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CFI 008/2007

THE JUDICIAL AUTHORITY OF THE DUBAI INTERNATIONAL FINANCIAL CENTRE

In the name of His Highness Sheikh Mohammad Bin Rashid Al Maktoum, Ruler of Dubai

Before: JUSTICE SIR ANTHONY COLMAN

24 November 2008

Between

Ithmar Capital

Claimant

– and –

8 Investments Inc.

First Defendant

– and –

8 Investments Group Fze

Second Defendant

Hearing : 29, 30 June, 1, 2 and 3 July, 23 and 24 September 2008

Counsel: Mr Philip Punwar (instructed by Al Tamimi & Company) for the Claimant

Mr Kaashif Basit and Mr Siddharth Dhar (instructed by JSA Law) for the First Defendant

Judgment of Justice Sir Anthony Colman

Introduction

2. The claim by Ithmar is against the First Defendant ("8 II") for damages for breach of a Memorandum of Understanding ("MOU") entered into on 9th October 2007. The subject matter of the MOU was an agreement by 8II to sell to Ithmar office premises at Unit 1007, Liberty House, DIFC. The total price was AED 27,647,200 on the basis of AED 2800 per square foot. Ithmar claims that 8II wrongfully repudiated the contract in November 2007 and claims basic damages in the sum of AED 32,804,291 together with punitive damages in the sum of AED 98,412,873. There is a counterclaim by 8II for AED 2,172,280, the amount of a deposit payable by Ithmar under the MOU.

3. The claim against the Second Defendant is not for any immediate substantive relief. That party was joined for and only for the purpose of obtaining relief ancillary to Ithmar's application some months before this trial for an injunction freezing those assets beneficially owned by 8II. For present purposes that claim can be ignored.

4. Before setting out the events leading up to November 2007, it is necessary to explain 8II's interest in Unit 1007.

5. On 24th April 2007 8II entered into a Unit Sale and Purchase Agreement ("SPA") with ETA Star Property Developers LLC ("ETA") under which ETA agreed to sell Unit 1007 to 8II for AED 21,722,800. The price was payable in seven instalments, the first to be paid between 15th April and 1st October 2007, and the next three between 1st January and 15th June 2008, with completion under the SPA estimated at mid-June 2008. The office block in which Unit 1007 was located was, as it still is, under construction with completion estimated at June 2008. The SPA was signed on behalf of 8II by Mr. Ronnie Decker, described as President of 8II. By the date when the MOU was entered into, 8II was seriously in arrears with the price instalments to the extent of AED 8,684,733.42 (some 40 percent of the price) and there was an outstanding late payment fee amounting to AED 299,051.

6. Against this background the MOU was structured on the basis that 8II agreed to assign its interest in the SPA to Ithmar for a price of AED 27,647,200. It is to be observed that this was a sale on a rising market, 8II's sale price to Ithmar being 27 percent higher than its purchase price less than five months earlier. Ithmar is a private equity fund manager and wished to acquire Unit 1007 for use as its head office.

The MOU

11. By clause 9 a transfer fee of AED 217,228 (1% of the price under the SPA) was to be paid by the buyer (Ithmar). Importantly, by clause 10 it was provided that during the term of the MOU (it was to be in force until 15th November 2007) 8II would not either by itself or through any agent market or advertise Unit 1007 or negotiate or contract for the sale of that property with any third party.

12. By clause 11 8II warranted that as of the Completion Date under the MOU it would have paid any and all penalties, charges and fees assessed by ETA in connection with the late payment by 8II of all instalments of the purchase price under the SPA.

13. By clause 12 8II was to cause ETA to issue to Ithmar a new sale and purchase agreement in relation to Unit 1007 in terms which were identical to or more favourable than the SPA. Clause 14 provided:

14. The MOU was signed on 9th October 2007. Paul Sansom, Chief Operating and Financial Officer of Ithmar took copies of the final form of the MOU signed by the authorised signatories on behalf of Ithmar to the Shangri La Hotel, Dubai where he met Mr. Decker of 8II and a Ms Boustany. The precise capacity and role of Ms Boustany will have to be considered later in this Judgment. Mr. Decker signed the MOU on behalf of 8II in the course of that meeting. At that point, as is now common ground, the MOU became binding on Ithmar and 8II.

