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Claim No: CFI 079/2022

IN THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS

IN THE COURT OF FIRST INSTANCE

BETWEEN

NAASHIR

Claimant/Respondent

and

(1) NAQID
(2) NAAZIR
(3) NABHAN
(4) NAWAF
(5) NAJEEB
(6) NAMEER
(7) NASIM
(8) NUZHAT

Defendants/Appellants

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ORDER WITH REASONS OF H.E. DEPUTY CHIEF JUSTICE ALI AL MADHANI

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UPON the Claimant’s Part 7 Claim Form dated 8 November 2022 (the “Claim”)

AND UPON the Order with Reasons of H.E. Deputy Chief Justice Ali Al Madhani dated 7 May 2024 (which was subsequently amended and re-issued on 21 June 2024 to accurately reflect the owed amount) granting immediate judgment in favour of the Claimant against the First, Second, Fifth, Sixth, Seventh and Eighth Defendants with Costs (the “Order”)

AND UPON the First, Second, Fifth, Sixth and Seventh Defendants’ Appeal Notice dated 28 May 2024 (the “PTA Application”) seeking permission to appeal the Order, to be determined on paper

AND UPON the Respondent’s submissions in opposition dated 19 June 2024

AND PURSUANT TO the Rules of the DIFC Courts (the “RDC”)

IT IS HEREBY ORDERED THAT:

1. The PTA Application is dismissed in its entirety.

2. Costs shall be paid on the standard basis, to be assessed by the Registrar if not agreed.

Issued By:
Delvin Sumo
Assistant Registrar
Date of issue: 23 July 2024
At: 10am

SCHEDULE OF REASONS

1. This PTA Application is brought by the First, Second, Fifth, Sixth and Seventh Defendants (hereby collectively “the Defendants” or “the Appellants” unless individually addressed) to set aside the Order with Reasons of H.E. Deputy Chief Justice Ali Al Madhani dated 7 May 2024 (which was subsequently amended and re-issued on 21 June 2024 to accurately reflect the owed amount) granting immediate judgment in favour of the Claimant against the First, Second, Fifth, Sixth, Seventh and Eighth Defendants with Costs (the “Order”) in accordance with Rule 44.29 of the Rules of the DIFC Courts (the “RDC”). The Appellants seek for the whole Order to be set aside, or at least to the extent that is alleged against them (to the exclusion of the Third, Fourth and Eighth Defendants), and a formal trial to ascertain their liability vis-à-vis their respective guarantees. Additionally, the Second Defendant pleas a stay in proceedings until the completion of his Insolvency Case before the Dubai Court. Last, the Applicants collectively request that Costs are to be levied on the Claimant.

2. RDC 44.29 reads:

3. In my consideration, I will apply RDC 44.8 to my reasoning:

4. There are seven grounds of appeal pleaded in this application, all of which have been responded to by the Claimant; two grounds appeal against an alleged error in law, two in fact and three in law and fact. Each ground will be dealt with separately in my consideration.

Background

5. As only five out of the eight Defendants are part of this PTA Application, only the background and chronology relevant to them will be listed in this section.

6. The Claimant is a United States national banking association with branches in onshore Dubai, DIFC freezone, and the UK. The Claimant acts on behalf of the syndicate of Lenders.

7. The First and Second Defendants are UAE residents. Naqid is the founder of Nasrullah. Both individuals signed Personal Guarantees in respect of the Borrower.

8. The Fifth, Sixth and Seventh Defendants, all Companies incorporated in the ADGM, are the Corporate Guarantors in respect of the Borrower. The Companies are controlled by the First and Second Defendant to hold share capital in the Borrower, acting as special purpose vehicles to isolate financial risk.

9. On 25 March 2016, a Facility Agreement was entered into between the Borrower and a syndicate of Lenders, with the First and Second Defendant entering into separate Personal Guarantor agreements with the Claimant in the capacity of “Security Agent” for the Lenders as well as guaranteeing the Borrower’s obligations under the Facility Agreement.

