 of the judgment fails to reflect the judgment as a whole and in particular the following passages:
“1. These proceedings arise out of transactions that took place in 2008 in relation to property known as Sky Gardens which is a residential property within the DIFC. The First Defendant (“NBC”) advanced a sum in excess of AED 200 million in regard to the sale and purchase of the property. The dispute centres on whether the Claimant (“Taaleem”) or the Second Defendant (“Deyaar”) is liable to repay that sum.
…
9. Taaleem claimed declarations that it was not indebted to NBC in the sum of AED 236,595,031.07 under a Murabaha agreement dated 6 July 2008 and that by virtue of a novation between it, NBC and Deyaar had no interest in Sky Gardens since August 2008 and was not liable for any finance provided by NBC for an interest in that property…..
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60. On 30 April 2009 Deyaar signed an Audit confirmation letter and a Balance Confirmation letter (but which are said by Deyaar to be inaccurate). The former states as follows:
“1. Taaleem and Deyaar have a mutual understanding that they will sign a Sale and Purchase Agreement (SPA) on 1 July 2009 with the effective date of sale and transfer of the Sky Gardens interest being 30 August 2008 (Effective Date)
2. As included in the SPA, Deyaar confirms that AED 72,141,913…only has been paid to Taaleem on 10 December 2008 as premium for the sale of the Sky Gardens interest and is non-refundable.
3. Deyaar also confirms that from the Effective Date all rights, obligations and liabilities of Taaleem related to the Sky Gardens interest will be the responsibility of Deyaar to the extent that such liabilities have arisen on or from the effective date.
4. Deyaar also confirms that from the Effective Date all rights, obligations and liability of Taaleem under Taaleem’s Murabaha Agreement with National Bonds Corporation related to the Sky Gardens interest will be the responsibility of Deyaar and that Deyaar shall consent to an assignment of Taaleem’s Murabaha Agreements with National Bonds Corporation to reflect the same.”
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63. In the wake of these documents on 10 May 2009 the SPA between Taaleem and Deyaar was initialed and stamped by both parties…”
12. The judgment then turns to consider the principal issue:
“76. The threshold issue is whether negotiations between Taaleem and Deyaar for the acquisition by Deyaar of Taaleem’s rights and obligations in respect of Sky Gardens led to a legally binding agreement under which Deyaar assumed or agreed to acquire such rights and obligations (including Taaleem’s obligation to repay NBC in respect of the financing it had provided to Taaleem to purchase its interest in Sky Gardens [emphasis added]). It is common ground that this issue can be determined by reference to DIFC law since it is not suggested by any party that the application of UAE law would give rise to a different result.
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78. The scope of this threshold issue narrowed significantly during the course of the hearing. Taaleem had opened their case on the basis that a contract was concluded at some stage between December 2008 and May 2009. As finally presented, Taaleem’s case was that a contract constituting an unconditional transfer of its rights and obligations in regard to its share of Sky Gardens came into existence when Deyaar paid the premium on 4 December 2008, such being a non-refundable proportion of the agreed consideration.
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83. In any event I accept the submission made on behalf of Taaleem that the whole concept of an option only exercisable following the completion of due diligence is inconsistent with the contemporary documents. The transaction was to proceed by way of an amendment to the Tripartite Agreement, a final draft of which was available by 20 November 2008. This made provision for a transfer of Taaleem’s interest against payment. The payment of the premium was recorded as “payment for acquisition” in Deyaar’s accounts and as “payment for sale” in Taaleem’s receipts.
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88. The final feature which renders Deyaar’s case on the MOU impossible to reconcile with the evidence is its inconsistency with the conduct of the parties in the wake of the chosen date of 9 December 2009. After paying the premium, Deyaar went on to make payments of AED 114 million to third parties [including NBC] in respect of Sky Gardens. In Deyaar’s case these would have constituted voluntary payments by way of reduction of Taaleem’s obligations.
89. Yet it was common ground between the experts that recovery of such payments (if the transaction was not concluded) could only be sought as a matter of law if either they had been requested by Taaleem or completed by necessity or custom. Taking at face value Deyaar’s concern that Taaleem might not be good for the premium, it is inconceivable that Deyaar would have volunteered a further AED 114 million. In reality Deyaar recognised its responsibility in lieu of Taaleem to make the payments. Indeed by 21 April 2009 Deyaar issued a balance confirmation in the sum of AED 218,022,396.22.
