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Claim No. CFI 041/2021

IN THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS

IN THE COURT OF FIRST INSTANCE

BETWEEN

(1) ABRAAJ INVESTMENT MANAGEMENT LIMITED (IN OFFICIAL LIQUIDATION)
(2) ABRAAJ CAPITAL LIMITED (IN OFFICIAL LIQUIDATION)

Claimants/Applicants

and

(1) KPMG LOWER GULF LIMITED
(2) KPMG (a firm)
(3) KPMG LLP

Defendants/Respondents

REASONS FOR THE ORDER OF JUSTICE WAYNE MARTIN DATED 8 SEPTEMBER 2023

1. On 8 September 2023, after hearing argument and providing ex tempore reasons, I made orders lifting a stay of proceedings which had been imposed by an order made by consent on 18 January 2022, and made consequential directions for the future conduct of the proceedings.

2. As an application has been made for permission to appeal from those orders, I am publishing my reasons for the orders made, which are an edited version of the transcript of the reasons given orally. No changes have been made to the substance ORDR-4999451123-1935 of the reasons given orally, although one significant error in the transcript has been rectified¹.

3. This is an application to lift a stay that was made by consent of the parties in circumstances which I will describe shortly. The procedural history of the proceedings in this court and in the onshore courts of Dubai are of some significance to the issues that must be resolved and so I will commence by referring briefly to that procedural history.

4. The proceedings were commenced in this Court on 29 March 2021 when two applicants issued a claim against three respondents, alleging systemic failures in the audits by those respondents of the two applicant companies, suggesting that very substantial losses, estimated at around $600 million, were caused. There is a dispute between the parties as to whether the second respondent exists. The First Claimant has a claim against the First Respondent and the Second Claimant has a claim against the Third Respondent.

5. The parties accept that the claim by the Second Claimant against the Third Respondent is clearly within the jurisdiction of this Court, but there was an objection to the jurisdiction of this Court to entertain the claim by the First Claimant against the First Respondent. That objection to jurisdiction was eventually heard and determined by me in November 2021 when I ruled that this Court did have jurisdiction.

6. In the course of that ruling, I expressed the view that it was desirable for that claim and the claim by the Second Applicant against the Third Respondent to be heard together because of the interconnection between those claims. An application for permission to appeal was brought in respect of that decision. That application is still pending because of the stay to which I will refer.

7. In the meantime, on 18 April 2021, a few weeks after proceedings had been commenced in this Court, the First Defendant in these proceedings issued a claim against the First Claimant in these proceedings in the onshore Courts of Dubai. In the onshore proceedings the First Defendant in these proceedings seeks declarations to the effect that the audits which were conducted by the First Defendant in these proceedings were carried out without any fault and also claims compensation against the First Claimant in these proceedings for repetition of allegations made in the claim in these proceedings.

8. Shortly after the proceedings were commenced in the onshore Court, on 26 April 2021 the First Defendant in these proceedings, which is the claimant in the onshore proceedings, issued a petition to the JJC, seeking an order that the onshore Dubai Court was the competent court to hear the dispute between the First Defendant in these proceedings and the First Claimant in these proceedings. The petition also sought an interim stay of both the proceedings in this Court and in the onshore Court pending the determination of the petition.

9. Hearings took place before the case management officer in the onshore Court. There were issues with respect to the provision of notarised powers of attorney in relation to the representation of the First Claimant in these proceedings

10. In May 2021, a hearing was held in the onshore Court at which the First Claimant in these proceedings was not represented because it had not presented to that Court a notarised power of attorney authorising its legal representatives. At that hearing, the onshore Dubai Court declared the close of the proceedings.

11. The First Claimant in these proceedings applied to reopen the proceedings in the onshore Court after filing a notarised power of attorney authorising its legal representatives. Then another hearing took place in the onshore Court on 30 June 2021. At that hearing, it seems that the application to reopen the onshore proceedings was not considered. However, the Court appointed an expert to assess the underlying evidence relating to the claims and directed the expert to file a report to the Court.