10. On 31 March 2016, the Borrower drew down USD 490 million, with annual repayments made on the 27 March 2017, 26 March 2018 and 29 March 2019. No repayments have reported to have been made since 2019, and so the outstanding capital owed was USD 335 million, plus interest and fees.

11. Between January 2017 and March 2019, the Facility Agreement was amended eight times by mutual consent of the Borrower and the Claimant. The crux of the dispute is the Amendment and Restatement Agreement 2019 (“ARA”) following an amendment request letter on 5 November 2018 (the “Letter”). This Letter was sent to the First and Second Defendants in response to the corporate reorganization to prepare of the potential public listing of “Nasmi”, a new holding company. Both documents were amended simultaneously.

12. The Borrower entered the ARA as an authorised Agent for the First and Second Defendant; the transaction intended for them to remain liable as guarantors for the same payment obligations under the Facility Agreement.

13. On 9 April 2019, the Corporate Guarantors entered into Corporate Guarantees with the Claimant as a “Security Agent” for the Lenders as required by the new conditions set out in the ARA. The new Guarantees were materially identical to the Personal Guarantees.

14. On or around the 20 May 2019, Nasmi was admitted to trade on the London Stock Exchange (“LSE”), resulting in the cancellation of the Facility Agreement under clause 6.2 and triggering the obligation of the Borrower to repay the outstanding balance plus interest and fees within five business days. The Borrower failed to repay.

15. On 23 May 2019, the Lenders extended the payment deadline to the 27 August 2019. The Borrower defaulted again, which constituted an “Event of Default” under clause 21.1 of the Facility Agreement.

16. On 6 May 2020, the Borrower was notified of the Event of Default, the cancellation of the Facility Agreement, and the acceleration of the outstanding loan repayment in accordance with clause 21.19 of the Facility Agreement.

17. On 17 December 2020, Nasmi entered into an agreement to sell the entire share capital to Nishaat, causing a “Change of Control” under clause 6.2(a)(iii) of the Facility Agreement, triggering a second cancellation which compelled the Borrower to repay the outstanding loan amount including the accrued fees and interest by 25 March 2021 under clause 5.1 of the Facility Agreement.

18. On 22 July 2022, the Borrower was again given notice under clause 21.19 of the Facility Agreement to the same effect as described in paragraph 17 of this Judgement.

19. On 8 November 2022, the Claimant submitted a Part 7 Claim Form against all the Defendants; the First and Second Defendants filed an acknowledgement of service dated 15 May 2023. The Claimant served its particulars of claim on the First and Second Defendants on 12 June 2023.

20. On 15 June 2023, the Fifth, Sixth and Seventh Defendants filed an acknowledgement of service, and the First, Second, Fifth, Sixth and Seventh Defendants submitted a request to the Claimant for an extension of time to serve and file the defence through Baker Tilly.

21. On 16 June 2023, the Claimant then served the particulars of claim.

22. On 22 June 2023, the Claimant gave consent to Baker Tilly’s request for an extension of time via email, and the Consent Order was issued on 5 July 2023, extending the time to serve and file the defence to 28 July 2023 4pm GST.

23. On 26 July 2023, the Claimant again consented to a further extension for the First, Second, Fifth, Sixth and Seventh Defendants to serve and file their defence on 16 August 2023. A second Consent Order was issued on 31 July 2023.

24. On 16 August 2023, the First, Second, Fifth, Sixth and Seventh Defendants served and filed their defence to the Claimant’s particulars of claim.

25. On 5 September 2023, a Consent Order was issued for the extension of time for the Claimant to file a response. The new deadline was 29 September 2023 at 4pm GST.

26. On 27 September 2023, the Claimant notified the Defendants that they intended to apply for an immediate judgement against the First, Second, Fifth, Sixth and Seventh Defendants. Baker Tilly responded stating that they would give consent to the reply deadline extension if the Claimant did not proceed with their application.