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93. Further support for Taaleem’s position is to be derived from the amendment to the transaction so as to reduce the sale to 50% followed by the attempt to reduce the premium likewise. These negotiations were conducted by Deyaar without reference to Taaleem’s management, an approach only consistent with a completed transfer.
94. I conclude that Taaleem (and NBC) have made out their case that a contract of sale or at least transfer was concluded in December 2008…”
13. In the result issue 5 adds little to issue 1 save for confirming the ability of NBC to sue Deyaar. In any event, no fair reading of the judgment as a whole can give rise to any other conclusion than that Deyaar, NBC and Taaleem reached agreement for the transfer of all Taaleem’s rights and obligations in respect of Sky Gardens, including the obligation to repay NBC and that was achieved by a novation of the existing finance structure. Such was the clearest mutual intention of the parties. If there be any residual doubt, I so find.
Additional issues
14. Leaving aside this request for clarification in the light of Justice Giles’ observations, Deyaar now seek to raise a number of additional points most of which have emerged in the wake of a change in Deyaar’s legal team. For example Deyaar sought to contend that:
(a) Any transfer to Deyaar was invalid as it was not recorded in writing.
(b) Any transfer was invalid as the written consent of the other parties to the Tri Partite Agreement was not obtained.
(c) Any transfer was invalid as NBC did not consent and/or did not agree to make advances to Deyaar.
15. Solely for the purposes of argument let me assume that some or all of the points could have furnished a defence to liability. But even if there be no issue estoppel strictly so called, to raise them at this stage is in my judgment a paradigm example of an abuse of process. It is important to have in mind that there was a very limited exclusion of issues for determination at the trial. Paragraph 14 of the Case Management Order made by Deputy Chief Justice on 20 February 2013 provided as follows:
“14. The trial shall determine all of the issues save that, where the assessment of the amount of an award of damages would require expert evidence, that assessment will be reserved to a later hearing with directions from the trial judge to enable it to be undertaken, should those claims succeed.”
16. In fact no issue in regard to damages necessitating expert evidence would arise in the context of a transfer. During the course of the trial there was some discussion as to the financial outcome. The court was invited to give judgment on the issues as argued since the various permutations made it difficult to provide coherent help. That was the background to the closing paragraph of the judgment which has already been quoted.
17. The present hearing was intended to deal with these outstanding matters. It was not a vehicle for raising unpleaded and unargued issues of liability. Taaleem (and NBC) have established that all these defences should have been raised in the trial: see Johnson v. Gore Wood & Co [2002] 2 AC. 1: R+V Verischerung AG v. Risk Insurance and Reinsurance Solutions SA [2006] EWHC 42 (Comm) 42.
18. This renders it unnecessary to consider the merits of the new challenges to the validity of the transfer. By the same token it is not necessary to consider the questions raised as to the effect of any assignment or the availability of the remedy of specific performances. (For completeness sake I should add that Deyaar sought to advance an argument during the hearing in the context of specific performance that the Murabaha agreement was invalid as a matter of Sharia law. This had been expressly disclaimed at the trial and I refused an application to withdraw the concession). Suffice it to add that I remained wholly unpersuaded that, if any of the points referred to above had been taken earlier, they would have been sound.
Quantum
19. Given the finding that Taaleem’s interest in Sky Gardens (together with its obligations to NBC) was transferred to Deyaar by way of novations, any issues of quantum arose only between Deyaar and NBC.
20. In their draft Form of Order, NBC put forward their claim as follows:
“3. The First Defendant’s claim against the Second Defendant for the repayment of the principal monies advanced to or on behalf of the Claimant for the purchase of the Interest in the Units, in addition to Murabaha profit and late payment charges, succeeds and in respect of which the Second Defendant shall, within 14 days, pay to the First Defendant AED 244,315,163.01, which sum is calculated as follows (see Annex B):
(a) Principal advanced to 12 April 2009 (AED 216,529,698.50) less the principal repaid by Second Defendant on 12 April 2009 (AED 42,763,351.60): AED 173,715,963.25
(b) Outstanding total Murabaha profit charges to date of judgment: AED 50,926,992.43
(c) Total late payment charges to date of judgment: AED 19,672,207.33”
21. All these figures were challenged by Deyaar as set out below:
(a) The principal advanced was said to be only AED 135,331,062 on the basis that the September 2008 instalment of AED 81,198,637 should be excluded. Further that the principal repaid by Deyaar amounted to AED 50,000,00.