12. On 12 July 2021, after the case in the onshore Court had been procedurally reopened, the First Claimant in these proceedings lodged an objection to the jurisdiction of the onshore Court. Various requests were made to the onshore Court to consider the challenge to its jurisdiction. In the result, the onshore Court determined that the challenge to jurisdiction would not be dealt with until the expert's report was submitted.

13. The expert's report was submitted to the Court on 19 September 2021. Then on the application of the First Defendant in these proceedings, the onshore Court granted a stay of the onshore proceedings.

14. As already noted, in November 2021, I decided that this Court has jurisdiction to entertain all the claims in these proceedings, and permission to appeal from that decision was sought. There were then negotiations between the parties, which led to the stay order being made by consent on 18 January 2022 (the “Consent Order” or “Order”). I will refer later to the evidence of the negotiations that resulted in that Order

15. The terms of the Order made by consent are of some significance to the arguments presented today.

16. There were four provisions in the Order. They are:

17. As I have noted above, the application to the JJC was lodged on 26 April 2021. Despite a provision in the Decree establishing the JJC requiring applications to be determined within 30 days of the application being made, the application still has not been decided. Despite repeated enquiry, there is no indication as to when the application to the JJC might be decided, if ever.

18. It is an inauspicious fact that no rulings have been issued by the JJC since March of 2021. If the JJC is still functioning - a matter which we simply do not know - it has not made a decision which has been published for approximately two and a half years. It is a fair inference, which I draw from this undisputed fact, that there is a significant backlog of applications to the JJC, of which this application is likely to be a part.

19. All that can be said at this stage on this topic is that there has been very substantial delay in the JJC deciding the application relating to these proceedings - a delay of more than two years since the application was made. It is not known when or if the application will be determined by the JJC.

20. The application to lift the stay which was ordered by consent relies upon three sources of power. The first is RDC 4.7, which provides:

"A power of the Court under these Rules to make an order includes a power to vary or revoke the order."

21. The second source of power relied upon is the express reservation of liberty to apply in the fourth paragraph of the Order.

22. The third source of power relied upon is the inherent jurisdiction of the Court with respect to the regulation of its proceedings.

23. I made observations with respect to the nature of an order for an interim stay in Credit Suisse AG v Emirates Hospitals Group 2021 CFI 060. I observed that:

"An interim stay is, of its nature, temporary, and irrespective of RDC 4.7, necessarily includes the power to lift the stay. The power to lift a stay will be exercised in the interests of justice, without constraints imposed by presumptions or onerous conditions which must be satisfied before the power can be exercised. Further, a stay is an example of a continuing order which the exigencies of case management may require to be reviewed as the case unfolds. The review of a stay will not therefore necessarily be conditioned upon the occurrence of a material change in circumstances."

24. The First Defendant submits that this case is distinguishable from Credit Suisse because order 1 of the stay imposed the stay for a specific period - that is, until a decision of the JJC. I do not think that circumstance alters the character of an interim stay order - whether it is indefinite - until further order, or for a particular period, it is an interim stay rather than a permanent stay. I consider that the observations which I made in Credit Suisse apply to interim stays of all kinds, including for a fixed period or for an indefinite period. It is in the nature of an interim stay that it falls to be reviewed from time to time, depending upon the circumstances as then exist.

25. In any event, in this case power for the Court to review the Order on the application of a party was expressly reserved in the fourth order made by consent. That order provides:

"The parties shall have liberty to apply as to the implementation and timing of the terms of this Order."

26. The current application is not concerned with the implementation of the Order, but it is concerned with the timing of the terms of the Order. The previous three orders all have a temporal component. The first order is to operate until there is a final determination by the Committee. The second order is to operate for as long as the first order operates. The third order is to operate for a period of 21 days from the lifting of the stay.

