December 30, 2018 court of first instance - Judgements
Claim No. CFI-053-2017
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 H.E. JUSTICE OMAR AL MUHAIRI
BETWEEN
JK IMAGING EUROPE LIMITED
and
JEETEK DISTRIBUTION DMCC
Hearing: 27 November 2018
Counsel: Tammam Jazmati for the Claimant (appearing as representative of the Claimant)
Badih Moukarzel for the Defendant (appearing as representative for the Defendant)
Judgment: 30 December 2018
JUDGMENT OF H.E. JUSTICE OMAR AL MUHAIRI
UPON hearing Counsel for the Claimant and Counsel for the Defendant at trial on 27 November 2018
AND UPON hearing the testimony of the Defendant’s witness Mr Mouhamad Maher Al Mousally at the hearing on 27 November 2018
AND UPON reviewing the submissions and evidence of both parties filed and recorded on the Court file
IT IS HEREBY ORDERED THAT:
1.Termination of the Agreement between the parties was effective from 14 March 2017.
2. The Defendant is in breach of the Agreement due to non-performance of Clause 6.2 of the Agreement.
3. The Defendant is to pay the Claimant USD 124,000 as per the Claimant’s Invoice Number 10001503, plus interest at the rate of 1% per month from 13 April 2016 until date of payment pursuant to Schedule 2, Clause 6.5 of the Agreement.
4. The Defendant is to pay the Claimant USD 93,600 as per the Claimant’s Invoice Number 10001553, plus interest at the rate of 1% per month from 10 May 2016 until date of payment pursuant to Schedule 2, Clause 6.5 of the Agreement.
5. The Claimant’s claims for damages and loss of profits are denied.
6. The Defendant shall pay the Claimant’s costs of this claim, to be assessed by the Registrar on the standard basis if not agreed between the parties.
Issued by:
Ayesha Bin Kalban
Assistant Registrar
Date of issue: 30 December 2018
Time: 9am
JUDGMENT
Introduction
1.The Claimant is JK Imaging Europe Limited, a company incorporated in the United Kingdom. The Claimant supplies electrical equipment, mainly camera equipment to the Defendant as part of its business.
2. The Defendant is Jeetek Distribution DMCC, a company incorporated and registered in the Dubai Multi Commodities Centre (DMCC). The Defendant is licensed to trade in electrical appliance and telecommunications equipment.
3. On 25 September 2015, the Claimant entered into an Exclusive Distribution Agreement with the Defendant (the “Agreement”) whereby the Claimant appointed the Defendant as its exclusive distributor for the promotion, sale or distribution of Kodak Pixpro Products (“the products”) in the UAE, KSA, Qatar, Bahrain, Oman, Jordan, Lebanon, Syria, Morocco, Pakistan and Afghanistan (the “Territory”).
4. The Agreement at Clause 16 stipulates the governing law of the Agreement and stipulates for any dispute arising out of the Agreement to be governed by the Dubai International Financial Centre (DIFC) Laws. At Clause 17, the Agreement stipulates that the Courts of the DIFC shall have exclusive jurisdiction to settle any dispute or claim arising out of the Agreement.
Background and Procedural History
5. The Claimant filed its Claim on 11 December 2017 and subsequently filed its Particulars of Claim on 13 February 2018. The Defendant filed its Statement of Defence without Counterclaim on 28 February 2018. The Claimant filed its Reply to Defence on 25 March 2018.
6. A hearing was held before me on 27 November 2018 where Counsel for the Claimant and Counsel for the Defendant both gave oral submissions in addition to written submissions. The Defendant produced a witness at the hearing, Mr Mouhamad Maher Al Mousally, employed by the Defendant in the role of Business Development Manager, who provided oral evidence on behalf of the Defendant.
7. Following the hearing, judgment was reserved and the parties were requested to file their written closing submissions. The Defendant filed its closing submissions on 11 December 2018 and the Claimant filed its closing submissions in response on 25 December 2018.