(b) The total profit under the terms of the Murabaha agreement was AED 1,492,699.
(c) The total late payment charge amounted to 2% of the principal sum which on Deyaar’s case amount to AED 2,736,475.
In the result, Deyaar’s case on the net amount payable to NBC was AED 88,067,537.
22. During the course of the hearing, there was one area in which the issues narrowed. The charge for late payment arose from Article 4 of the Murabaha Agreement dated 6 July 2008:
“4. Payment of Sale Prices
4.1 The Buyer shall pay the Sale Price in accordance with Annexure 2 (Payment of Sale Price) of this Agreement on the due dates. If, however, it fails to pay on the due date, it shall be obliged to pay such amount on the next instalment date including the amount to be payable on that instalment. If it fails to pay two consecutive instalments on their due dates for any reasons, all the remaining amounts/instalments shall become due and upon receiving a written notice from the Seller, the Buyer shall be liable to pay all the remaining outstanding amounts/instalments in one bullet payment within the period mentioned in the said notice.
4.2 In addition to the Buyer’s liability under Clause 4.1, the Buyer shall also be liable to compensate the Seller for the actual loss caused to the Seller due to the Buyer’s failure to pay in accordance with Clause 3.2 and the payment schedule specified in Annexure 2. Unless otherwise determined by the competent court or arbitration or as reasonably determined by the Seller, the Parties agree that the amount of the late payment charges shall be 2% of the total amount payable by the Buyer hereunder not being paid on the due date. The Seller shall be entitled to receive the late payment charges specified in this Clause 4.2 from the Buyer and shall (after deducting its actual loss) donate (on behalf of the Buyer) the same to charities under the supervision of the Seller’s Share Board.”
23. In fact no “Annexure 2” was appended to the agreement. But it is scarcely in issue that Deyaar had failed to pay the instalments within a reasonable time. Late payment charges accordingly become due. But in the result it was agreed that NBC’s claim for a charge at 2% per annum was not justified. The claim is restricted to 2% of the amount payable.
24. As regards the amount payable, it was at least common ground that Deyaar made a payment of AED 50 million on 9 April 2009. But as noted above, it was Deyaar’s case that this constituted a payment of principal only whilst Taaleem contended that it constituted a part payment of principal in the amount of AED 42,763,351.60 the balance being profit accrued due. This dispute in effect turned on the legitimacy or otherwise of NBC’s profit claim.
25. This leaves two points. First was the repayment of the instalment of just over AED 81 million paid by NBC in September 2008 an obligation of Taaleem which has been transferred to Deyaar? I am far from satisfied that this was a matter going to quantum rather than liability. If it had been controversial the scope of Deyaar’s exposure in respect of any instalment paid in September (or thereafter) should have been teased out with the witnesses at the trial (or alternatively the point should have been expressly reserved). But in any event the short answer to the question is “Yes” as recognised in Deyaar’s letter of 21 April 2009. The purpose of the transaction was to eliminate Taaleem’s exposure to NBC for the September (and subsequent) instalments as recorded in NBC’s email of 20 October 2008. Indeed the contrary conclusion would lead to the outcome that the premium payable to Taaleem was valueless. The transaction including the transfer of any liability on the part of Taaleem to reimburse NBC for the September instalment was completed as set out in the earlier judgment. It was not conditional on completion of documentation. Even absent a formal financing agreement NBC is entitled to restitution against Deyaar on grounds of unjust enrichment since it was common ground between Deyaar and NBC that the transfer would be treated as dated (or at least fully effective) as at 31 August 2008.
26. That leaves the claim for profit charges. This is advanced at 5.5% p.a of the amount outstanding at any one time. At the hearing I understood it to be said on behalf of NBC that this rate was to be derived from the lump sum profit figure being the foundation of the profit accrued to 31 August 2008 and included within the sale price as specified in Article 3 of the Murabaha agreement even though the agreement itself did not specify a profit of 5.5% per annum as such. In this regard, NBC further relied at the hearing upon an email dated 4 June 2009 from Mr Krishnamurthy of Deyaar to NBC which appeared to confirm the correctness of calculations, based on 5.5%, as constituting “profit accruals” thereafter. It was of some note that no further explanation of the obligation to pay profit at that or indeed any rate was forthcoming during the hearing.
