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Claim No. CFI 024/2022

THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS

IN THE COURT OF FIRST INSTANCE

BETWEEN

DIFC INVESTMENTS LTD

Claimant

and

DUBAI ISLAMIC BANK

Defendant

JUDGMENT OF JUSTICE SIR JEREMY COOKE

UPON the Claimant’s Application No. CFI-024-2022/2 dated 25 March 2022 seeking an Immediate Judgment (“Immediate Judgment”)

AND UPON the Defendant’s Application No. CFI-024-2022 dated 23 May 2022 for permission to amend its Defence and Counterclaim

AND UPON hearing counsel for the Claimant and counsel for the Defendant on 7 June 2022

AND UPON reviewing the case file

IT IS HEREBY ORDERED THAT:

1. Immediate Judgment is given in favour of DIFC Investments LTD (“DIFCI”) and it is declared that DIFCI has no liability to Dubai Islamic Bank (“DIB") in respect of any sums that are or were due under the Construction Contract between DIFCI and BIC Contracting LLC (“BIC”) dated 26 October 2016.

2. DIB is refused permission to amend its Defence and Counterclaim.

3. Costs are reserved.

Issued by:
Ayesha Bin Kalban
Deputy Registrar
Date of issue:13 June 2022
At: 12pm

REASONS

Introduction

1. DIFCI seeks immediate judgment on its claim for declarations that BIC’s rights to payment under a construction contract dated 26 October 2016 (“the Construction Contract”) were not assigned to DIB and that DIFCI has no liability to DIB in respect of any sums due under that contract. DIB seeks permission to amend its defence in the form of a draft which largely replaces a defence and counterclaim dated 11 April 2022.

2. DIFCI contracted with BIC to conduct works for the Gate Avenue project under the Construction Contract and, on 29 December 2016, BIC signed a document entitled “Assignment of Project Proceeds” in favour of DIB. On the same day, BIC sent a document entitled “Notice of Assignment” to DIFCI. The effect of those documents is in dispute, it being DIB’s case that, under the terms thereof, DIB was irrevocably entitled to payments due to BIC from DIFCI in respect of the Construction Contract.

3. It is accepted by DIFCI that it paid most of the sums due under the Construction Contract into a specific nominated account in BIC’s name at DIB (“the Amanat Account”). The advance payment was paid into a different account of BIC at DIB on 18 January 2017, followed by a series of payments to the Amanat Account amounting to AED 429,762,869.34. However, following a dispute between DIFCI and DIB in relation to work under the Construction Contract, which was referred to arbitration between DIFCI and BIC, a Settlement Agreement dated 18 November 2021 was concluded under which DIFCI paid a sum of AED 20 million, on BIC’s instructions, to a related company’s account elsewhere. BIC demobilised its work force from the site and no further sums can be owing under the Construction Contract following the full and final settlement of all claims and counterclaims arising under that contract. In the absence of a valid assignment and an effective notice of assignment which could operate to render DIFCI liable to pay all sums due from it to DIB instead of BIC, there is no proper basis for a claim.

4. On 27 March 2016, DIB and BIC entered into a finance facility for a total of AED300 million (“the Facility”). The Facility contained a number of express requirements for “securities/support/collaterals” including an irrevocable assignment of Project Proceeds to DIB, which were to be paid to a specified account and an obligation to issue a notice of assignment to the employer/developer of a building who was to confirm the same. The Facility was subject to periodic review with the sum outstanding becoming immediately repayable in the event of a breach. The sum loaned was subsequently increased to AED 560 million. Within the section headed “Conditions Precedent”, clauses 7 and 8 of the Facility required “the irrevocable and unconditional assignment of Project Proceeds” on a case-to-case basis and “Notice of Assignment of Project Proceeds/confirmation” on a case to case basis. The Choice of law and Forum provision in the contract provided for UAE law with the onshore Dubai Courts being a non-exclusive forum.

5. DIB, on 28 January 2022, commenced proceedings in the onshore Dubai Courts against DIFCI and 3 other defendants, alleging that BIC and another company (as 2nd defendant) were liable to pay AED 191,822,637.98 under facility agreements concluded with it. DIB also alleged that DIFCI and another party which had entered into a different construction contract were, as 3rd and 4th defendants, jointly liable to pay DIB that sum by reason of assignments of BIC’s contractual rights to payment. On 16 February 2022, DIFCI objected to the Dubai Court’s jurisdiction and, as it was required to do, defended the claim on the merits. On 1 March 2022 the Dubai Court appointed an expert to consider the facts.