Parties’ Submissions
8. The Claim is regarding the non-payment of two purchase orders by the Defendant; a purchase order dated 15 December 2015 for the purchase of 300 units of Kodak Pixro SP30 Extreme Pack and 200 units of Kodak Pixpro SP360 Aqua Pack (“PO1”) and a purchase order dated 1 January 2016 for the purchase of 1200 units of Kodak Smart Lense SL 10-Black (“PO2”).
9. The Claimant claims the value of PO1 is USD 124,000 as detailed in its invoice number 10001503 (“Invoice 1”) and claims the value of PO2 is USD 93,600 as detailed in its invoice number 10001553 (“Invoice 2”). The Claimant submits that both purchase orders were delivered and received by the Defendant and the Defendant has failed to pay the Claimant for the supply of both purchase orders.
10. The Claimant claims for the amount raised in each invoice, plus interest that has accrued from 30 days after the due date of each invoice at the rate of 1% per month pursuant to Schedule 2, Clause 6.5 of the Agreement.
11. The Claimant further requests this Court to declare the Defendant in breach of the Agreement due to non-payment of delivered invoices and to issue a declaration that the Agreement was terminated with effect from 14 March 2017.
12. The Claimant also seeks damages for loss of profit as a result of the Defendant’s breach of Agreement.
13. The Claimant submits that around April 2016 many e-mails were exchanged with the Defendant whereby the Claimant repeatedly requested the Defendant to pay both outstanding invoices. The Claimant claims the Defendant eventually agreed to pay Invoice 2, however wanted to negotiate Invoice 1 on the basis that the costs of the products were too high.
14. The Defendant submits it never placed a purchase order for PO1 and that the emails the Defendant sent to the Claimant were simply forecasting a potential order. The Defendant submits that, as it never placed a formal purchase order to the Claimant, it was surprised to receive delivery of PO1.
15. The Defendant submits that it accepted the delivery of PO1 as it did not want the products to be lost or destroyed and because it practiced good business ethics in accepting the delivery. However, the Defendant submits it immediately contacted the Claimant querying the delivery of PO1 because it had not formalized the purchase order. The Defendant submits that it did not want to accept PO1 because the prices had been increased by the Claimant, contrary to the Agreement.
16. The Claimant submits that the Defendant was not obliged to accept the delivery of PO1 and had a choice to return or reject the delivery if it never intended to order the items delivered. The Claimant relies on Clause 2.6 of the Agreement which states;
“The Distributor shall become owner of the Products delivered by the Supplier under the terms of the Agreement”
17. Thereby, the Claimant submits that the Defendant accepted the delivery of PO1 and took ownership of the products within that delivery and therefore is required to pay the Claimant for the products it received.
18. The Defendant in response, submits that it is not liable to pay Invoice 1 as the Claimant breached the contract by raising their prices in contravention of Clause 6.1 of the Agreement which states;
“the Supplier shall communicate to the Distributor its price list that shall be valid for a minimum period of 6 months. In the event that the Supplier desires to amend its price list, the amendment shall take effect (i) further to a two month prior notice sent by the Supplier to the Purchaser informing it that an amendment shall be made to the price list and the substance of such an amendment and (ii) after the minimum period of 6 months as of the receipt by the Distributor from the Supplier of the original price list.”
19. The Defendant submits that the Claimant raised the prices of the products they were supplying to the Defendant prior to the first 6 months of the Agreement and did so without notice and in breach of Clause 6.1 of the Agreement. The Defendant submits that this breach of contract led to the Defendant sending the Claimant a ‘legal notice’ on 10 October 2016 requesting a termination of the Agreement and for the Claimant to collect the remaining products which the Claimant had delivered to the Defendant.