27. On 6 November 2023, the Claimant filed an immediate judgement application, which was permitted and heard on 11 March 2024.

28. The hearing was attended by representatives for all parties named on the application, except for the Eighth Defendant.

29. My Order, in favour of the Claimant to the total value of USD 508,639,667.08 (plus a daily interest rate of 174,780.62 until the date of full payment), was issued originally on 7 May 2024 and re-issued to reflect the accurate owed amount on 21 June 2024.

30. On 28 May 2024, the PTA Application was filed along with the affidavit of PV Sheheen (Baker Tilly), skeleton arguments and the relevant exhibits. The PTA Application was submitted to be determined on the papers.

31. On 16 June 2024, the Claimant filed their skeleton argument to respond to each ground of appeal.

First Ground

32. The first ground of appeal is an amalgamation of two of the defences put forward by the Second Defendant; I made two mistakes in fact by determining that the Borrower acted within the scope of authority as an Agent to the First and Second Defendants, and that the Second Defendant was a signatory to the Facility Agreement.

33. For ease, I will separate this ground into two subsections; the scope of authority of the Borrower as an Agent, and whether the Second Defendant is a signatory to the Facility Agreement.

34. On the Borrower’s authority, the defence specifically addresses Article 1.6 of the original Personal Guarantee (“original PG”) and submits that I wrongly interpreted this article to mean that the Borrower had the power to make agreements and any amendments, variations and/or supplements thereafter:

The defence’s qualm with this article is that the actual scope of the Borrower’s authority is not explicitly defined, and so without the Second Defendant’s consent regarding material alterations, any changes permitted by the Borrower are unauthorised and unenforceable. In my view, this is a nonsensical position to take. If an agent cannot consent on behalf of a client, then there is no point to having the agent. Additionally, if the Second Defendant intended to limit the authority of the Borrower, then this ought to have been included in the original PG, of which he was the signatory. All amendments made were in relation to the Finance Documents, which was what was agreed by the Second Defendant in the original PG.

35. Additionally, the defence takes issue with my interpretation of their position:

And goes on to provide an unhelpful ‘correction’:

36. Pages 5 to 9 of the Defendant’s skeleton argument submitted for the hearing cover the purpose of the Facility Agreement and the subsequent amendments, including their affect. There is little value in repeating each amendment here, but to reference paragraph 17 of the skeleton argument:

It is accepted by all parties that the purpose of the Facility Agreement was to refinance the Borrower acquisition of a holding company, as well as fund the transaction costs. I do not consider any of the amendments to stray so far from the essence of the Agreement that they would be considered so materially different that the Agent would not be able to reasonably consent on the Second Defendant’s behalf without prior consultation. As far as I am concerned, the minds are still met.

37. There is no material difference between the defence’s original submissions, my interpretation of the defence’s position, and the points raised in appeal that would give rise to a different outcome, either on the papers or at trial, as the essence of the question remains the same: did the Borrower have the power to make amendments without the written consent of the Personal Guarantors? My answer is yes, it did.

38. The important term in Article 1.6 is “relevant”. All amendments, supplements and variations made were relevant to the transaction in the Facility Agreement for which the Personal Guarantors were liable. The essence of this transaction remained the same throughout. There were no upper or lower limits to the financial liabilities of the Personal Guarantors, nor upper or lower limits given to the Borrower to restrict what it could agree to. Additionally, the fact that the Personal Guarantors held, at all material times, share capital in the Borrower gives rise to reasonable assumption that they were aware of what was being agreed to and how their personal liabilities would be affected. I see no other compelling reason to interpret Article 1.6 differently.

39. As for Mr Naazir as a signatory to the Facility Documents, the defence puts forward that my erroneous interpretation of Article 1.6 lead to an erroneous determination that Second Defendant’s consent to the amendments was invalid. The defence continues to say that the Borrower’s amendments materially altered the purpose of the original PG but fails to draw my attention to any specific submission or matter, either previously used or not, to persuade me that this is the case.