27. In contrast it was Deyaar’s position that the total profit was the specific lump sum profit figure of AED 1,492,698.62 to be recoverable under the Murabaha agreement and as such included in the purchase price. There was no provision for payment of any further profit, let alone at 5.5% per annum.
28. It was clear that this topic had not received adequate analysis in the skeletons for the quantum hearing and required further elaboration. In the result, with my leave, there was a further exchange of fairly lengthy written submissions served between mid-December 2014 and mid-January 2015. These I have read and am now in a position to rule on the issue.
29. The feature of much of the debate in the new submissions was a written agreement in the form of a Promise to Purchase between Taaleem (as Promisor) and NBC (as beneficiary) dated 6 July 2008 to which the draft Murabaha Agreement was attached as Schedule 2. This agreement was scarcely mentioned at the trial (or the subsequent hearing) and was not brought to my attention in the context of the profit claim.
“1. The Promisor hereby irrevocably and unconditionally undertakes to purchase the Property from the Beneficiary after the Beneficiary has acquired title to and possession of the Property. The Promisor hereby undertakes that immediately upon the receipt of the notice…from the Beneficiary of the readiness of the Property, the promisor shall forthwith purchase the property by signing the Murabaha contract (substantially in the form set out in Schedule 2…
2.1 Amount of total cost (including purchase price in the Offer of the Beneficiary); plus
2.2 Beneficiary’s promised profit calculated at 5.5 % p.a. on the amount specified in 2.1 above.”
31. It was common ground that this percentage indeed provided the basis of the profit figure in the Murabaha Agreement which was signed on 21 October 2008 (and backdated to the date of the Promise to Purchase) albeit only covering payments made by NBC up to the end of August. If it is not common ground, I so find. What remained at issue was whether profit at that rate was due on sums outstanding or advanced thereafter (not least the fourth instalment paid on 11 September 2008) or whether the profit figure albeit calculated for a specific period (namely up to the end of August 2008) was all that was due.
32. Before going further it is desirable to reflect on the nature and function of the Murabaha Agreement. The judgment of the Court of Appeal contains the following analysis:
“20. It is to be observed that the “cost price” of the Property purportedly sold by NBC to Taaleem (AED 135,331,061.50) is equivalent to the aggregate of the two amounts of 33% funding provided by NBC to ASG for part of the 5% deposits paid to First Dubai, as explained in paragraph (18) above together with the amount of AED 81,198,637 paid by NBC to ASG on 12 July 2008 in respect of the 33% share of the 15 July 2008 instalment payable by ASG to First Dubai under the Sale and Purchase Agreement (see paragraph (7) above). These amounts had been advanced to Taaleem by NBC under the transaction already described. Thus the function of the Murabaha Agreement was to record retrospectively that NBC had from 6 July 2008 placed at the disposition of Taaleem the 33% share in the Property which NBC had hitherto controlled and that NBC had advanced to Taaleem its share of the instalment payments which had been made to ASG and thence paid to First Dubai up to 31 August 2008, but to employ for this purpose the cosmetic device of a sale and purchase of the property agreement under which the amount of interest which would otherwise have been payable to NBC in respect of its loan to Taaleem could be described as “profit” on the sale and purchase.”
33. Against that background it is necessary to deal with one threshold point raised by Deyaar to the effect that since both the Promise to Purchase and the Murabaha Agreement were subject to “Dubai” law “to the extent that these laws are not inconsistent with the principles of Sharia…in which case the principles of Sharia will prevail” any obligation to pay interest in the form of an un-predetermined amount increasing with time would be invalid. Put another way, since the concept of interest was in conflict with Sharia principles, Clause 2.2 could only be read as imposing an obligation to pay the nominated sum as profit and no more.
34. As already noted Deyaar disclaimed in the liability hearing any reliance on failure to comply with Sharia law which in any event had not been pleaded. This might not preclude arguments based on Sharia law in regard to the invalidity of provisions for accruing profit but absent any plea in that respect I do not regard it as open to Deyaar to pursue such an argument. In any event I would not regard the submission as having any merit. The Murabaha Agreement is subject to DIFC law: see [para 38 to 50 of C/A judgment]. Sharia law is not a national system of law. The reference to it is no more than a reflection of the principles on which NBC acts. Furthermore it cannot “trump” the law of the jurisdiction: see Shamil Bank of Bahrein EC v. Beximco Pharmaceuticals [2004] 1 WLR 1784.