27. In my view, the word "timing" in the fourth order of the stay order must relate to the times imposed by the first three orders. I cannot see any reason to read down the word "timing" to not extend to all the times imposed in those three orders. In my view, there is an express reservation of liberty to apply in respect of the times for which the previous three orders operate.

28. That conclusion goes a long way to blunting the principal argument that was advanced in opposition to the exercise of the power to lift the stay. That argument is that if the court lifts the stay, it will in effect be assisting the First Claimant to breach a contract which is embodied in the Consent Order.

29. If one accepts, as I do, that the Consent Order contained within its own terms an opportunity for review of the Order, it follows that any contract to make an order in those terms will not be breached by the exercise of the power that is contained within it.

30. It is also significant that the Order was made in a context in which the parties should be taken to have been aware of the provisions of RDC 4.7 and of the inherent power of the court to lift a stay in the interests of justice, to which I have referred.

31. It is not suggested that there is any term of the contract which specifically prohibits or precludes a party from invoking the Court's exercise of those powers. The only provision of the contract relied upon is the provision in Order 1 to the effect that the stay will remain in force until the determination of the JJC. But if the term of the stay is subject to either RDC 4.7 or the inherent power of the Court to review the stay or, as I have found, the express reservation of liberty to apply to review the time of the stay, then it follows that the fact that there is a finite period expressed for the operation of the stay in Order 1 does not prevent those other powers being exercised.

32. Because of that view of the nature of the agreement which resulted in the Consent Order, it is probably unnecessary to go in any detail into the very interesting arguments that were presented to me by both counsel in relation to the principles governing the circumstances in which the Court can or should exercise the power to vary what was an agreed position by the parties.

33. It is not put by the First Defendant that there is no power to vary a procedural contract, rather it is put that the fact that there was an agreement between the parties is a very significant matter which should induce the Court to be slow to alter an agreement solemnly reached by the parties.

34. The cases to which I was referred on this subject seem to establish that there is a distinction drawn between what is, in effect, a procedural accommodation between the parties on the one hand and a real settlement or compromise of a disputed issue between the parties on the other. Because any contract that was entered into, in my view, expressly accommodates the application which is now being made, it is unnecessary to attempt to apply that distinction to the circumstances of this case.

35. However, had it been necessary for me to classify this Consent Order in that classification regime, I would have put it in the category of case in which there has simply been a procedural accommodation between the parties, rather than a real settlement or compromise of a dispute.

36. The First Defendant submits that the agreement for the Consent Order compromised the issue of whether Decree 19, which created the JJC, mandated a stay in the circumstances of this case.

37. I do not accept that submission, which does not appear to me to be supported by anything within the terms of the Order or within the correspondence which preceded it. To the contrary, in that correspondence the First Claimant expressly asserted that a stay was not required because there was no conflict in the decisions of the two Courts with respect to jurisdiction. The First Claimant has never resiled from that position and indeed maintains that position in support of this application. In those circumstances, it is not possible to conclude that there was any compromise of that issue merely by the issuing of a consent to a stay in the terms that were ordered.

38. The First Claimant’s application is brought on the basis that the interests of justice require the lifting of the stay, given the unconscionable delay which the stay has occasioned since it was granted in January of 2022. That application is bolstered by the prejudice which both Claimants say they will suffer by being kept out of their claim, which carries with it a risk of assets being dissipated or appropriated by other creditors the longer it takes for their claims to be resolved, and the risk of jeopardy to the trial process through the degradation of evidence over time through the loss of documents, or access to witnesses, or the lapse of memory.

39. These assertions are plausible and are supported by evidence. It is well established in other contexts, for example, in the context of cases relating to striking out claims for want of prosecution, that there is a presumption that significant delay impedes and diminishes judicial processes and that presumption applies without the need for evidence. It is clear that prejudice in being kept out of a very substantial claim, a claim of more than USD 600 million, for a lengthy period is prejudice in itself.

