June 22, 2023 COURT OF FIRST INSTANCE - ORDERS
Claim No. CFI 033/2022
THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS
IN THE COURT OF FIRST INSTANCE
BETWEEN
(1) WESTFORD TRADE SERVICES DMCC
(2) WESTFORD TRADE SERVICES (UK) LTD
Claimants
and
DUBAI INSURANCE CO PSC
Defendant
REASONS FOR THE ORDER OF H.E. JUSTICE SHAMLAN AL SAWALEHI DATED 13 JUNE 2023
1. The Court’s discretionary case management powers, including the powers to stay (Rule 4.2(6) of the Rules of the DIFC Courts (the “RDC”)) and consolidate proceedings (RDC 4.2(7), are to be exercised in furtherance of the overriding objective under the RDC to deal with cases justly (RDC 1.6). That includes, so far as practicable, “saving expense” (RDC 1.6(2)), “ensuring that [the case] is dealt with expeditiously and fairly” (RDC 1.6(4) and “allotting to it an appropriate share of the Court’s resources, while taking into account the need to allot resources to other cases” (RDC 1.6(5)).
2. What follows are the reasons for my order of 13 June 2023 by which I refused to exercise the Court’s case management power to stay Claim No. CFI-060-2022 (“Claim 2”) and exercised those powers to consolidate Claim No. CFI-033-2022 (“Claim 1”) and Claim 2.
3. The Claimants objected to consolidation of Claims 1 and 2 for the “practical reason” that it would lead to unnecessary effort and cost for the parties in circumstances where, even if judgment was granted in favour of the Claimant in Claim 2 (“Westford UK”), “there is no prospect of that claim being enforced in the foreseeable future.” Enforcement will only be permissible if and when anti-Russian sanctions are lifted. This is because the loss payee, named in the policy under which these claims are made (the “Policy”), in respect of Westford UK’s claim is Bank GPB International SA (“BGIS”), a Luxembourg company which is a subsidiary of Gazprombank, a major Russian bank. BGIS is an entity which is subject to US, EU and UK sanctions. Accordingly, it is common ground that if Westford UK were to obtain a judgment against the Defendant in its claim, any steps taken to enforce that judgment in favour of BGIS would violate sanctions.
4. The Claimants contended that it is particularly unfair for Westford UK to be compelled to pursue at its own expense a claim in which it has no financial interest, because all the proceeds are payable to BGIS, and which it only commenced to avoid the claim becoming time-barred. Moreover, the Defendant has intimated an application for an order for security for costs against Westford UK, which if granted would require it to put up security for the claim. It was contended that it would be disproportionate for the Court to force Westford UK to litigate if a solution could be found which addresses the Defendant’s concerns, explained below.
5. Further, in respect to the claims of the Claimant in Claim 1 (“Westford DMCC”), the party which is both the funder of the claims and the loss payee (“Whiteoak”), the Court was informed, has its own concerns about being seen to be associated to an action which appears to be brought for the benefit of a sanctioned party, BGIS.
6. The Claimants conceded that there appears to be no legal objection to matters progressing as far as the DIFC Courts entering judgment in favour of a sanctioned party. This is on account of a recent judgment of 25 January 2023, PJSC National Bank Trust v Mints [2023] EWHC 2118 (Comm), in which the English Commercial Court has held that it is not a breach of sanctions for the court to enter judgment in favour of a sanctioned party. Further, the payment by a sanctioned party of its own lawyers’ fees and adverse costs orders in favour of the other party can be the subject of a licence granted by the relevant government entity (which in England is the Office of Financial Sanctions Implementation or OFSI). The difficulty arises at the point of enforcement of a judgment. But it was said that there is a considerable reputational risk to the Whiteoak group, which is pre-dominantly based in the US (Whiteoak itself being incorporated in the Cayman Islands), given the current geopolitical tensions between the US and Russia.
7. Both claims relate to the Defendant’s decision to decline cover under a single insurance policy, namely the Policy. The Claimants are related corporate entities and were designated joint insureds for the purposes of their exposure to non-payment from a designated single-buyer (“Phoenix”) and both claims relate to very similar alleged trades with Phoenix.