20. The Claimant submits that in the midst of negotiations the Defendant eventually requested a 15% discount on Invoice 1 and the Claimant counter-offered a discount of 11-13%, conditional upon immediate payment of outstanding Invoices 1 and 2. The Claimant submits that the Defendant did not accept this offer to settle and were unreasonable in doing so as the Claimant’s offer of 11-13% was close to the Defendant’s offer of 15% discount. The Claimant submits that for this reason, the Defendant proved it had no real intention of paying the outstanding invoices despite approving Invoice 2.
21. The Defendant also submits that the Claimant delivered the products very late. The Defendant submits that, as a result, the Defendant lost its clients and its business suffered a financial loss, which the Defendant seeks to set-off against the outstanding invoices to the Claimant.
22. Upon being questioned at the hearing, the Defendant further submitted that it was not required to pay Invoice 1 as the prices had been raised without notice and in contradiction to the Agreement. The Defendant further submitted it had never placed an official purchase order for the items in PO1 and therefore, the Claimant should not have delivered the items or raised any invoice.
23. The Claimant submits that it has attempted to settle with the Defendant in relation to Invoice 1 by offering discounts and even offered to cancel PO1 if the Defendant returned the products in a good, saleable condition.
24. The Claimant submits that the Defendant refused all offers of settlement and despite receiving delivery and ownership of PO1 and PO2, the Defendant has failed to pay the outstanding invoices.
25. The Defendant submits it has suffered a financial loss to its business due to the Claimant’s late deliveries of products and seeks to set-off this loss against the outstanding invoices, however the Defendant accepts it has not provided any Statement of Counterclaim.
Discussion
26. It is accepted by both parties that the Claimant made two deliveries of its products to the Defendant and thereby, raised two invoices which remain unpaid. What is disputed is whether the Defendant is still legally required to pay the Claimant the outstanding invoices.
27. A further point of dispute between the parties is in relation to the date of termination of the Agreement between them and whether any breaches of contract took place.
28. I will deal first with the claims in relation to the non-payment of invoices raised by the Claimant. Next, I will discuss the claims of breaches and termination of contract and lastly deal with claims for damages/loss of profits.
Claim for non-payment of Invoice 1
29. Invoice 1 is in relation to PO1 priced at a total of USD 124,000. It is accepted by both parties that Invoice 1 has not been paid.
30. I find that Invoice 1 was due from 13 March 2016 as per the due date listed on the invoice.
31. The Defendant submits that it never placed a formal purchase order in respect of this invoice, rather it only sent to the Claimant a forecasting order and although it was delivered, the Defendant should not be liable to pay Invoice 1 as the price of the products and subsequently the purchase order was never agreed.
32. The Claimant submits that PO1 was delivered and accepted by the Defendant and therefore the Defendant is required to pay for it.
33. I find that although the Defendant may not have placed a formal purchase order for Invoice 1, it did submit a forecasting order which shows an interest in the products forecasted and the Defendant did not give any statement to the Claimant rejecting the forecast order.
34. Further, when the Claimant delivered the products to the Defendant, the Defendant accepted the delivery and signed for them. I am mindful of Clause 2.6 of the Agreement which states;
“The Distributor shall become owner of the Products delivered by the Supplier under the terms of the Agreement”
35. I am also mindful of the Statement of Defence where the Defendant accepts at paragraph 8;
“The Defendant could have rejected the shipment as no formal or official Purchase Order was placed from their end” (emphasis added).
36. I also note that after accepting the delivery of the products, although the Defendant questioned the Claimant as to why the delivery was made when no purchase order was finalised, the Defendant did not take any steps to return the products to the Claimant. The Defendant in an email to the Claimant dated 31 August 2016 accepts that it was the Defendant’s responsibility to return the products as the Defendant’s employee states:
“Attached is the stock we need to return”
37. Furthermore, the Defendant attempted to negotiate a lower price with the Claimant for Invoice 1 which shows an intention to keep the products and thereby shows further acceptance of the delivery.