6. On 25 March 2022, DIFCI commenced these proceedings in this Court and issued an immediate judgment application at the same time on 11 April 2022, seeking permission to do so. DIB served an acknowledgement of service indicating an intention to defend on the merits without intimating any challenge to the jurisdiction of this Court. On the same day it served a Defence and Counterclaim.

7. On 18 May 2022, the onshore Dubai Court gave judgment in which it concluded that it had jurisdiction over DIFCI because it was not in the interests of justice for DIB’s various claims against the 4 defendants to be determined separately. The claim against DIFC was however dismissed on the merits. DIB has until 17 June 2022 to appeal against this finding and, on instructions, Counsel for DIB said that such an appeal would be launched.

8. On 23 May 2022, DIB issued its application in this Court to amend its Defence and to withdraw its Counterclaim. In the Draft Defence, having accepted this Court’s Jurisdiction, DIB contended that the claim had been issued by DIFCI contrary to, and in defiance of, the onshore Dubai Court’s acceptance of jurisdiction and its exercise of that jurisdiction in determining DIB’s claim. It was contended that “if and insofar as the DIFC Court concludes that it has prima facie jurisdiction to determine the claim, the matter should be stayed immediately, as a dispute will have arisen as to jurisdiction between the Dubai Court and the DIFC Court.”

9. Under RDC 24.1, the Court may give immediate judgment on a claim if the defendant has “no real prospect of success” and there is no other good reason why the claim should be disposed of at trial. The authorities establish that the Court must consider whether a defendant has a “realistic” as opposed to a “fanciful” prospect of success and the defences put forward must have a “degree of conviction” rather than be merely arguable. The question which arises on DIB’s application to amend is virtually identical because, for permission to be given, it must be shown by the applicant that the Amended Defence has a real prospect of success.

Jurisdiction

10. There are a number of oddities which arise in this case in relation to questions of jurisdiction. The onshore Dubai Court accepted jurisdiction over DIB’s claim against DIFCI in circumstances where Article 5 (A) (1) (a) of the JAL provides that the DIFC Court has “exclusive jurisdiction” over claims against DIFC Establishments, of which DIFCI is one. Moreover, the Construction Contract provided for it to be governed by DIFC law and clause 58.3 contained an agreement to submit all disputes under the Construction Contract to arbitration under the DIFC – LCIA rules, with the designation of DIFC as the seat.

11. DIB, in serving an Acknowledgement of Service, without contesting the jurisdiction of this court has accepted that this court has jurisdiction over the claims made by DIFCI for declarations of negative liability in respect of the same subject matter which gave rise to its claims against DIFCI in the onshore Dubai Court. Counsel for DIB submits that there may be 2 or more fora which are available for the determination of issues between the parties but it is settled law that the principle of forum non conveniens is of no application as between the courts of the DIFC and the UAE. Reliance is placed on the decision of the Court of Appeal in Lakhan v Lamia [2021] DIFC CA 001 at [28] onwards in submitting that Decree 19 of 2016 (“the Decree”) requires this Court to stay its proceedings pending a decision of the JJC as to which of the two courts should determine the issues between the parties.

12. On 5 April 2022, DIFCI itself applied to the JJC to determine whether the claim brought against it by DIB should be resolved in the Dubai Courts or the DIFC Court and requested the JJC to stay the proceedings. That application has not been withdrawn but Counsel for DIFCI submits that there is no basis for a stay of these proceedings, regardless of that application, particularly in circumstances where there are currently no extant proceedings in onshore Dubai.

13. I was addressed by the parties on the effect of the decision of the Court of Appeal in the DIFC in Lakhan (supra) and on the effect of Articles 4 and 5 in particular. It will be recalled that, notwithstanding alternative translations of the Arabic text, which is authoritative, the Wilberforce Chambers translation of the chapeau to Article 4 refers to the situation where there is a “dispute as to jurisdiction between the Dubai Courts and the DIFC Courts either where both Courts… claimed or disclaimed jurisdiction or whether the two Courts… Issued inconsistent decisions on jurisdiction”. It is in those situations that an application can be made to the JJC by means of a petition for it to determine the competent court to hear the claim in question. Article 1 establishes the JJC and Article 2 and Article 5 both refer to “claims or applications” in respect of which there is a dispute as to jurisdiction and “conflicting judgements” issued by the Dubai Courts and the DIFC Courts.