8. Claims 1 and 2 have considerable overlap in terms of subject matter and legal issues. It has been conceded by the Claimants’ legal representative that “aside from the different loss payees and ultimate beneficiaries of any insurance payment, … there is a very significant degree of overlap between the issues raised in the two sets of proceedings” ([17] of the Fourth Witness Statement of Mr Johm Barlow (“JB4”)) and that “[i]n normal circumstances, the claims would have been brought in a single action” ([19] of JB4). Indeed, at [3] of Westford UK’s Reply in Claim 2 it is stated that “The Reply advanced on behalf of the Claimant is intended to rely upon materially the same matters as those relied upon by [Westford] DMCC in its Reply in [Claim 1]. Any differences are matters of drafting only and are not intended to indicate that the Claimant is advancing different arguments from [Westford] DMCC.”
9. Unsurprisingly, there is overlap in terms of the personnel involved in the claims also. For example, the same person has signed the statement of truth for the particulars of claim in both Claims 1 and 2, namely each claimants’ CEO, Ms Hande Elmener, who will presumably be a factual witness in each claim, and the Defendant says it will rely on the same factual witnesses, two if its underwriters, in each claim.
10. The Defendant argued that, unless Claims 1 and 2 were managed and heard together, there would be a risk of inconsistent judgments, prejudice to the Defendant and a waste of court and party time and costs if the two claims are not managed and heard together. I agree.
11. One aspect of the Defendant’s defence to both Claims 1 and 2 is that it has no contractual obligation to provide cover under the Policy, not only because of alleged breaches of the Policy by the claimant in the respective claim, but also because of alleged breaches by the non-claimant joint insured i.e. Westford Trade Services (UK) Limited (“Westford UK”) in Claim 1 and Westford Trade Services DMCC (“Westford DMCC”) in Claim 2.
12. The Defendant submitted that, unless Claims 1 and 2 are heard together, the trial judge in Claim 1 will not have the full picture and the Defendant might find itself unable to avail itself of Westford UK’s alleged breaches of the Policy.
13. In my judgment, this is a justified concern because disclosure in respect of Claim 2 has not yet been given and, if there is no consolidation and instead a stay of Claim 2, it would not occur prior to the determination of Claim 1. Accordingly, important aspects of Westford UK’s conduct may fall for determination in Claim 1, but on an evidential basis which may have changed by the time of Claim 2.
14. The Claimants have two main responses to these concerns. First, the Claimants say that the Defendant has not identified any particular conduct specific to Westford UK upon which it wishes to rely. Second, Westford UK offered an undertaking to be bound by any findings of the Court against it made in Claim 1. This means that the Defendant would not be forced to relitigate the same issues against Westford UK in Claim 2 and the Defendant could simply rely upon the judgment as against Westford DMCC.
15. Taking the first response first, at [48A] of the Defendant’s Amended Defence, filed on 14 April 2023, it is stated:
“As is evident from the Defendant’s Defence in the UK Ltd Proceedings, which is appended hereto, the Defendant contends (amongst other things) that UK Limited has breached its obligations under the Policy in various respects, and that the Policy is void. Accordingly, and without prejudice to the contents of this Amended Defence, pursuant to Clause A.2 (Joint Insureds), the Defendant is entitled to rely upon, and does rely upon, the various breaches of UK Ltd in support of its case that the Claimant is not entitled to payment under the Policy.”
When [48A] is read in conjunction with the Defendant’s Defence in Claim 2, I think it is clear that the Defendant has identified particular conduct specific to Westford UK upon which it wishes to rely (see [73] to [77] of the Defence in Claim 2 in particular). There are further examples in the Amended Defence in Claim 1 itself which the Defendant’s counsel took the Court to at the hearing.
16. As to the second response, while I think the offer of that undertaking goes a long way to offsetting the risk of prejudice to the Defendant, I do not think it goes quite far enough. There is a possibility, for instance, that Westford DMCC may be found to have an entitlement to an indemnity in Claim 1, but when Claim 2 comes to be adjudicated and following disclosure in that claim, the Court takes the view that Westford UK itself breached the Policy in such a manner which disentitled Westford DMCC from an indemnity, even though Westford DMCC had already succeeded in obtaining the relief sought in Claim 1.
17. At the hearing of the applications, the Defendant’s counsel took the Court to the Defendant’s request to Westford DMCC in Claim 1 for the production of documents in an attempt to demonstrate the inadequacy of the undertaking offered by Westford UK. In row 17, the Defendant had requested certain documents between Westford UK or its lawyers and Phoenix’s liquidator. The reasons given by the Defendant for this request included the following:
“It has consistently been D’s position that C’s claim and Westford UK’s claims should be managed and tried together and that Westford UK’s claims are relevant to these proceedings for (amongst others) the following reasons: (a) C and Westford [UK] are joint insureds under the Policy, meaning that if there was a breach by one Westford entity under the Policy that would impact the rights of the other.”
