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4.2 The control and ownership of the above entities substantially overlapped. Thus, Diwan Cayman was the sole shareholder of Diwan DIFC. Up until November 2008, Robert Bertschinger was at the same time the Chairman of Diwan AG and Diwan DIFC. Further, Benoit Demeulemeester, Urs Rechsteiner and Ruedi Daellenbach were the founders of both Diwan AG and Diwan Cayman.

The services provided by Diwan AG (the subject-matter of the claim).

FINDINGS OF THE COURT BELOW

5. Justice Ali Al Madhani's reasons for his decision may be summarised as follows.

APPELLANT'S ARGUMENTS

6. Before me, Diwan DIFC was represented by Mr Kaashif Basit (who had not appeared in the Small Claims Tribunal below). He argued that there was insufficient evidence to support the learned Judge's findings below that:

(a) a contract had been concluded; and

(b) Diwan DIFC was liable in the sum of AED 91,800.

7. His arguments were divided into the following sections.

The First Defect — contract concluded prior to incorporation

8. Counsel argued that DIFC Company Law clearly provides that a company incorporated in the DIFC (as Diwan DIFC undoubtedly was) is not bound by contracts purporting to be entered into on its behalf by its promoters or other persons before its incorporation, although such persons may be personally liable for such contracts.

9. Diwan AG, in its arguments before me, asserted that the date when the contract was entered into was sometime in late 2006. The relevant law at that time would have been Article 26(1) of DIFC Companies Law no 3 of 2006 ( which came into force in April 2006), and provided:

"Where a contract purports to be entered into by a Company, or by a person as agent for a Company, at a time when the company has not been formed, then, subject to Paragraph (2) and unless otherwise agreed by the parties to the contract, the contract has effect as one entered into by the person purporting to act for the Company or as agent for it, and he is personally bound by the contract and entitled to its benefits."

(This provision has now been replaced by Article 26(1) of DIFC Companies Law No 2 of 2009, which is in identical terms.)

10. The only way in which Diwan DIFC could have been bound by a pre-incorporation contract made in its name is under the doctrine of adoption provided by Article 26(2) of DIFC Companies Law No 3 of 2006, which was in the following terms:

(This provision has now been replaced by Article 26(1) of DIFC Companies Law No 2 of 2009, which is in identical terms.)

11. There was no such act of adoption in this case, nor was there a new agreement in similar terms as the alleged pre-incorporation contract; hence Diwan DIFC could not be liable on the pre-incorporation contract (if there was indeed such a contract).

12. Counsel also submitted that the fact Diwan DIFC may have benefited from the work done by Diwan AG on the RBP was insufficient to give rise to any liability on the part of Diwan DIFC, citing Vaughan Williams LJ in Re English and Colonial Produce Co[1906] 2 Ch. 435 at 442:

The Second Defect — no basis for the sum claimed

13. Counsel submitted that, assuming there to have been a valid contract, there was no evidence of any agreement as to the basis for the sum claimed. There was no prior agreement as to the fee to be paid for the RBP, either on a lump sum or on the basis of a time charge.

14. Furthermore, Diwan AG had argued in paragraph 6 of its statement of case as follows:

15. This argument of Diwan AG was totally inconsistent with a contractual claim for cash payment for services rendered when its own case was that the agreement was supposed to be that Diwan AG would be allotted shares through its executives who were working in Diwan DIFC by way of an Employee Share Option Plan ("ESOP").

16. While the learned Judge below rejected this last argument of Diwan DIFC, he did not go on to consider on what contractual basis Diwan AG was making its claim for AED 91,600.

The Third Defect — procedural errors

17. Counsel for the Appellant also made several other criticisms of various procedural and evidential errors allegedly made by the Judge below. For reasons which will become apparent later, it is unnecessary to set those criticisms out in detail.

RESPONDENT'S ARGUMENTS

18. At the hearing before me, Diwan AG was represented by its Director, Dr Urs Rechsteiner (a different director having appeared at the Court below). I will set out its arguments under the same headings as the Appellant's arguments for ease of reference.

The First Defect — contract concluded prior to incorporation

19. Diwan AG relied on Article 9 of the DIFC Contract Law No 6 of 2004, which states:

20. The Respondent further relied on the terms of the RBP, which made it plain that Diwan AG was doing professional work for Diwan Cayman on a contractual basis which was not formalised. Such work was not for free, and it was plain that there would be some form of remuneration. Although there was no written contract, there was clear evidence of work done by Diwan AG (including but not confined to) the preparation of the RBP. This liability on the part of Diwan Cayman would eventually be transferred to Diwan DIFC, since Diwan Cayman was only a holding company, and was not intended to carry on any business; all costs incurred by Diwan Cayman would eventually be "pushed down" to Diwan DIFC, since that was the company which would invite investors and take on employees to carry on business in the DIFC.

21. Diwan AG also argued that, although Diwan Cayman and Dtwan DIFC were two separate legal entities, they were in fact one company. By a Deed of Transfer dated 4 March 2008 Diwan Cayman transferred (among other things) all its obligations in relation to the Project of incorporating a financial services company in the DIFC to Diwan DIFC and, in Clause 3 of the Deed, Diwan DIFC had covenanted to pay Diwan Cayman such amount as might be necessary to enable Diwan Cayman to discharge any liability, claim or payment due to any person.

22. Diwan AG also relied on Article 26 of DIFC Companies Law No 3 of 2006. It argued that Diwan Cayman, investors, shareholders and board members (presumably of Diwan DIFC) had (by act or conduct), on the one hand, accepted the conditions and implied covenants in the business plan and other documents and, on the other hand, benefited from the work performed prior to completion of the first financing round of the project, Article 26, therefore, applied. It further argued that, since Diwan Cayman was the legal person purporting to act for Diwan DIFC, and the two companies were actually one, "the contracts and commitments were adopted by [Diwan DIFC] immediately after its formation". Also, Diwan DIFC had declared itself liable for work performed prior to incorporation.