14. In accordance with paragraph 28 of the Court of Appeal decision, it is necessary that the Court should determine whether the circumstances for a stay, in accordance with Article 5 have arisen. What triggers a stay is a referral or reference of a dispute to the JJC but for such a referral or reference there must be “a dispute”, which, in accordance with paragraphs 29 and 30, must be to do with jurisdiction concerning claims or judgemnts as set out in Article 4. The relevant dispute is “the conflict of jurisdiction between the Courts in one of the forms in the chapeau to Article 4”.

15. The Court of Appeal explored the matter further at paragraphs 33 to 36 of its judgment. There it stated that:

“the conflict of jurisdiction can be either through inconsistent judgements or through both Courts maintaining or declining jurisdiction over a claim.… Maintaining or declining jurisdiction over a claim must be something less than judgement on the substance of the claim; conversely, mere existence of proceedings with the same claim in both of the courts cannot be enough for conflict of jurisdiction, as if that were so, there would be no point in making inconsistent judgements an occasion of conflict of jurisdiction – there would be conflict of jurisdiction before getting to judgement.”

16. At paragraph 35 of its decision, the Court of Appeal drew a distinction between the commencement of proceedings in which the Court was asked to exercise jurisdiction and some step in the proceedings amounting to a relevant decision to exercise jurisdiction by the Court or a refusal to take such a step on jurisdictional grounds, in order to constitute a maintenance or declining of jurisdiction within the words of the chapeau to Article 4. All the translations of the Decree required a positive act on the Court’s part, with it making a choice on an occasion where it had to decide whether to exercise jurisdiction or not. It appears to me that there can be no claim or disclaimer of jurisdiction until the Court makes a positive decision that it either has or has not jurisdiction over the relevant claim.

17. In the present case, there is no dispute between the parties that this Court has jurisdiction over both the claim made by DIFCI for negative declarations and the counterclaim which has been advanced by DIB, but which it now wishes to withdraw in its amended pleading. DIB has not only served an acknowledgement of service without contesting jurisdiction but has submitted a Defence and Counterclaim and requested further information of the Particulars of Claim. It has fully participated in the matter thus far and has not taken out any application seeking a stay on the grounds of absence of jurisdiction. It now applies to amend its Defence and withdraw its counterclaim. As the existence of concurrent proceedings cannot amount to a conflict of jurisdiction for the purposes of a “dispute” to go to the JJC, until this Court makes a decision on jurisdiction per se, which is inconsistent with a decision of the Dubai Court, or delivers a conflicting judgment on a claim, there is no relevant dispute be referred to the JJC.

18. I am not called on to determine whether this Court has jurisdiction, as compared with the Dubai Court because no objection is raised to this Court’s jurisdiction by either party although, should I make a decision which is inconsistent with the decision of the onshore Dubai Court the terms of the Decree would then be engaged.

19. In the circumstances the right course appears to me to be to determine the substance of the claim, with whatever consequences that might or might not have in the context of inconsistent decisions.

The Substantive Claim

20. The Construction Contract included, in the General Conditions, a restriction on assignment in the following terms:

It also included, at clause 62.12 of the General Conditions, the following provision:

21. The central issue between the Parties here relates to the terms of the exchanges between them between 29 December 2016 and 24 January 2017. As previously mentioned, on 29 December 2016, BIC, under its previous name of HLG Contracting signed a document headed “Assignment of Project Proceeds”. For the reader’s convenience, the full terms of that document are set out below although, in my judgment, whatever issues arise in relation to it are of limited significance in the exchanges between the parties and, in particular, the final response of DIFCI. This document was not made available to DIFCI until served with the defence in this action.