35. As I understand Deyaar’s case, no profit accrued due after 31 August 2008 on the outstanding principal and no profit ever accrued on the AED81 million payment in September 2008. To put it no more strongly, this is a surprisingly uncommercial arrangement. It would involve very substantial funds being advanced for an indefinite period free of charge. Furthermore focusing solely on the period up to the end of August 2008 the profit figure was not based on some fraction of the sum outstanding as one might expect for a lump sum one – off payment. It was based on a timed rate of 5.5% per annum. It would be an obscure arrangement that profit suddenly stops after a random period of time.
36. That said, it is correct that the Murabaha Agreement was not replaced for the period post 31 August 2008. As I understand the case of NBC it is contended that the conduct of the parties establishes that there were agreements between Deyaar and NBC post 30 August 2008 (albeit unsigned) which contained an agreement for continuation of an accrual of profit at 5.5%. In order to make good that point NBC has embarked on a somewhat exhausting analysis of the contemporary documentation, a task which I will also have to embark on although hopefully at somewhat less length.
37.But first I regard it as worthwhile repeating in outline form the legal principles in regard to the formation of a contract as set out in unchallenged form in paragraphs 77 and 78 of the liability judgment:
“1. In relation to the formation of a contract, DIFC law is similar to English law. Certain common law principles are expressly recorded in the legislation. Articles 14 to 34 of the Contract Law deal with contract creation. Thus pursuant to Article 15:
“A proposal for concluding a contract constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance.”
Likewise pursuant to Article 19:
“(1) A statement made by or other conduct of the offeree indicating assent to an offer is an acceptance…”
Article 27:
“(1) If the parties intend to conclude a contract, the fact that they intentionally leave a term to be agreed upon in further negotiations…does not prevent a contract from coming into existence.”
2. These provisions mirror closely the effect of English law. The general principles are found in the judgment of Lord Clarke JSC in RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH & Co [2010] UKSC 14; [2010] 1 WLR 753, p. 771G:
“The general principles are not in doubt. Whether there is a binding contract between the parties and, if so, upon what terms depends upon what they have agreed. It depends not upon their subjective state of mind, but upon consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations. Even if certain terms of economic or other significance to the parties have not been finalised, an objective appraisal of their words and conduct may lead to the conclusion that they did not intend agreement of such terms to be a precondition to a concluded and legally binding agreement.”
3. The Supreme Court in RTS gave specific approval to the decision in Pagnan SpA v Feed Products Ltd. [1987] 2 Lloyd’s Rep 601. There it was agreed that, although certain significant terms had not been agreed, neither party intended agreement of those terms to be a precondition to a concluded agreement.
4. The fact that parties continue to negotiate after a contract is concluded does not alter the binding nature of that agreement. RTS Flexible Systems at [49]; Chitty, §2-029. The parties may intend to go on to agree the implementation of the contract (Chitty, §2-029) or to record the terms of what has been agreed (Chitty, §2-136). Per Andrew Smith J. in Bear Stearns Bank plc v Forum Global Equity Ltd [2007] EWHC 1576 (COMM) AT [171]:
“The proper approach is, I think, to ask how a reasonable man, versed in the business, would have understood the exchanges between the parties. Nor is there any legal reason that the parties should not conclude a contract while intending later to reduce their contract to writing and expecting that the written document should contain more detailed definition of the parties’ commitment than had previously been agreed.”
5. The fact that payment is made is “a very relevant factor” in deciding whether a binding contract is made: RTS Flexible Systems at [54].
6. The test for whether a contract is concluded is objective in English law. However, even in English law, where the Court is determining the terms of a contract which is not written, the parties’ understanding of those terms is some evidence of what the terms actually are. In Carmichael v National Power [1999] 1 WLR 2042 at 2050H – 2051C, Lord Hoffman said:
“The evidence of a party as to what terms he understood to have been agreed is some evidence tending to show that those terms, in an objective sense, were agreed. Of course the tribunal may reject such evidence and conclude that the party misunderstood the effect of what was being said and done. But when both parties are agreed about what they understood their mutual obligations (or lack of them) to be, it is a strong thing to exclude their evidence from consideration. Evidence of subsequent conduct, which would be inadmissible to construe a purely written contract (see Whitworth Street Estates (Manchester) Ltd v James Miller and Partners B Ltd. [1970] A. C. 583) may be relevant on similar grounds, namely that it shows what the parties thought they had agreed. It may of course also be admissible for the same purposes as it would be if the contract had been in writing, namely to support an argument that the terms have been varied or enlarged or to found an estoppel.”