40. The Claimant’s submission, that all amendments were made in lockstep and therefore each document affected the next causing a chain reaction and amendment to personal liabilities, is a more compelling interpretation. As the Facility Agreement was part of the ‘Finance Documents’ named in the original PG that the Borrower had explicit agency over on behalf of Second Defendant, an ordinary reading of this authority is that the Borrower’s signature on any amendments is essentially Second Defendant’s signature.

41. Lastly, in the appeal, the defence submits that:

I strongly disagree with this. To repeat, Second Defendant was at all material times a controlling shareholder of the Borrower and would have reasonably been aware of the Borrower’s financial activities, including the terms and amendments to the Facility Agreement and the ARA 2019. Second Defendant is a seasoned businessman, and so would also have been aware of how this affected his personal liabilities in the original PG. I have not been provided any compelling evidence to show he was unaware of the amendments.

As for his consent, it is clear to me that the Borrower’s authority was not explicitly limited, nor was his personal liability, and I do not believe that the amendments resulted in changes that materially altered the essence of the transaction to the point where it would be unfair to impose Second Defendant’s personal liability as a guarantor. I concur that Second Defendant both had knowledge of and consented to the amendments.

42. The first ground is rejected. No mistake of fact was found.

Second Ground

43. The Second Ground is that I erred in law and fact by not declaring that the First and Second Defendants’ liability was discharged following the variations and amendments made to the original PG.

44. This ground relies on the application of the rules in Holme v Brunskill (1878) LR 3 QBD 495 and Triodos Bank NV v Dobbs [2005] EWCA Civ 630, and section 4 of the Statute of Frauds Act 1677 (“SOFA”). The alleged error is that my rejection SOFA based on the fact that there is no DIFC Law equivalent cannot stand if I permit the “all monies guarantee” clause to negate the Holmes principle, as there is no DIFC Law equivalent here either.

45. There is no legitimate comparison here. The “all monies guarantee” is a term within the original PG which was shown to be a standard protection clause within this type of transaction, and so ought to be enforced as it was agreed to and does not amount to an unfair term in English contract law. The “all monies guarantee” negates the principle in Holmes, as well as the fact that the amendments to the Facility Agreement were made at the same time as the underlying loan agreement. If Holmes does not apply, neither does Triodos. This was explained in paragraph 55 of the Order; the Claimant’s reliance on clauses 2.4 and 2.5 of the original PG was sufficient to prove their point. As for SOFA, section 4 is a procedural rule and does not apply in the DIFC Courts; the Court procedure is a separate matter. The defence does not provide any further insight that would meet the appeal permission threshold.

46. This ground is also brought on the basis that the amendments amount to unfair terms under the Unfair Contract Terms Act 1977 (“UCTA”) and so cannot be enforced. This is a new submission, and so UCTA was not addressed the Order. The defence relies on the “reasonableness” principle in section 3(2).

47. It is a standard and understood practice that no new submissions can be brought before the court in an application for permission to appeal. The purpose of an appeal is to bring the Court’s attention to an error in law or fact made in the order or judgement based on the original submissions of the party that have beyond fanciful chance of success at trial. The second branch – some other compelling reason – is not an invitation for revised or new argument.

48. Nonetheless, as explained in my reasoning in the First Ground, I do not consider the amendments to amount to material changes that would discharge the personal liability of the First and Second Defendants; for the changes to be unfair, they would also have to be material changes. Section 3 of UCTA does not apply here due to irrelevancy.

49. There is no merit found to the alleged error in law and fact brought by the defence; this ground is rejected.

Third Ground

50. The Third Ground is that I erred in determining that a separate guarantee need not be executed to make the variations/amendments enforceable. Clause 4.4 of the ARA 2019 is specifically referred to here, which read:

The defence interprets this clause to mean that a “form” would be a separate document altogether that follows the structure of Schedule 5 of the ARA 2019.