38. I find that the Defendant made no steps to return the delivery and instead kept the products and tried to negotiate a new price. I find that the Defendant could have refused to accept the delivery if it genuinely did not want the products or the Defendant could have returned the delivery to the Claimant when it became clear a price was not agreed. I also note that the Defendant did not provide the Claimant with any financial consideration for the products despite the Claimant offering a 11-13% discount on the invoice. The Defendant continued to keep the products whilst failing to give the Claimant any financial consideration or at all for the delivery.
39. I find that the Defendant was unreasonable in not accepting the Claimant’s counter-offer of 11-13% as this offer was not far from the Defendant’s own proposed offer of 15%.
40. Accordingly, I find that the Defendant did accept and take ownership of the delivery of PO1 despite having no obligation to do so. Therefore, as the Defendant became the owner of the products pursuant to Clause 2.6 of the Agreement, he is obliged to pay Invoice 1 to the Claimant under the terms of the Agreement.
41. The Defendant is also contractually obligated to pay the Claimant under Clause 6.2 of the Agreement which stipulates:
“The Distributor shall pay the full amount/purchase price invoiced”
42. I further substantiate my findings with reference to Article 83 of DIFC Law No. 6 of 2004 (“DIFC Contract Law”) which stipulates:
“Where a party who is obliged to pay money does not do so, the other party may require payment notwithstanding Article 82.”
43. Therefore, the Defendant is to pay the Claimant USD 124,000 under Invoice 1 plus interest at the rate of 1% per month from 13 April 2016 (30 days after due date) until date of payment pursuant to Schedule 2 Clause 6.5 of the Agreement.
Claim for non-payment of Invoice 2
44. Invoice 2 is in relation to PO2 priced at a total of USD 93,600. It is accepted by both parties that the products in relation to Invoice 2 were delivered to and accepted by the Defendant. It is further accepted by both parties that Invoice 2 has not been paid.
45. I find that Invoice 2 was due by 9 April 2016 as per the due date listed on the invoice.
46. The Defendant in its submissions does not appear to contest this invoice and has not provided any substantive submissions rejecting this invoice.
47. The Claimant submits that the Defendant, throughout the course of its correspondence with the Claimant, accepts Invoice 2, however has failed to pay the outstanding sum raised therein.
48. In an email dated 12 April 2016 from the Defendant to the Claimant, the Defendant admits the following:
“from my side I have one issue only with Kodak SP360 invoice”
49. This email refers only to Invoice 1 and PO1, which the Defendant claims to have an issue with. However, there is no mention of Invoice 2 and therefore, there appears to be an acceptance of Invoice 2.
50. Furthermore, at the oral hearing, the Defendant’s witness, Mr. Mouhamad Maher Al Moussally accepted that the Defendant agreed the price for Invoice 2, however failed to provide a reason for not paying Invoice 2 to date.
51. Accordingly, I find that the Defendant accepts Invoice 2 and thereby, owes the Claimant USD 93,600 under Invoice 2 and pursuant to Clause 6.2 of the Agreement, and Article 83 of the DIFC Contract Law.
52. Therefore, the Defendant is to pay the Claimant USD 93,600 under Invoice 2 plus interest at the rate of 1% per month from 10 May 2016 (30 days after due date) until date of payment pursuant to Schedule 2 Clause 6.5 of the Agreement.
Breach of Contract/Agreement
53. The Claimant submits that the Defendant is in breach of the Agreement when it failed to pay for the products delivered in relation to Invoice 1 and Invoice 2.
54. As I have determined above, Invoice 1 and Invoice 2 are due to the Claimant by the Defendant, I accordingly find that the Defendant is in breach of Clause 6.2 of the Agreement which stipulates;
“The Distributor shall pay the full amount/purchase price invoiced”
55. The Defendant, in its submissions of Defence, submits that the Claimant was in breach of Clause 6.1 of the Agreement when it issued its Invoice 1, as the Claimant raised its prices of products supplied within the first 6 months of the Agreement, contrary to Clause 6.1 which prevents the Claimant from raising its prices within the first 6 months of the Agreement.