22. The “Assignment of Project Proceeds” reads as follows:

23. On the same day, BIC sent DIFCI a “Notice of Assignment” in the following terms:

24. Although this does not appear from the witness statement of Mr Visser, it is said by DIB that, attached to that Notice which asked for acknowledgment of receipt, there was also an “Acknowledgment, Consent and Undertaking” for DIFCI to sign. Whether that is so or not, on 15 January 2017 BIC wrote to DIFCI requesting signature of an attached “Acknowledgement, Consent and Undertaking to Dubai Islamic Bank”, addressed to DIB, which referred to the irrevocable notice and consent to the assignment and gave an irrevocable and unconditional confirmation of future payment of AED 490 million and other sums payable to BIC to the Amanat Account or such other account as DIB might designate in writing and stating that the acknowledgement of the assignment would not be terminated without obtaining the prior written approval of DIB.

25. On 23 January 2017, BIC acknowledged receipt of the advance payment to an account in its name at DIB, made by DIFCI on 18 January, asking for future payments to be made to the Amanat Account. On 24 January 2017, DIFCI replied to BIC, referring to the letter of 15 January 2017, stating that DIFC’s Legal Department had reviewed the form of the “Acknowledgement, Consent and Undertaking” and made some minor adjustments to the wording, attaching the final signed copy.

26. The document that was signed and returned to BIC with a letter of 24 January 2017 was addressed to DIB and contained the same heading of “Acknowledgement, Consent and Undertaking”. However, it was in the following terms:

Assignment of Contract Rights

27. The question arises as to the governing law of the documents headed “Assignment of Project Proceeds” and “Notice of Assignment” of 29 December 2016, as well as the DIFCI letter of 24 January 2017.

28. The Construction Contract is expressly governed by DIFC law and any rights which fell to be assigned under it would, therefore, in the absence of any express provision to the contrary, also fall to be governed by DIFC law. The documents in question contain no governing law provision but it is to be noted that the “Assignment of Project Proceeds” refers specifically to the concept of a trust in the last few words of paragraph 1 and, in the submissions made by Counsel for DIB, reliance was placed upon the last sentence as giving rise not only to a trust of the receivables in the hands of BIC when received, but also on a constructive trust in relation to the money when still in the hands of DIFCI “on the accrual” of entitlement to the receivables. The concept of a trust is unknown to UAE law and, notwithstanding the terms of the Facility which are governed by that law, it is inherently unlikely that a provision deeming DIFCI to be “your trustee” would be included in a document which was governed by UAE law. In the circumstances it is clear to me that the “Assignment of Project Proceeds” is governed by the law of the DIFC. (See, by way of illustration National Bonds v Taaleem [2011] CA 001 at [46].)

29. Moreover, on either party’s case in relation to this document, whether it was intended to transfer contract rights or create security over contract rights, the law of the DIFC is the law most closely related to the subject matter of the transaction under Article 8 (2) of the Law on the Application of Civil and Commercial Laws (DIFC Law No. 3/2004).

30. Additionally, as counsel for DIFCI points out, even where the law of an assignment differs from the law governing the rights being assigned, the law of the assignment governs the intrinsic validity of the excitement, whilst the law governing the rights being assigned governs the question whether the right is capable of assignment and under what conditions such an assignment could affect the obligor. This proposition appeared to be common ground between the parties, as set out in Guest on Assignment (4th edition 2021) at paragraph 10 – 04 and Chitty on Contracts at paragraphs 22-045 and 22 – 046.

31. The effect of clause 3.1 on DIFCI’s rights and obligations is therefore governed by the law of DIFC, although, in practice, it appears that there is no real difference between the law of DIFC and UAE law on this subject in any event.

32. Article 94 of the Contract Law of the DIFC provides that a contractual right can be assigned unless precluded by the contract. Article 95 provides that “unless the circumstances indicate the contrary, a contract term prohibiting assignment of the contract bars only the delegation to an assignee of the performance by the assignor of a duty or condition”. Here it is plain that the contract term expressly prohibits the assignment of “any rights benefits or interest therein or thereunder”, so that there is the clearest possible indication to the contrary. Article 95(2) provides that whilst a contract term which precludes assignment does not prevent the assignee from acquiring rights against the assignor (or prevent the obligor from acting as if there were an assignment), and gives the obligor a right to damages for breach of the terms forbidding assignment, this cannot mean that an assignment effected in breach of the contract is binding upon the obligor because of the terms of Article 94. The terms of article 95 (2) (b) which states that “a contract term prohibiting assignment of rights under the contract, unless a different intention is manifested…. gives the obligor or a right to damages for breach of the terms forbidding assignment but does not render the assignment ineffective” do not negate Article 94 which allows for total preclusion by contract. The effect is that the assignment, carried out in breach of the contract, is effective between the assignor and assignee but ineffective as regards the obligor or who is still entitled to render performance to the assignor. This proposition is established in English law by the decision in First Abu Dhabi Bank PJSC v BP Oil International Limited [2018] EWCA Civ 14 at [27]-[30] and Guest at paragraphs 4.08 – 4.11.

