May 16, 2018 court of first instance - Orders
Claim No: CFI-027-2018
THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS
IN THE COURT OF FIRST INSTANCE
BEFORE JUSTICE SIR JEREMY COOKE
BETWEEN
(1) AMIRA C FOODS INTERNATIONAL DMCC
(2) A K GLOBAL BUSINESS FZE
Claimants
and
IDBI BANK LIMITED
ORDER WITH REASONS OF JUSTICE SIR JEREMY COOKE
UPON the Claimants’ Part 8 Claim dated 1 May 2018
AND UPON reading the Witness Statement of Mr Karan Chanana dated 29 April 2018
AND UPON accepting the undertaking given by the First Claimant in Schedule A
AND UPON hearing Counsel for the parties at a hearing held on 13 May 2018
IT IS HEREBY ORDERED THAT:
1.The Defendant shall pay the Second Claimant the sum of USD 4,134,000 within 7 days of the date of this The Defendant has liberty to apply for further time to make that payment.
2. The Defendant shall provide to Allen & Overy LLP the cheques provided to the Defendant by the First Claimant. Allen & Overy LLP shall hold the cheques to the direction of the Court.
3. The Defendant must file and serve its Statement of Case by no later than 4pm on Sunday, 10 June 2018.
4. The Claimants must file and serve their Defence by no later than 4pm on Sunday, 1 July 2018.
5. The Defendant shall pay the Claimants’ costs of the hearing, to be the subject of detailed assessment if not
6. The Defendant shall make an interim payment of AED 225,000 on account of the costs referred to in paragraph 5 of this
Issued by:
Ayesha Bin Kalban
Assistant Registrar
Date of issue: 16 May 2018
At: 4pm
SHEDULE OF REASONS
1.These are the reasons for the Ruling that I made before lunch at the hearing of the Claimant’s Part 8 application which was commenced by proceedings filed on 30 April 2018 and served on the Defendant on 1 May 2018.
2. An Acknowledgment of Service is not due until Tuesday, 15 May 2018, of this week, but the application was said to be urgent and to give rise to no genuine disputed issues of fact. Allen & Overy appeared for the Defendant Bank (the “Bank”) today having been instructed on the on 8 May 2018 and having written a letter on 9 May 2018 to the Claimants and submitted a Skeleton Argument to the Court and addressed the Court this morning, Sunday, 13 May 2018.
3. The Bank takes points as to the inappropriateness of the Part 8 procedure because of existing disputes of fact, takes points as to the status of the Second Claimant in the proceedings, as to the lack of urgency justifying the application being determined prior to the Acknowledgment of Service and the time when the Defendant would ordinarily produce evidence on the party’s application. It also challenges the basis for the orders that is sought whether on an interim or final basis.
4. There was no evidence before the Court from the Bank to say that more time is needed and why it would be needed in order to make good or any points it wish to make although it was argued that there were facts that required investigation and points were taken along the lines of those I had just set out.
5. On the evidence before me, it is clear that there is no disputed issue of fact on the central issue which lies at the core of this application, namely the failure of the Defendant Bank to pay the Second Claimant the sum of USD 4,134,000 under an Irrevocable Letter although there may be dispute as to the effect of that commitment on the facility arrangements between the First Claimant, Amira C Foods International DMCC (“Amira”), and the Bank. It is also clear that any additional time that might be given to the Bank, whether until Tuesday or thereafter, would in practice make no difference to the Bank’s ability to produce relevant evidence and argument before this Court.
6. There is said to be urgency because on 1 May 2018, the very day when the proceedings were served, the Bank presented 4 cheques given by Amira as security for indebtedness to the Bank under the facility arrangements; those 4 cheques were dishonoured but could be re-presented and there are a further 10 post-dated cheques which could also be presented; threats have made in relation to the realisation of security for the facilities which have been called in by the Bank. The Bank has refused to give any undertaking in relation to the non-presentation as it argued that it should be free to realise the security with which it was provided by the Claimants.