Events on and after 9th October 2007

16. It was further Mr. Sansom's evidence that he did not regard it as "critical" that the cheque should be delivered into escrow that same evening. He further stated that the omission to procure a bank manager's cheque was "an oversight" on his part. In view of the issues in this case, it is necessary to determine whether this evidence should be accepted and in particular whether this was a deliberate omission. Mr. Sansom confirmed in cross-examination that if he had appreciated that a manager's cheque were required under the MOU he would have obtained one on the morning of 9th October before the meeting with Mr. Decker. He stated that Ithmar had cleared cash deposits with HSBC, Finance House and Emirates Bank which could have been used to back a bank manager's cheque. His evidence received ample support from bank statements of account exhibited to his 4th Affidavit put in on 1st July 2008 in the course of the trial. When he had obtained the signed company deposit cheque he telephoned the person with whom Ithmar had been in contact with regard to the MOU in the Property Department at Tamimi, so as to deposit the cheque in escrow, but that person was not there. He explained that he needed to contact that particular person so that he could "register" that Tamimi had received the cheque.

17. On the face of it, Mr. Sansom's failure to appreciate that Ithmar was obliged to supply a manager's cheque is somewhat implausible. Anyone in his position who had previously been involved at least to some extent in negotiating the terms of the MOU, particularly clause 7, at a meeting with Mr. Decker in late September 2007 could reasonably have been expected sufficiently to direct his mind to the terms relating to the deposit to appreciate before he attended the 9th October meeting at which the MOU was to be signed by Mr. Decker that a manager's cheque, as distinct from a company cheque, would be needed to be held in escrow from that day.

18. However, subsequent events suggest that Mr Sansom in truth probably made a mistake. For on 10th October he duly sent the company cheque to Tamimi and contacted Ms Boustany to inform her of that. Mr Sansom stated that she was informed at Mr Decker's request so that she could confirm to him that the cheque had been sent to Tamimi. I infer that Mr Sansom must have appreciated that, from the moment when Ms Boustany was informed that Tamimi held the cheque, either she or Mr Decker could verify that the cheque was in all respects compliant with the requirements of the MOU. It is inconceivable that he would knowingly have risked depositing a non-compliant cheque and thereby knowingly have exposed the operation of the agreement to the risk of disruption.

19. Although I find somewhat unconvincing Mr Sansom's explanation for his oversight — namely that he believed that the mere creation of the escrow deposit, as distinct from a manager's cheque, was what Mr Decker would rely on as a sufficient indication of Ithmar's commitment to, and ability to complete, the Unit 1007 sale — I have come to the conclusion that he was a witness of truth and that his evidence is sufficiently reliable for this Court to conclude that his omission to procure a manager's cheque on 9th October was indeed due to his failure to focus on the precise wording of Clause 7. This was, in my judgment, neither a deliberate nor a reckless omission to comply with that clause.

20. Following Mr Sansom's contact on 10th October 2007 with Ms Boustany there was no further contact between her and Ithmar until 7th November 2007 when there took place a telephone conversation between her and Mr Hasan, the Managing Partner of Ithmar, in the course of which she discussed with Mr Hasan rumours that 8II might have disposed of its interest in Unit 1007 to a third party in spite of the MOU.

21. I shall return to the contents of that telephone conversation later in this judgment.

22. In the meantime it is necessary to consider other evidence as to events following 9th October.

23. According to Mr Decker's witness statement, he contacted Ms Boustany on 9th, 10th and 11th October 2007 regarding the performance of the terms of the MOU. She obtained from Tamimi, at his request, copies of the deposit cheque and Tamimi's receipt for it and sent them to him. At his request she then met him at the Grosvenor House Hotel on 11th October 2007. He had previously contacted Mr Perez, Chief-Executive Officer and a director of 8II and explained to him that the cheque was not a manager's cheque and that the deposit had been made late. According to his witness statement, he then told Mr Perez that Ithmar was wasting their time and Mr Perez then expressed considerable concern and gave instructions that they should seek to terminate the MOU with immediate effect. When Ms Boustany arrived, according to his witness statement, he explained to her the difficulties 8II had with Ithmar's conduct. When Ms Boustany pleaded for more time to resolve this issue, he told her that Ithmar had given 8II "sufficient cause to terminate the deal". He told her that the deal was off and that 8II no longer considered itself bound by the terms of the MOU. Having told her that, his evidence was that he made no contact with Ithmar or Tamimi because he considered that by so informing her he had sufficiently informed Ithmar.

24. On 13th October 2007, according to Mr Decker's evidence, 8II passed a Board Resolution which ratified his actions. The Resolution is signed by two directors — Alfonso Perez and Mona Cordell. It referred to Ithmar having failed to perform what had been agreed in the MOU and stated that "an obvious breach of the contract (had) been raised". It stated that the deposit had not been made on the day of signing the MOU and a manager's cheque had not been produced, that both such matters would constitute "a major breach" of the MOU contract and that it was declared that the MOU was "null and void" and that "effective immediately the MOU is terminated".

25. In response to questions about the authenticity of this document raised by the Court in the course of the trial, Counsel for 8II put in evidence an affidavit sworn in the United States by Mona Cordell. This verified her signature on the 13th October 2008 Board Resolution and drew attention to her signature as it appeared on other documents and credit cards. Ithmar has submitted that in effect the Board Resolution is a fabricated document designed by 8II to support Mr Decker's evidence that on 11th October he told Ms Boustany that the contract was terminated. Before considering this submission it is necessary to consider subsequent events.