40. The First Defendant submits, rightly, that these proceedings have a long way to go. It is submitted that some more delay in that context is not inordinate.

41. I do not accept that submission. The delay which has already been occasioned by reason of the stay has been the source of prejudice; that prejudice will be exacerbated the longer that delay goes on. In my view, the sooner these proceedings are put back on the rails the better, provided of course there is no impediment to that course by reason of the existence of a conflict of jurisdiction.

42. The inordinate delay, which has already been experienced and the prospect of further indefinite delay for an unpredictable period creates a powerful argument that the interests of justice require this Gordian knot to be severed. Even if I had come to a contrary view to the effect that this was one of those cases in which the parties had compromised their dispute by the making of a consent order, I would, nevertheless, have considered that this is one of those possibly rare cases in which the Court would be justified in varying the agreement between the parties in the interests of justice. Put another way, the injustice that has been occasioned by the delay to date and which would be occasioned if this delay were allowed to continue indefinitely, is profound and would justify the course of interfering with the parties' bargain.

43. The First Defendant submits that the evidence fails to establish that the Claimants expected a prompt decision from the JJC. I do not accept that submission, which seems to me to be contrary to the evidence.

44. The evidence of Ms Kitt, a partner in the law firm representing the Claimants, at paragraphs 29 and 30 of her witness statement, is to the effect that the Claimants believed that there would be a decision from the JJC within a reasonable period. That belief was sustained by enquiries which had been made by their legal representative, Mr Bajamal, who states in his witness statement that in the period of weeks prior to the Consent Order being agreed to, he attended upon the Registrar of the JJC and was advised by the Registrar that the application had been considered but not determined and that the Registrar expected that the application would be determined at the next meeting of the JJC, although it was not clear when that meeting would be held.

45. That evidence provides a sound basis for a belief that there would not be protracted and inordinate delay in the determination of the application to the JJC. Senior counsel for the First Defendant makes the point that there had already been delay by the time the Consent Order was made but that is a fact that cuts both ways. The fact that there had already been substantial delay might have occasioned the belief or perhaps reinforced the evidence of Mr Bajamal to the effect that the delay had induced a belief that the application had reached the point at which it was approaching determination.

46. I do not accept that the First Claimant was not entitled to believe that the application to the JJC would be determined in a timely way.

47. These conclusions leave for substantive determination the question of whether I can lift the stay, given that for all the reasons I have enunciated, it seems to me to be very much in the interests of justice to do so if there is no impediment to that course. That question turns upon whether there is a conflict of jurisdiction within the terms of Decree 19.

48. In that context, the First Defendant submits that the onshore Dubai Court assumes jurisdiction when it takes any positive step towards determining the merits of the case, even if there is an undetermined objection to jurisdiction. The First Defendant further submits that this proposition is consistent with the ruling in Lakhan v Lamia [2021] DIFC CA 001/2021 to the effect that something less than final judgment on the merits will suffice to give rise to a conflict. It is the invariable practice, it is further said, of the onshore Dubai Court to not rule on jurisdiction until its final determination on the merits. It is submitted that there must be some point at which a conflict can arise prior to determination of the objection as to jurisdiction.

49. The last submission rather overstates the evidence with respect to the practices of the Dubai Court. I do not think the evidence sustains the conclusion that it is the invariable practice of the onshore Dubai Courts to never determine objections to jurisdiction prior to final judgment. Counsel for the Claimants has pointed to a case where such a determination was made in the course of the running of the case and I have come across cases in which that has occurred.

50. The true position seems to be that the practice in the Dubai Courts varies in this respect. Sometimes the objection to jurisdiction will be reserved for determination at the same time as the determination on the merits. Other times the objection to jurisdiction will be determined in the course of running the case.

51. It is further submitted that the onshore Dubai Court's stay presumes that it has determined that it is exercising jurisdiction. That submission is not supported by the evidence and in particular the evidence of the terms of the Court's decision - conceding of course that we must rely upon an interpretation of what was decided.