56. The Claimant submits in response that the Claimant was yet to provide its pricing list for PO1 after the signing of the Agreement. The Claimant submits it first provided its price list to the Defendant around November 2015 stating that it would come into effect in January 2016. The Claimant submits that Clause 6.1 would apply from January 2016.
57. The Defendant has provided an email dated 10 November 2015 from the Claimant to the Defendant as evidence of the Claimant’s price increase in contravention of Clause 6.1 of the Agreement. The email states;
“Because of the big currency exchange issue I have to change to a US $ pricelist because that FOB haven’t changed. Please find the new price list attached which will come to effect by the 1st January 2016.”
58. Although the wording of this email suggests that a previous price list at different prices or indeed, a different currency was originally provided to the Defendant, I have not seen such a price list amongst the Claimant’s or Defendant’s evidence and neither has either party brought such evidence to my attention.
59. Thereby, I find the Defendant has not provided enough evidence to prove that the Claimant raised their prices within the first 6 months of the Agreement as the Defendant has not provided any other price list issued by the Claimant against which I can compare the raising of prices. The Defendant has only provided one price list which it submits consists of raised prices as compared to an alleged original price list, which has not been produced as evidence.
60. Therefore, I cannot accept the Defendant’s arguments in relation to the Claimant’s breach of contract by raising prices, on the basis of lack of evidence.
61. Nonetheless, even if the Defendant were able to prove that the Claimant raised their prices in breach of the Contract, I do not accept this as a valid defence to the Claimant’s claim for payment of Invoice 1. The Defendant is still is liable to pay for Invoice 1 as the Defendant accepted the delivery of PO1 and took ownership of the products as discussed above, and failed to provide any financial consideration for the products and or failed to return the products to the Claimant.
62. The Defendant continued with contractual relations after accepting the delivery of PO1 by attempting to negotiate a price which shows acceptance of the delivery and continuation of contractual relations.
63. Accordingly, I find that the Claimant did not breach the Agreement when the Claimant issued the price list for products delivered under PO1.
64. The Defendant also submits that the Claimant breached the Agreement when it failed to deliver its products in time in contravention of Clause 5.1.1 of the Agreement which states:
“The Supplier agrees that at all times during the Term it shall proceed with the shipment of the Products to the Distributor within a proper time period to be able to supply the Products timely”
65. As the Agreement does not specify what period of time constitutes a “proper” time period, it is difficult to assess whether the Claimant was in breach of this clause.
66. At the oral hearing, when questioned, the Defendant’s witness, Mr. Mouhamad Maher Al Moussally, stated that the Claimant took around 6 weeks to deliver its products after a purchase order was made and stated that 6 weeks was considered as a delay by the Defendant.
67. As the shipment of products was being delivered from China, I find that 6 weeks does not reasonably count as excessive delay in these circumstances, and therefore can only conclude that the Claimant delivered its products in a “proper” time period.
68. Accordingly, I find that the Claimant delivered the products in proper time and did not breach the Agreement.
Termination of Contract/Agreement
69. The Defendant sent a notice of termination of the Agreement to the Claimant on 10 October 2016 providing the following reasons for termination; 1) the Claimant raised its prices 30% higher than the American retail prices, 2) the Claimant’s delivery delays have damaged the Defendant’s reputation in the market, 3) the Claimant’s unprofessional conduct in dealing with the Defendant.
70. I find that I cannot accept 10 October 2016 as the date for termination of the Agreement as the Defendant’s listed reasons for terminating do not constitute breach of contract, neither do they constitute grounds for termination of contract for the following reasons; 1) The Agreement makes no provision for preventing the Claimant from increasing their prices in relation to American retail prices, 2) the Claimant cannot be accused of delay for the reasons I have set out in paragraphs 64-68 above, 3) the unprofessional conduct complained of is not sufficient enough to constitute a breach of contract.