7. I am clear that there is a need for an order where the rights of parties are clear, and no dispute of fact arises and a need for consideration of the injunction relating to the cheques and the questions which arise in relation thereto. It is accepted I should say by Mr. Montagu- Smith QC, who appeared for the Claimants, that questions of damages which might arise from breach of the Irrevocable Letter and the assessment of loss give rise to questions which cannot be decided today, and which would have to be dealt with in some other manner following directions given by the Court.
8. The First Claimant, Amira, was established in Dubai in November 2009 and according to the evidence of the Chairman of its parent company, is now a major international producer of packaged of food and Indian basmati rice in the region. Its main clients in the middle east are Kuwait Supply Co and Kuwait Flour Mills & Bakeries Co, entities to which I shall refer to as “Kuwait Flour”, both of which entities are under the control of the government of Kuwait. Amira regularly sells Indian white basmati rice to Kuwait Flour. it receives its supplies of such rice from a company called A K Global Business, the Second Claimant, to which I shall refer to as “A K Global”. Its registered office is in the Ajman Free Zone. A K Global are dealers in commodities including rice.
9. Amira is a customer of the Defendant Bank. This is a bank with Head Quarters in India, which operates globally and has a branch registered and operating in the DIFC. The branch here provides investment banking services including corporate finance and other professional services.
10. Pursuant to a sanctions letter dated 27 May 2014, Amira and the Bank concluded a facility agreement apparently dated 11 August 2014 under which the Bank agreed to provide Amira with credit facilities up to the total of USD 8,000,000. Amira gave security in relation to those facilities by way of undated or post-dated cheques, a promissory note, guarantees and other collateral. On the evidence before the Court, the intention was that these facilities be used by Amira for transactions and it is stated by its Chairman that funds were always used within the overall limit. When necessary, Amira would request a renewal or enhancement of the facilities.
11. On 8 March 2016, there was an agreement to renew and increase the overall limit of the facilities from USD 8,000,000 to USD 10,000,000. The arrangements appeared to have a final date for repayment of the 28 February 2017. Those arrangements on the evidence appear to have been extended and continued thereafter as a revolving credit arrangement, with no final long stop date provided.
12. On 9 January 2018, Amira entered into an agreement with A K Global for the shipment of 10,000,000 metric tonnes of basmati rice. Similar contracts had been concluded in the past. The rice was to be on sold to Kuwait Flour and partial shipments were allowed, and in practice, it appears that consignments were shipped of the order of 500 metric tonnes at a time.
13. On 28 January 2018, Amira received an email from the Bank which set out a number of buyers’ credits which fell due for a repayment on the 15, 22 and 26 February 2018. The response of the First Claimant, Amira, was that the sums would be met from payments due from Kuwait Flour. The intention was that Amira would pay the supplier, A K Global, from fresh buyers’ credits issued under the facilities, but in order to progress the transaction, it was necessary for the Bank to produce an Irrevocable Letter setting out its undertaking to pay A K Global in the event of receipt of sums from Kuwait Flour and against presentation of particular documents. The plan was for the Bank to commit itself to use funds received from Kuwait Flour to repay A K Global in the sense that the sums received would go to pay off existing credits and new credit would be extended to pay the sums due to A K Global; a procedure that had been utilised previously in the context of the revolving credit.
14. It was made clear to the Bank that the Irrevocable Letter was required before shipments could be loaded under the contract with A K Global. In due course, on 11 February 2018, the Irrevocable Letter was issued by the Bank. It included the following wording:
“In the context of your proposal to facilitate payment to your supplier, A.K.A. A K Global Business FZE, against the supply made to Kuwait Flour Mills & Bakeries Co on your behalf by utilising the sanction working capital limit and out of your current account under No….. we advise that we are agreeable in principle to facilitate the said transaction and will remit funds to A K Global on receipt of funds from Kuwait Flour and on receipt of remittance instructions following to this effect with underlying documents to our satisfaction. The said remittance confirmation for the benefit of A K Global is irrevocable in nature on compliance with the above process. ……We further advise that payments against documents drawn by A K Global on Amira C Foods would irrevocably be paid upon receipt of payment from the Client to Amira C Foods this Kuwait Flour Mills keeping in view on what has been stated herein above”.