52. The interpretation that is in evidence is to the effect that the stay of the Dubai Courts was based upon its conclusion that neither that Court nor this Court had renounced jurisdiction. That, I think, is quite a different thing to a determination that the Dubai Court had determined to exercise jurisdiction in a context in which that Court has specifically refrained from determining the objection to jurisdiction.

53. It is a fair inference that the onshore Dubai Court that determined the application for a stay took a different view as to the construction of the Decree from that which has been taken in this Court since the decision in Lakhan v Lamia. Since that decision this Court has made it clear that there must be positive decisions of each Court or at least positive exercises of jurisdiction by each Court before there can be a conflict of the kind that requires a stay under the terms of the Decree.

54. The question then is, in the particular circumstances of this case, is there a conflict of jurisdiction? I was taken through the authorities on this topic very helpfully by counsel for both parties.

55. The decision that changed practice in this area is the decision in Lakhan v Lamia, which expressly left open the question of just what was required to give rise to a conflict of jurisdiction and, in particular, whether each Court had to specifically make an express ruling as to its jurisdiction in order to give rise to a conflict or whether something less, such as the exercise of jurisdiction could create a conflict. Since that decision, there has not been any authoritative decision of the Court of Appeal resolving that issue, although there is one decision of the Court of Appeal on an application for permission to appeal to which I will refer.

56. There seem to be different views taken by different judges at first instance on this issue, although for reasons I will give, no view expressed at first instance would support the conclusion that there is a conflict of jurisdiction in this case.

57. In two decisions of Justice Sir Jeremy Cooke, he has taken the view that an express decision on jurisdiction of each Court is required before there can be a conflict. Those two decisions are the decisions in DIFC Investments v Dubai Islamic Bank, DIFC CFI 024/2022 and Mashreqbank PSC v Infinite Partners Investments LLC CFI 063/2020 at paragraphs 16 and 17. Of course that approach would lead to the conclusion that there is no conflict in this case, as the onshore Court has not determined that it has jurisdiction, and has not resolved the objection to its jurisdiction.

58. I have not adopted that view. I have taken a more fact-specific or fact-dependent approach to the question. I have taken the approach that one must look at the individual facts and circumstances of the case and then ascertain whether the mischief which the Decree can be seen to have tried to avoid in terms of either inconsistent judgments or waste of cost and expense by the same issue being tried in both Courts at the same time would be advanced if there was a stay. That is the view I expressed in Five Holding Limited v Orient UNB Takaful PJSC [2021] DIFC CFI 027 and 028 (4 August 2021), Credit Suisse AG v Emirates Hospital Group [2020] DIFC CFI 060 (9 August 2021) and in Laasya v Labuki, referred to below. In the approach which I take to these issues much depends upon the particular facts and circumstances of the case.

59. In this approach, there are no bright lines that indicate which side of the line a particular case will fall. Perhaps that proposition is best illustrated by the decision reported in the Court of Appeal as Laasya v Labuki DIFC CFI 083/2022. In that case there was no doubt that this Court was exercising jurisdiction but the question that determined whether there was a conflict was whether the onshore Courts of Dubai were exercising jurisdiction. In those courts proceedings had been commenced, an objection to jurisdiction had been made but then without determining the objection to jurisdiction, the Court dismissed the claim on the merits.

60. I took the view that because there had been no occasion for the onshore Court to determine whether or not to exercise jurisdiction because it had decided that even if it had jurisdiction, it would not exercise it because the claim would be dismissed, there was no conflict of a kind that enlivened the mischief to which the Decree was directed, as to all intents and purposes the proceedings in the onshore Courts of Dubai were concluded.

61. An application for permission to appeal from that decision was made to the Court of Appeal. That application was dismissed. The Court of Appeal expressed the view that my reasoning was appropriate and there had not been any conflict because there had not been an occasion upon which conflicting decisions might have been made.