Westford DMCC objected to this request. Its reasons included the following: “C objects to this Request on the grounds of lack of sufficient relevance or materiality. Westford UK are also not a party to these proceedings and these proceedings do not concern claims in respect of sales contracts 11893 and 11894” i.e. the claims in Claim 2. Similar objections to requests are found in rows 18 and 19 also.
18. The Claimants’ counsel dismissed this point of the Defendant’s on the basis that the Defendant’s position in relation to the disclosure is “entirely speculative.” In my judgment, whether any of the Defendant’s requests to produce are founded is a question for another day. What is clear now, in my view, is that, as a consequence of clause A.2 of the Policy, any breaches of the Policy by Westford UK may be relevant and material to the Defendant’s case in Claim 1 and the Defendant should not without very good reason be stifled from making it.
19. Moreover, it would not be ideal for those persons giving evidence as to what happened in respect of alleged trades in rice involving Westford DMCC and Westford UK and Phoenix to prepare and be examined upon essentially the same evidence twice, nor for those giving evidence as to the underwriting of the Policy to prepare and be examined upon the same underwriting exercise twice. And there is nothing to be gained from legal teams being required to prepare and argue the claim once and then, in all likelihood given the passage of time before a second trial is listed, refresh themselves regarding the case and then argue, to all intents and purposes, a second time.
20. Nor would it be a good thing if two trial judges are required to read into and determine each set of proceedings on account of the additional allocation of time and expenses that this will require from the Court. Where the claims overlap to the extent these claims do, with their very similar sets of trades between the same trading entities, in my judgment this is a very powerful factor in favour of the claims being determined together.
21. As to Whiteoak’s concerns about being seen to be associated with BGIS, in my judgment this consideration is too remote. The loss payees under the Policy are not parties to either set of proceedings. Moreover, it is not clear how or why Whiteoak’s association with this case, clearly in furtherance of its legitimate and independent interests, should or would cause it to suffer reputational damage in the circumstances. The conduct of the Court and the parties surely cannot be subject to vague concerns about the disapprovals of unknown persons on unclear bases.
22. As to the lack of prospect of Westford UK being able to enforce any judgment it might obtain against the Defendant in the foreseeable future and the fact that Westford UK will have to pursue a claim at its own expense which it says it has no financial interest in, all of this is of course unfortunate. But I do not think these factors outweigh the considerations discussed above in these reasons. These factors may justify Westford UK adopting a different course in respect to its claims or continuing to try to find a solution which addresses the Defendant’s concerns, but I do not think they should be the cause of Claims 1 and 2 being separated without the parties’ agreement. The potential inconvenience to Westford UK if Claims 1 and 2 are decided together can be and is acknowledged. However, that potential inconvenience is outweighed, in my judgment, by the potential inconvenience to the Court, the Defendant and the witnesses if they are not.
23. Another consideration might have been the risk of having to vacate the trial of Claim 1. However, the parties have now agreed to vacate the trial. In circumstances where Claim 1 is not ready for trial, in my view it will be a relatively straightforward exercise to jointly manage the two claims and have them heard together as soon as reasonably practicable. Any delay in the determination of Claim 1 will be modest and would not outweigh the benefits of having the two Claims determined together.
24. In the Registrar’s Direction No. 2 of 2014 on Consolidation of Applications/Cases before the DIFC Courts (‘RD 2/2014’), it is stated that the Court may order consolidation/joinder “on such terms as it thinks just” wherever:
“two or more … cases are pending before the Court, if it appears to the Court:
(i) that some common questions of law or fact arise in both or all of them; or
(ii) that the rights to relief claimed therein are in respect of or arise out of the same transaction or series of transactions; or
(iii) that for some reason it is desirable to make such an Order.”
In my judgment, each of these conditions is satisfied. (i) and (ii) are not in dispute and it is desirable, in my view, that Claims 1 and 2 be consolidated for the reasons explained above. The same reasons militate against a stay of Claim 2. Alternatively, I do not think there is a “powerful reason” to stay Claim 2 (see Athena Capital Fund SICAV-FIS SCA & ors v Secretariat of State for the Holy See [2022] EWCA Civ 1051 at [59]).
25. For the foregoing reasons, in my judgment expenses would be saved, the cases would be dealt with expeditiously and fairly and the Court’s resources appropriately allotted if Claims 1 and 2 were consolidate and Claim 2 was not stayed, and so I exercised my discretion accordingly.
Issued by:
Delvin Sumo
Assistant Registrar
Date of issue: 22 June 2023
At: 10am