33. In the circumstances, DIB has to show that DIFCI consented to the assignment for it to be effective against DIFCI. DIB contended that there was such consent in DIFCI’s letter of 24 January 2017.

The Effect of DIFCI’s letter of 24 January 2017

34. Whatever had previously been requested, what was actually provided by DIFCI was a confirmation and undertaking to pay monies to BIC’s Amanat Account or such other account as DIB might notify in writing “until we receive a contrary instruction from HLG” (BIC). Whilst the document retained the same heading and reference to Schedule (1) and referred to the letter of 29 December 2016, attaching it as appendix A, it was expressed in markedly different terms from the “Acknowledgement Consent and Undertaking” which had been requested. Furthermore, the Letter pointed out that the DIFCI had not seen the Assignment Agreement which had been “purportedly” entered into with BIC. There was no acceptance of any instruction or authorisation to make payment of the Receivables to the Amanat Account or to do anything other than pay monies to that account “until we receive a contrary instruction from HLG” (BIC).

35. Any assignment of the Project Proceeds and rights under the Construction Contract required DIFCI’s “prior consent”. No such consent was ever given by DIFCI before or after any purported Assignment. That is fatal to the claim being made by DIB against DIFCI. For any assignment to be operative as against DIFCI, there would have to be “prior consent” or a waiver of such “prior consent” in writing, addressed to BIC with an express stipulation of such waiver as required by clause 62.12 of the General Conditions set out above. There is no evidence of anything of this kind. No consent was given to an assignment of any kind nor was there any express waiver of clause 3.1 of the General Conditions.

36. Nor can it be said that, by making payments to the Amanat Account, there was any consent or waiver of the need for prior consent to an assignment of contractual rights. The payments were made on the basis of the Letter of 24 January 2017 and specifically on the basis of an absence of receipt of contrary instructions from HLG (BIC), as was plain from the terms of the Letter which it is presumed were passed on from BIC to DIB.

37. In these circumstances, there cannot be any liability on the part of DIFCI to make payments to DIB, once contrary instructions have been given, as they were in relation to the settlement amount of AED 20 million. No consent was given to any assignment as such, with DIFICI agreeing to make payments only in accordance with the terms of the Letter. There is equally no basis for any claim in relation to any other sum, whether made prior to the 24 January 2017 Letter or thereafter, since all payments made thereafter, other than the settlement amount were actually paid into the Amanat Account.

The Effect of the “Assignment of Project Proceeds”

38. It was also submitted by Counsel for DIFCI that there was no assignment of contract rights in any event of which notice could be given, regardless of the need for consent on the part of DIFCI to any such assignment.

39. The case put forward by DIB relied on Article 99 of the DIFC Contract Law. DIB submitted that, in accordance with Article 99 (1), “on an assignment, any right of the assignor to discharge or modify the duty of the obligor to the assignee is transferred to the assignee”. It was said that, therefore, it was incumbent upon DIFCI, because the right to receivables had been transferred to DIB, to pay the settlement amount to DIB and not follow the instructions of BIC.

40. The difficulty about this submission is that the document which is headed “Assignment of Project Proceeds” uses a number of different terms which are inconsistent with the concept of an out and out assignment of contract rights:

41. I conclude therefore that, regardless of the heading of “Assignment of Project Proceeds” this was not an assignment of contractual rights as such but was an agreement to pledge the monies which were to be paid by DIFCI and to seek to make that effective by obtaining DIFICI’s consent to arrangements which would do so. Title to the chose in action constituted by the Construction Contract rights did not pass from BIC to DIB. In such circumstances no notice of assignment of contractual rights could be effective for the purposes of Article 99 of the DIFC Contract Law and, as DIFCI only agreed to make payments in accordance with the Letter of 24 January 2017, and adhered to that, there is no basis for saying that DIB are entitled to payment from DIFCI following different instructions from BIC to DIFCI.