15. It is contended that by reasons of the terms of this letter, the Bank thereby irrevocably agreed to remit funds to A K Global on receipt of funds from Kuwait Flour and on receipt of remittance instructions from Amira together with underlying documents.
16. Amira forwarded the Irrevocable Letter to A K Global on 11 February so that loading of shipments of rice could commence as they apparently did. 6 shipments were loaded with a sale price to Amira of USD 4,134,000 and an on-sale price to Kuwait Flour of USD 4,194,000. On 14th February, the Bank informed Amira that it received 6 payments from Kuwait Flour of USD 699,000 each and on the same day, Amira sent the Bank 6 remittance notices in respect of the same sums totaling USD 4,194,000 for payment of existing buyers’ credits. Likewise, on the same day, Amira sent 6 remittance instructions together with supporting documents including outstanding invoices from A K Global and bills of lading. The instructions required the Bank to pay A K Global USD 4,134,000 in accordance with the terms of the Irrevocable Letter. Amira’s expected profit was therefore USD 60,000 in respect of these shipments.
17. The Bank however failed to follow the instructions and procrastinated. Despite a series of meetings and exchanges described in the evidence of Mr. Chenana, in which Amira requested payment by the Bank to A K Global in accordance with the Irrevocable Letter and asked for an extension of buyers’ credit facilities, no payments were made.
18. Mr Chenana says in paragraph 26 of his witness statement that he believed that the Bank had effectively agreed to extend the existing credit facility by signing the Irrevocable Letter. It is hard to see how in practice the letter could be anything other than an agreement to do so, although the exact terms of such extension were not spelled out. Since the payments from Kuwait Flour fell to be applied to satisfy the debts on the existing buyers’ credits, in agreeing by the Irrevocable Letter to pay Amira’s suppliers A K Global on presentation of relevant documents, the Bank could only be agreeing to grant some credit to Amira, unless it is to be said that the agreement was made to pay out with the right immediately to demand payment from Amira. Credit on some terms must implicitly, if not expressly, have been accorded. It is said that the most likely terms would be those of 60 to 90 days, as those were the terms which operated in respect of the facility arrangement previously. Such continuing Facility arrangements, Amira says, could not be brought to an end without proper and reasonable notice, regardless of whether or not 60 or 90 days’ credit was agreed.
19. It is not suggested that the Bank was not contractually bound by the letter which was addressed to Amira and the terms of Article 104 of the Contract Law of the DIFC applied directly so far as concerns the Second Claimant A K Global. Article 104 provides:
“104. Right of third party to enforce contractual term
(1) Subject to the provisions of this Law, a person who is not a party to a contract (a "third party") may in his own right enforce a term of the contract if:
(a) …
(b) subject to Article 104(2), the term purports to confer a benefit on him.”
20. There can be no doubt that, according to the evidence before this Court, a benefit was purportedly conferred by the Irrevocable Letter which was made available to A K Global and on which they relied in loading the ships and effecting shipment. The obligation was clear and express and owed to both of the Claimants.
21. The Claimants’ also submit that the Irrevocable Letter is best seen as a renewal of the facility agreement at least to the extent of paying theSecond Claimant, A K Global, in respect of the particular transaction because on its true construction, the Bank irrevocably promised to pay A K Global by using the working capital credit facility. That submission appears well founded, but whether or not that is the case, the Irrevocable Letter constituted a binding contract between Amira and the Bank to the effect that the Bank was obliged to pay out of the credit facility on the happening of 3 particular events, namely the receipt of funds from Kuwait Flour, the receipt of remittance instructions from Amira and the receipt of the underlying documents relating to the shipment.