71. Accordingly, the Defendant was not entitled to legitimately terminate the agreement on 10 October 2016.
72. Furthermore, the Defendant continued to negotiate and engage with the Claimant past 10 October 2016 which shows an intention to continue contractual relations. Therefore, 10 October 2016 does not constitute termination of the Agreement.
73. The Claimant submits that the Agreement was terminated on 14 March 2017 as it was clear from this point the Defendant did not intend to pay the outstanding invoices and negotiations and discussions to settle the outstanding invoices ceased.
74. I find that the Claimant attempted to continue contractual relations and negotiate a settlement with the Defendant until March 2017. Following March 2017, the Defendant refused all attempts at settlement and failed to pay the outstanding invoices which it had a legal and contractual obligation to pay.
75. Clause 13.2 of the Agreement entitles the parties to terminate the Agreement as follows:
“13.2 Without affecting any other rights which it may be entitled to, either the Supplier or the Distributor may give a sixty days prior notice to terminating this Agreement;
13.2.1 if the other party breaches any of its principal obligations under this Agreement which is not remedied within thirty days of the notification to do so”
76. Furthermore, Article 86.1 of the DIFC Contract Law stipulates;
“A party may terminate the contract where the failure of the other party to perform an obligation under the contract amounts to a fundamental non-performance”
77. As discussed previously, the Defendant had an obligation to perform payment of invoices raised by the Claimant. As the Defendant failed to perform this obligation under the Agreement, the Claimant is entitled to terminate the Agreement pursuant to Clause 13.2 of the Agreement and Article 86.1 of the DIFC Contract Law.
78. Therefore, I accept the Claimant’s submission and find that the Agreement between the Claimant and Defendant was terminated on 14 March 2017 due to the Defendant’s non-performance of its contractual obligations towards the Claimant.
Damages/Loss of Profits
79. The Claimant claims for damages for the breach of contract and claims a loss of profits. However, the Claimant has not submitted a schedule of loss and neither has the Claimant submitted any evidence in relation to financial loss or loss of profits.
80. Therefore, the Claimant’s claim for damages and loss of profits are denied.
81. The Defendant also submits that it has suffered a financial loss by losing customers when the Claimant’s deliveries of products were delayed. The Defendant further submits that the Claimant’s increased pricing of its products led to the Defendant losing customers as its customers refused to accept increased prices and this led to a further financial loss.
82. Furthermore, the Defendant at the oral hearing sought to set-off its alleged financial loss against the sums claimed by the Claimant.
83. I do not accept the Defendant’s arguments in relation to financial loss as the Defendant has failed to provide evidence of its financial loss. The Defendant submitted some emails detailing the comments of its customers’ unhappiness with not receiving products from the Defendant in time. However, this is not sufficient evidence or any evidence proving actual financial loss.
84. Furthermore, I cannot accept the Defendant’s claim of loss/damage and set-off as the Defendant failed to file a Statement of Counterclaim and has not sought this Court’s permission to file a Statement of Counterclaim. Therefore, I cannot give consideration to any of the Defendant’s Counterclaims raised at the hearing or in closing submissions.
Conclusion
85. Termination of the Agreement between the parties was effective from 14 March 2017.
86. The Defendant is in breach of the Agreement due to non-performance of Clause 6.2 of the Agreement.
87. The Defendant is to pay the Claimant USD 124,000 as per the Claimant’s Invoice Number 10001503, plus interest at the rate of 1% per month from 13 April 2016 until date of payment pursuant to Schedule 2, Clause 6.5 of the Agreement.
88. The Defendant is to pay the Claimant USD 93,600 as per the Claimant’s Invoice Number 10001553, plus interest at the rate of 1% per month from 10 May 2016 until date of payment pursuant to Schedule 2, Clause 6.5 of the Agreement.
89. The Claimant’s claims for damages and loss of profits are denied.
90. The Defendant shall pay the Claimant’s costs to be assessed by the Registrar on the standard basis if not agreed between the parties.