23. Diwan DIFC never reacted when Diwan AG sent its invoice for preparing the RBP. Clearly, Diwan AG had done work for which there was a contractual entitlement to be paid.

The Second Defect — no basis for the sum claimed

24. Diwan AG did not directly address the issue of how it justified its claim for exactly AED 91,800. However, it argued as follows:It is commonly known that consultancy work is paid on a daily ( or hourly) basis

(a) However, in the venture industry, this is not always the case as companies "regularly" do not have the required cash for an immediate remuneration. Therefore, such companies offer their own shares to those performing work in the initial phase.

(b) Diwan DIFC "did the same" (presumably meaning that it offered its shares to Diwan AG), but never provided Diwan AG with such shares and, because of this breach of its contractual obligation to provide Diwan AG with shares in Diwan DIFC, Diwan AG was forced to ask for the "traditional" remuneration or "a commonly accepted form of payment" (meaning the usual method of charging for consultancy work on a time charge basis).

(c) In this connection, the Respondent cited Article 12 of DIFC Contract Law no 6 of 2004 which provides:

Usages and Practices

(1) The Parties are bound by any usage to which they have agreed and by any practices which they have established between themselves.

(2) The parties are bound by a usage that is widely known to and regularly observed in international trade by parties in the particular trade concerned except where the application of such usage would be unreasonable.

25. Finally, the Respondent cited the principle of good faith. A company may bind itself to commitments or contracts prior to incorporation prior to incorporation. Refusing to comply with such commitments or contracts after being incorporated is clearly against good faith

DISCUSSION

27. Accordingly, the starting point of any analysis of the facts in this case must be on the basis that, whatever may have been agreed by way of contract on behalf of Diwan DIFC before its formation, that contract would not have bound Diwan DIFC absent an act of adoption by it of that contract, as provided under Article 26(2).

28. Diwan AG has argued that Diwan DIFC did adopt the contract by: (a) using the RBP; and (b) by not responding to the invoice.

29. As to (a), the fact that Diwan DIFC may have used the RBP does not itself mean it adopted any contract for payment of the services rendered by Diwan AG in preparing that document. Under Article 26(1), assuming that there was a contract at all made between Diwan AG and someone on behalf of Diwan DIFC for the provision of consultancy services in the production of the RBP in return for remuneration by Diwan DIFC (as to which it is unnecessary for me to make a finding), contractual liability for that obligation on the part of Diwan DIFC would have rested with the person making that contract purportedly on its behalf. The fact that Diwan DIFC made use of the RBP does not (in the absence of other evidence) give rise to the inevitable inference that Diwan DIFC had assumed the contractual responsibility for payment to Diwan AG. It is equally likely to suppose that Diwan DIFC was content to leave that responsibility with the person who made the contract in its name, and to make its own arrangements for reimbursement of that person in due course (if at all).

30. As to (b) an invoice is not (in the usual case) a contract. It is merely a demand for payment. It gives rise to no legal obligation to respond, in the sense that such failure would automatically lead to a finding that the invoicee is liable for the sum invoiced. The submission of an invoice may well have evidential significance for both the issuer as well as the recipient of the invoice in terms of inferences to be drawn in the context of contractual liability, but such inferences must be seen in the whole factual matrix.

31. This leads to the next major factor which makes Diwan AG's case untenable. It has openly stated that the contractual arrangement was for Diwan AG to be remunerated by the issuance of shares in Diwan DIFC. Only when Diwan DIFC failed to do so did Diwan AG issue its invoice several years after the completion of its work for payment in cash. On its own case, cash remuneration was not the original agreed method of payment, and Diwan AG has advanced no case that the original method of remuneration was contractually agreed to be amended to a cash payment on the basis of US$2500 per day (which formed the bulk of the amounts claimed in the invoice). Accordingly, no adverse inference can be drawn from Diwan DIFC's failure to respond, as Diwan AG's own invoice was without contractual basis.

32. In the circumstances, it is unnecessary to deal with the other grounds of appeal as the reasons stated above are sufficient to decide this case. The learned Judge's reasons for his decisions were wrong in law which must therefore be set aside.

COSTS

33. While costs are not normally awarded in SCT cases, I propose to make an exception in this case.

34. One of the criticisms that Diwan DIFC has made of Diwan AG's conduct of these proceedings has been that Diwan AG has abused the Small Claims Tribunal procedure by artificially constructing a claim for AED 91,800 when the true value of the claim (as evidenced by the invoice which forms the basis of its claim) is US$759,937. Diwan DIFC argues that Diwan AG is seeking to use the Small Claims Tribunal procedure to run a test case without incurring any liability to pay legal costs, and this has not been denied by Diwan AG.

35. While the principle of instituting a test case is not in itself objectionable, that process can only be used in the Small Claims Tribunal where there is a distinct and complete claim within the jurisdiction of the Small Claims Tribunal, with other similar claims to be filed later based on the same facts and legal principles in case the first case is successful. In this case, there has been an arbitrary carve-out of the sum of AED 91,800 purportedly attributed to Diwan AG's services in preparing the RBP to bring this claim within the jurisdiction of the Small Claims Tribunal when the invoice simply shows a sum of US$705,000 being billed for 282 days of work at US$2500 per day. That is clearly an abuse of process and I, therefore, award the costs of this appeal against Diwan AG.

DECISION

36. The Court, therefore, makes the following Orders:

Chief Justice Michael Hwang

Date of Issue: 16 May 2011