22. Those terms were, on the evidence, complied with and so the Bank’s obligation to pay crystallised on 14 February 2018 in the sum of USD 4,134,000. Having received USD 4,194,000, there was thus some USD 60,000 in hand, if payment was made. The effect of the Bank’s failure to pay and its refusal on the 24 February, some 10 days later, to extend the buyers’ credit facilities, a refusal which was repeated subsequently on 27 February was to prevent A K Global from making further shipments under the 10,000,000 MT contract to Amira and to prevent Amira from receiving further sums from Kuwait Flour in respect of the balance of shipments which were to take place thereafter, which would have been utilized to pay off the Buyers’ Credits due for repayment on 26 February.
23. On 14 February 2018, when Kuwait Flour made the payment, no buyers’ credits were actually due. I have already referred to the dates when buyers’ credits were due for repayment as falling later in the month. It was only 3 days prior, that the irrevocable letter had been issued and the Bank had been told buyers credits falling due would be settled from Kuwait Flours’ payments. On the evidence, the sums due on 15 and 22 February 2018 to the Bank would have been and were met by the sums received from Kuwait Flour from the 6 shipments made and the sums which fell due on the 26th February would have been met from the further shipments which would have taken place if the Bank has honoured its Irrevocable Letter of 11 February. There then would have been no question of default at all if the Bank has complied with its obligations under the Irrevocable Letter. Mr. Chenana says that in those circumstances, it was clear to him, that the Bank had in effect agreed to roll over the credits at least to the extent of the amount be paid to A K Global and the letter inevitably did have the effect of extending credit to Amira at least for a short period of time.
24. The Bank’s letter of 27 February which appropriated all the existing payments by Kuwait Flour to the indebtedness of Amira to the Bank and the call for a balance to be paid of USD 2,340,000 would on that footing be completely unjustified.
25. In the circumstances, where it is clear to me that there is no conceivable basis for any defence, there is every reason for the Court to make the order for payment of the sum of USD 4,134,000 to the Second ClaimantA K Global, which I shall do. The Bank has had every opportunity to consider its position since the events of February, some 3 months ago, and its solicitors could and I am sure have, in the time available to them. fully explored the position so far as its necessary to advise the Bank of the situation as it obtains in law. It only takes a matter of hours to review the documents that have been put before the court and to consider the nature and effect of the Irrevocable Letter.
26. There may, as I say, be some room for argument as to the effect of the Irrevocable Letter on the facility arrangements, but as to the nature and binding effect of the Irrevocable Letter itself, there can be no doubt.
27. It is conceded by the Bank that the Claimants cross the threshold of a serious issue to be tried in relation to the question of the cheques. The reason for that is that the cheques, of course, were the subject of presentation in the context of what was said to be an outstanding indebtedness from Amira to the Bank. If the Irrevocable Letter has the effect contended for by Amira in the context of the facility arrangements as a whole, then the Bank’s position is extremely hard to justify; not only is there a serious issue to be tried from the perspective of the Bank looking at the Claim against it for breach of contract but a harder question to answer is whether the Bank can get across that threshold from the opposite standpoint in showing an entitlement to realise its security.
28. At all events, this means that the sole issue in relation to the injunction sought relating to the cheques is the question of balance of convenience and the question of what terms could properly be ordered in relation to such cheques. The draft order put before the Court seeks to restrain the Bank from not only presenting the cheques but also from pursuing criminal and civil proceedings in relation to them.
29. Turning first to balance of convenience, it was argued by the Bank that damages would be an adequate remedy, but I do not accept that argument. It is clear from the evidence of Mr Chenana at paragraphs 52, 53, 54, 57 and 61 that the Bank threatened to take legal action if the overdue amount stated in its letter of 22 April had not been paid by 30 April and that it wishes to retain all its rights to realise any security given in respect of the indebtedness that it claims to be due.