The “Notice of Assignment” of 29 December 2016

42. The “Notice of Assignment” specifically stated that “we have assigned by way of security” the sum of AED 490 million in addition to all or any payments or monies due or to become due to us under the Contract”. Although reference was made to the “Assignment of Project Proceeds”, no copy of that was forwarded with the “Notice of Assignment”. Exactly what this phrase in the Notice of Assignment meant is unclear but it must obviously have been intended to refer to the “Assignment of Project Proceeds” which was a Pledge Agreement. It could not therefore constitute notice of an out an out assignment of entitlement to contract rights or an assignment of contractual rights by way of security. Title to the chose in action constituted by the contract rights did not pass.

43. The second paragraph included an irrevocable and unconditional authorisation to make payment of the Receivables to the Amanat Account, whilst drawing DIFCI’s attention to the fact that BIC was not entitled the transfer or dispose of such Receivables or permit any other security interest or encumbrance over them. Although there is authorisation, rather than instruction to make payment, it is said that the effect must be the same because of the clarification of absence of entitlement to assign transfer or dispose of the Receivables and the nature of the authorisation to pay either to the Amanat Account or such other account as DIB might nominate.

44. The Notice asked for an acknowledgement of receipt but included a schedule which BIC implicitly asked DIFCI to execute. The effect of not so doing and instead providing the Acknowledgement Consent and Undertaking that it did, in the terms of the Letter of 24 January 2017 is that it cannot be said that there was any consent to any assignment of any rights (DIFCI expressly professing ignorance of what “assignment” might or might not have been executed) or that DIFCI agreed to do anything other than what appears in the second paragraph of its 24 January Letter which was expressly to make payments to the Amanat account until contrary instructions were received from BIC.

Waiver/ Estoppel

45. DIB submits that, in the alternative to its claim that DIFCI consented to the assignment of contract rights, it waived the need for written consent and is estopped from contending otherwise. I cannot see how either waiver or estoppel can arise in circumstances where DIFCI complied with the terms of the 24 January Letter, which was the only acknowledgement it gave. If DIB’s case on assignment, notice and/or consent to assignment cannot succeed, no case of waiver or estoppel can be established. There were no unequivocal representations upon which DIB could rely beyond the terms of the Letter of 24 January. The payments DIFCI made into the Amanat Account were in accordance with the Letter, as was the payment of the Settlement amount in accordance with the instructions given by BIC. The reality is that DIFCI could not properly do anything other than comply with those instructions.

Suretyship/ Inducing Breach of Contract

46. These further alternative cases were not pursued in oral argument and are unsustainable. They appear in the draft defence on the basis of UAE law but nothing in any of the documents gives rise to any suggestion of suretyship or guarantee within the meaning of the UAE Civil Code and there is no evidence of any procurement by DIFCI of a breach of contract by BIC, when obeying BIC’s instructions to make payment to an associated company. DIFCI did not even have a copy of the Assignment until the defence was served and had no knowledge of its contents, save as appeared from the Notices sent to it. As set out earlier, DIFCI had no option but to obey BIC’s instructions to pay the money which was agreed to be due in full and final settlement of the dispute under the Construction Contract to the account designated by BIC. Suggestions in the skeleton argument of potential fraud should not have been made without any evidential basis

Conclusion

47. In these circumstances and for the reasons set out, I conclude that DIB has no real prospect of defending the claim for negative declarations and has no real prospect of establishing the matters relied on in its draft amended defence. There is no other good reason put forward why this matter should go to trial. Immediate judgment should therefore be given in favour of DIFCI and DIB’s application to amend refused.

48. I reserve all issues of costs, although in the ordinary way, I would expect costs to follow the event. If the parties are unable to agree the issue of costs, I direct that Schedules of Costs be exchanged within 7 working days with submissions of no more than 6 pages each with a right of reply within 3 working days thereafter and I will make a determination in writing unless either party has good reason for seeking an oral hearing.