7. By similar logic, the parties’ understandings are relevant to determine: (a) whether a contract was concluded or was “subject to contract”; and (b) whether any such understanding was waived.
Determining the terms of a contract
8. The subjective intention of the parties has a place in deciding the terms of a contract under DIFC law. Article 49 of the Contract Law provides:
“Intention of the parties
(1) A contract shall be interpreted according to the common intention of the parties.
(2) If such an intention cannot be established, the contract shall be interpreted according to the meaning that reasonable persons of the same kind as the parties would give to it in the same circumstances.”
9. Under Article 50:
“Interpretation of statements and other conduct
(1) The statements and other conduct of a party shall be interpreted according to that party’s intention if the other party knew or could not have been unaware of that intention.
(2) If Article 50(1) is not applicable, such statements and other conduct shall be interpreted according to the meaning that a reasonable person of the same kind as the other party would give to it in the same circumstances.”
10. Article 51 makes clear that, in determining the terms of the contract, the Court must have regards to all the circumstances, including preliminary negotiations (Article 51(a)), the parties’ conduct after the contract is concluded (Article 51(c)) and the nature and purpose of the contract (Article 51(d)).”
38. The question that arises is whether, given the absence of an executed Murabaha agreement for the period post August 2008, there was in fact a contract on the same terms as previously between NBC and Deyaar and in particular whether it included a provision for profit payments to NBC at the rate of 5.5 % p.a. on the amount outstanding including the September instalment.
39. It is clear that Taaleem was liable for Murabaha profit on the monies advanced by NBC. It is equally clear that the profit was to be assessed at 5.5% of the sums outstanding. Such was the effect of the Promise to Purchase and confirmed by Taaleem during the course of the discussion for the transfer of Taaleem’s interest and responsibilities to Deyaar. Further the arrangement had been proposed and the contractual terms approved by Dar Al Sharia, the Sharia Consultancy engaged by NBC.
40. Notable events in the subsequent chronology were as follows:
(a) On 29 September 2008, Taaleem notified NBC of the detailed payment schedule. The e-mail from Mr Kapoor stated:
“Once we have the Wakalah charges included in this for about 50 days then we should add AED 70 million to this figure and that should be the acquisition cost of Deyaar…
Note that post 31 August 2008, one more instalment of AED 8,198,636.75 has been paid by NBC on behalf of Taaleem and Wakalah charges continue to date.”
(b) The same day an agreement for “a cost of financing rate of 5.5%” was recorded in a further e-mail from Mr Kapoor. This was to apply both pre and post 31 August.
(c) On 6 October 2008, NBC (Mr Sabhi) prepared a calculation of profit at 5.5% both up to 31 August and from then on. That profit was to be paid under the existing Murabaha to end of August and under a new Murabaha with Deyaar thereafter. This arrangement and Deyaar’s recognition of its liability to pay “a financing cost” was recognised in an e-mail from Deyaar (Sakarani) to Taaleem (Kapoor) dated 10 October 2008.
(d) The attached table included “profit” on the AED 81 million instalment from 11 September to 31 October 2008 at 5.5%. It also recorded the financing cost as at 31 August 2008 at AED 1,492,699 (which itself was based on 5.5% p.a.). Post that date Deyaar was to be responsible for financing costs having replaced Taaleem: see Mr Sakarani’s e-mail of 20 October.
(e) On 3 November 2008, there was a meeting between Deyaar and NBC. NBC’s record of that meeting stated:
“The following issues have been discussed:
The overall relation with Deyaar in regard to Sky courts project and the handover process, agreed to speed up the process and complete hand over by early next week.
Sky garden deal, agreed that a wakalah covering the period from 31 August 08 till 31 November 08 against NBC finance of Taaleem share in Sky Garden which has been purchased by Deyaar, NBC will also finance the next payment amounting to AED 81 Million due in 12 Nov which will be covered through 1 month Wakalah renewable in monthly basis, Deyaar is currently evaluating their cash flow to respond in regard to their availability to finance the project and when they can repay NBC.”