30. In the context of that evidence and the issues which could arise in relation to the overall question of indebtedness under the facility arrangements, the effect of the breach which there undoubtedly was in failing to pay under the Irrevocable Letter of credit, is alleged to be damage suffered by Amira in terms of loss of present and future business, business reputation, and the potential difficulty that could arise in obtaining new credit facility arrangements from another Bank, with the risk of loss of customers in the meantime.
31. The business model upon which Amira worked was being able to pay its supplier from monies received from its customers, by using the revolving facility. The failure to honour the facility agreement by the Bank resulted in loss of present and future business and risk of loss of further business with knock-on damages to reputation. All those matters will be hard to quantify. Moreover, were there to be potential criminal proceedings for dishonoured cheques, there will be difficulty in being compensated at all. As it is put at paragraph 55 of the Claimant’s Skeleton Argument, such damages cannot be seen as adequate because they are so difficult to quantify.
32. The result is that pending the determination of the issue as to what money, if any, is owing under the facilities and the effect of the breach of the Irrevocable Letter, and pending the determination of the question of damages, the balance of convenience strongly favours the granting of an injunction in relation to the realization of the cheques as security for the contested indebtedness.
33. There is no prejudice to the Bank, it appears to me in relation to the cheques, because if the Bank is entitled to call in the indebtedness then it would ultimately be able to recover monies due plus interest in exactly the same way as it would had it presented the cheques. The only prejudice is one of delay in obtaining repayment. Since the 4 cheques were dishonoured from an account which apparently had no funds to pay, it does not seem that those cheques constituted a useful means of security in any event.
34. The Claimants’ make further points on the balance of convenience which all go to the conduct of the Bank. It is said that the Bank has acted in a commercially unacceptable way:
34.1 In not paying out on the Irrevocable Letter without any explanation, in receiving monies from Kuwait Flour on the basis of the Irrevocable Letter (since without it the transaction would not have not taken place at all) and then appropriating that money against the indebtedness of Amira without fulfilling its ongoing obligations to Amira and on a third party basis to A K Global.
34.2 It has moreover refused to provide the Claimant with interest calculations and bank statements for the very accounts in respect of which interest is demanded and where interest has actually been paid by the Claimants with reservation as to the appropriateness of the Bank’s calculation.
34.3 Moreover, the 4 cheques which were presented for payment were presented on the very day when the Claim Form was served. This Court has no evidence before it to the exact timing of receipt of Service of the Claim Form and the exact timing of presentation, but the Bank had not given the Court any information on that score.
35. I consider those matters to be relevant in the context of the injunction to be granted, and the cross undertaking which is offered by the Claimants in respect of any damages which might be suffered as a result of it being shown later that the injunction should not have been granted. If I were to require fortification for the cross undertaking, that might undermine the very purpose of the injunction and in the circumstances, I do not consider it necessary or appropriate.
36. I turn then to the question of jurisdiction to make the order sought in relation to proceedings on the cheques. I am clear, both as a result of the decision of H.E. Justice Omar Al Muhairi and as a matter of principle in any event, that this Court has no jurisdiction to make orders relating to criminal proceedings nor to restrain a party from instituting such proceedings. I also consider that it is not right in the circumstances to restrain the Bank from taking other proceedings as such, but the obvious and correct place for any claim to be made on the cheques is this court in the context of the current proceedings.
37. Given, however, the views that I have formed, it seems to be entirely right that I should order that the cheques, both those which have been presented and dishonoured and those which have not yet been presented should all be held by the Defendant’s solicitors to the Order of the Court pending resolution of the disputes which will need to be resolved relating both to the indebtedness of Amira to the Bank in the context of the facility agreement and the resolution of Amira’s claim for damages for breach of the Irrevocable Letter which I have found to be established under Part 8.