62. In the circumstances of this case, the observation made by the Court of Appeal in paragraph 35 in Lakhan seem to me to be particularly pertinent. They were to the effect that before a conflict can arise, “there must be an occasion for the court to decide to waive or not waive jurisdiction..."

63. There is no doubt at all that this Court has decided to exercise jurisdiction, subject of course to the application for permission to appeal, so that circumstance may change. But as things stand at the moment, this Court is proceeding to exercise jurisdiction. The question, therefore, is whether there has been action on the part of the onshore Court of Dubai which gives rise to a conflict in jurisdiction. The timeline that I set out earlier is, I think, of particular significance in that regard because the step upon which great reliance is placed by the defendant is the step to appoint an expert to produce a report to the Court.

64. That step was taken before the case had been reopened and therefore before the Claimant in those proceedings had been given an opportunity to lodge the notice of objection to jurisdiction. After the notice of objection to jurisdiction was lodged, the Court took no further step, other than to grant the stay. It seems to me that in those circumstances there has not been an occasion for the onshore Court to either waive or accept jurisdiction after the objection to jurisdiction was lodged with that Court. For that reason, this is not one of those cases in which there is a conflict in jurisdiction between the two Courts.

65. The First Defendant submits that I should take care to not interfere with the decision of the onshore Dubai Court to the effect that it had itself exercised jurisdiction. If that were how I construed the decision of the onshore Dubai Court I would be very cautious, but that is not how I construe the decision in that Court. For the reasons I have given earlier, it seems to me that the Dubai Court has not decided whether or not it will exercise jurisdiction, but has simply granted a stay of the proceedings, apparently taking a different view of the operation of the Decree to that taken by this Court.

66. That of course is not to say that this Court is correct in its view of the Decree but, rightly or wrongly, it is the view which this Court has taken, and which is established by the decision of the Court of Appeal in Lakhan.

67. It is also said that if I were to lift the stay that would cause great prejudice to the First Defendant because it has obtained a stay in the onshore Courts and these proceedings would continue.

68. There are two answers to that submission. The first is that of course it would be open to the First Defendant to apply to lift the stay granted by the onshore Courts, based on the decision that has been taken by this Court. It is said that an application of that kind would have little prospect of success. I am not sure about that - one never knows until applications of such kind are made. A more important point, I think, is that the position taken in the onshore Courts cannot, I think, affect this Court's decision as to whether or not it has jurisdiction.

69. This Court has determined, subject to any appeal, that it has jurisdiction. In my view there is no conflict in jurisdiction preventing this Court from exercising its jurisdiction. The fact that a different view of the Decree may have been taken in the onshore Courts of Dubai is not, in my view, sufficient reason for this Court to fail to exercise the jurisdiction which it has found it has. That failure, in my view, would be the source of very considerable prejudice to the Claimants who wish to pursue their claims in this Court.

70. For those reasons, there is no conflict of jurisdiction within the meaning of the Decree and it is therefore open to this Court to continue to exercise its jurisdiction. In all the circumstances of this case, given the inordinate delay that has occurred to date, I do not think there is any impediment to this Court exercising the power to lift the stay and indeed, to the contrary, I think it is very much and very strongly in the interests of justice for this Court to do so.

71. The orders that I propose to make are that the stay will be lifted. It follows that consistently with the terms of the stay the First Claimant has 21 days from today within which to file its submissions in response to the application for permission to appeal. In relation to costs, I will hear counsel of course but my suggestion would be either that costs be in the cause of the proceedings or that they be reserved.

72. The reason for that view is that this application has come about through no fault of either party. It has come about because of the position adopted by the JJC. It seems to me in those circumstances the fair result is that the loss should probably fall to whoever loses the litigation and, therefore, the costs might be in the cause, but I am open to persuasion otherwise.

Issued by:
Delvin Sumo
Assistant Registrar
Date of issue: 24 November 2023
Time: 8am