(f) On 9 November 2008 NBC (Sabhi) met with Deyaar (Krishnamurthy). The latter agreed to enter into three Murabaha agreements to cover (a) Taaleem’s liabilities up to 31 August (b) the September instalment and (c) the November instalment. It followed that Deyaar were to assume liability for repayment of principal but also profit at 5.5% until repayment.
(g) In the result on 23 February 2009, NBC (Sabhi) sent to Deyaar (Krishnamurthy) the calculation of profit amounts both due and accruing to date. The profit rate was 5.5%. Similarly on 29 March 2009 NBC (Sabhi) sent to Taaleem (Kapoor) details of the then profit calculation at a rate of 5.5% p.a.
(h) On 9 April 2009 Deyaar released AED 50 million to NBC which was treated by Deyaar as “partial repayment of the funding provided by NBC to Taaleem.” Subsequent exchanges made it plain that this represented payment of AED 42.763 million in principal and AED 7.237 million in profit to 31 December 2009.
(i) By letter dated 30 April 2009 (although possibly drawn up later in June), Taaleem sent an audit confirmation letter to Deyaar countersigned by Mr Giebel which stated inter alia:
“(1) In connection with the audit, Deyaar Development PJSC (Deyaar) would confirm to Taaleem PJSC (Taaleem) that the acquisition of Taaleem PJSC’s (Taaleem) beneficial interest in certain property at Sky Gardens Towers, located at Dubai International Financial Centre, Dubai, UAE (Sky Gardens Interest) is deemed effective on and from August 30, 2008.
(2) Taaleem and Deyaar will sign a Sale and Purchase Agreement (SPA) on 1 July 2009 with the effective date of sale and transfer of the Sky Gardens Interest being on 30 August 2008 (Effective Date). The agreed form of the SPA and the Disclosure Letter, initialled by Deyaar and Taaleem is attached as an appendix to this letter.
(3) Deyaar understands that the sale of Sky Gardens Interest will be effected by the signing of the SPA on 1 July 2009 with completion of the sale occurring pursuant to the terms of that agreement, and that the initialled agreed form of the SPA is final and subject to no further changes or amendments between the date of signing of this confirmation and 1 July 2009. Furthermore Deyaar understands that the transaction will not be reversed and all Conditions (as that term is defined in the SPA) will be met by 1 July 2009;
(4) As included in the SPA, Deyaar agrees that AED 72,141,913 (Dirhams Seventy Two Million One Hundred and Forty One Thousand Nine Hundred and Thirteen) only has been paid to Taaleem on 10 December 2008 as premium for the sale of the Sky Gardens Interest and is non-refundable;
(5) Deyaar also understands that from the Effective Date, all rights, obligations and liabilities of Taaleem related to the Sky Gardens Interest will be the responsibility of Deyaar to the extent that they have a arisen on or from the Effective Date;
(6) Deyaar also confirms that from the Effective Date any rights, obligations and liability of Taaleem under Taaleem’s Murabaha Agreements with National Bonds Corporation PJSC related to the Sky Gardens Interest will be the responsibility of Deyaar and that Deyaar shall consent to an assignment of Taaleem’s Murabaha Agreements with National Bonds Corporation PJSC to reflect the same;
(7) Deyaar also confirms that the other partners (being DIFC Investments LLC and Amlak Finance PJSC as well as Amlak Sky Gardens LLC) are aware of this acquisition. The attached Deed of Accession is being circulated to all partners for their review. Once negotiations are completed between all partners and the form of the Deed is agreed to, it will be signed by the other partners in due course.”
(j) On 4 June 2009, Deyaar (Krishnamurthy) sent an e-mail to NBC (Al Ali) identifying the “profit accruals” on the Murabaha financing by NBC. The calculations ran through to December 2009 and form the basis of NBC’s claim.
41. In short I accept NBC’s case that the parties agreed a profit of 5.5% and consistently applied it. The lump sum payment in any individual Murabaha agreement merely reflected the profit due at that rate as at the anticipated date of repayment. The absence of executed Murabaha agreements post August 2008 is no bar to the claim for profit. The parties’ communications and course of conduct demonstrates that. There is nothing inadmissible as regards that material. On any objective assessment a reasonable person would conclude that the parties had agreed on all the essential terms. The signed agreements were intended in due course to record the transaction and not as a condition to it.
Issued by:
Mark Beer
Registrar
Date of Issue: 23 March 2015
At: 4pm