51. My interpretation of the clause followed that of the Claimant at paragraph 64 of my Order due to applying clause 6 of the ARA 2019, which read:

52. Contracts are intended to be interpreted as a whole; terms affect each other. Cherry-picking clauses to twist interpretation into one that is favourable for a party’s position; particularly when an ordinary reading of the terms together dictates the alternative; is an unhelpful practice. Clause 6 defeats the defence’s interpretation of Clause 4.4. It is clear that amended PG’s would come into force automatically, without need for replacement or supplementary execution. The only action needed, therefore, is the Borrower’s consent as an Agent, which was provided. Having a separate guarantee executed for each amendment was not only not required but would be an illogical practice in such transactions.

53. The third ground is rejected. No mistake of fact was found.

Fourth Ground

54. The Fourth Ground concerned Second Defendant’s insolvency proceedings. The defence submits that I erred in law and fact by rejecting the stay application, as UAE Law prohibits continuation of cases against the debtor’s assets so long as there is an active personal insolvency case.

55. Fortunately for the Second Defendant, the present case is not against his assets and so the UAE Law and various DIFC precedent still do not apply. Immediate judgement concerns liability only.

56. There is no error found in fact or law, and so this ground is rejected.

Fifth Ground

57. The Fifth Ground is that I erred in law by determining that an ordinary resolution can alter a shareholder’s resolution that restricts a director's powers, and that a special resolution was required to amend the prior special resolution limiting Mr. Nazhif's directorial authority. Had I done so, I would have concluded that Mr Nazhif acted ultra vires in his authority as signatory, which would invalidate the Corporate Guarantees binding the Fifth, Sixth and Seventh Defendants.

58. However, as stated in paragraph 87 of my Order, there was no special resolution put to me that limited Mr Nazhif ’s authority as a signatory in accordance with ADGM laws. In the appeal skeleton argument, the defence does not provide any other compelling submission or highlight any significant error in my judgement that would alter my decision or give rise to any prospect of success if submitted again at trial.

59. There is no error found in law; this ground is rejected.

Sixth Ground

60. The Sixth Ground is that I erred in fact permitting the Claimant to apply synthetic USD 3-month LIBOR to calculate and claim interest on the loan amount.

61. I see no compelling reason put forward by the defence to stray from what was agreed in clause 7.1 of the Facility Agreement which authorised the use of LIBOR as the applicable rate of interest, as the Lender syndicate represented by the Claimant do not use UK regulated banks.

62. There is no error of fact found; this ground is rejected.

Seventh Ground

63. I do not consider this to be a ground, but as it has been pleaded as one, I will treat it as one. The Seventh Ground is that the Defendants have a real prospect of defending the claim, and that I made an error in fact and law by permitting the immediate judgement application.

64. The defence submits that the error is based on the fact that liability in this case could only be determined by “rigorous analysis of the guaranteed obligations and the guarantee clauses” which could only be done at trial.

65. Considering that the grounds of appeal are materially the same as the original submissions in the Immediate Judgement Application, and that no genuine error in fact or law was brought before me in this application, I disagree. The Defendant’s liability can be found on plain, ordinary reading of the terms in the Facility Agreement, Facility Documents and Guarantees.

66. The value of the claim has little bearing on whether either party could circumvent the need for a trial, if there was one. The context of the claim and the content of the submissions hold the value here.

67. There has been no error in fact or law found here; this ground is rejected.

Conclusion

68. For the reasons explained above, all grounds of appeal are rejected as none of the grounds have met the threshold set by RDC 44.8. By the way they are pleaded, it is clear that the Defendants seek to relitigate settled matters by re-submitting the same points as done in the hearing. I advise counsel that if the submission failed the first round, it only has a fanciful chance of success at the second; other compelling reasons must therefore be put forward.

69. Pursuant to RDC 44.16, this PTA Application may not be reconsidered at a hearing. I do not consider any part of this appeal to be with merit, and so for the sake of case management further attempts to appeal this decision will be rejected.

70. Costs shall be paid on the standard basis to be assessed by the Registrar if not agreed.