26. On 21st October 2007 an assignment agreement was entered into by 8II, Future Investment LLC and ETA under which 8II agreed to assign to Future Investment the Sale and Purchase Agreement dated 24th April 2007 (the SPA) under which 8II had agreed to purchase Unit 1007 from ETA. The latter agreed to enter into a new Sale and Purchase Agreement with Future Investment in relation to Unit 1007. Completion was to be in 30 days.

27. I must now return to the telephone conversation between Ms Boustany and Mr Hasan of Ithmar on 7th November 2007 referred to in paragraph 20 above. This conversation was the result of an email exchange between Ms Boustany and Mr Decker on 5th, 6th and 7th November 2007. That exchange was as follows.

31. Ms Boustany was apparently unwilling to give evidence at this trial. It is therefore necessary to derive from what she wrote in her messages and from Mr. Decker's evidence what passed between them on 11th October 2007 (see paragraph 23 above).

32. It is to be observed that nowhere in these exchanges did Mr Decker remind Ms Boustany that when they met on 11th October he had told her that, because Ithmar's deposit cheque had been received late and was not a manager's cheque, the deal was terminated. Indeed, her questioning of him in the course of these exchanges is entirely inconsistent with his having told her four weeks previously that 8II terminated the deal. Even her protests that 8II was bound by the terms of the MOU and that he was in effect acting dishonestly evoked no response to the effect that the contract had not been performed by Ithmar and was therefore dead. The nearest the exchanges get to any expression of dissatisfaction with Ithmar's conduct are Ms Boustany's recognition in her message on 6th November that he was worried that Ithmar would back out from the deal and hold on to the property while being unable to complete and in Mr Decker's 7th November message where he told her that "if they had given me the deposit, as normal I wouldn't have backed out of the deal". At its highest the recognition of his concerns about Ithmar's ability to perform certainly does not suggest any kind of statement that the deal was terminated. The comment about the deposit clearly relates to Ithmar's insistence on the escrow arrangement for the deposit as distinct from Mr Decker's original negotiating position that it should be paid to 8II direct which he claimed to be normal Dubai practice.

33. Mr Decker was cross-examined at some length on these exchanges. As to his 5th November message, Mr Decker stated that by the last words of that email — "I will still give you your commission on the deal, don't worry" — he was not referring to commission due to Ms Boustany in respect of the MOU deal but in respect of a totally different deal involving the purchase by him of a villa from one Khalid Alzaher.

34. I observe that this explanation is, on the face of it and having regard to the context in which those words appear, quite incredible. They appear to have the sole purpose of mollifying Ms. Boustany's likely concerns should the MOU deal not be completed.

35. It is further to be noted that this is not the only remarkable feature of this message. It refers to Mr. Decker having "an offer from ETA direct for AED 3400 per sq. ft." Yet this was written two weeks after Mr. Decker had caused 8II to enter into the assignment agreement thereby disposing of its interest in the SPA and therefore Unit 1007 to Future Investment. Against this background Mr. Decker's assertions that he had "an offer" and that he was "not trying to get out of the deal" were thoroughly misleading and clearly designed to conceal the truth from Ms Boustany. The reference to his having an "offer" at AED 3,400 per sq. ft. is repeated in his 9th November message.

36. The overall impression created by these email exchanges and one which his evidence before me did nothing to dispel is that Mr. Decker had simply ignored the MOU when presented with a more profitable deal. These messages contain no suggestion that 8II was entitled to terminate on the grounds of breach by Ithmar with regard to the deposit cheque and that it had done so nor that Mr. Decker had made this clear to Ms. Boustany on 11th October or at any other previous time. Indeed the contents of this email exchange appear to be quite incompatible with Mr. Decker's evidence that he had already made clear to Ms. Boustany on 11th October that the deal was terminated.

37. Paragraph 47 of an affidavit of Mr. Decker sworn on 28th November 2007 for the purpose of supporting an application by 8II to discharge a freezing injunction obtained by Ithmar on 22nd November 2007 restraining disposal of its assets, is illuminating. In the course of the suggestion that Mr. Sansom's evidence that Ithmar was ready to complete on 7th November 2007 should not be believed, Mr. Decker stated:

38. In the course of his evidence Mr. Decker acknowledged that the reference to 5th October 2007 was a mistake and that it should have read 5th November 2007. That being clearly correct, the striking feature of this affidavit is that it makes no reference to Mr. Decker having on 11th October 2007 informed Ms. Boustany that 8II considered the MOU to be dead. Nor does it make any reference to the Board Resolution referred to in paragraph 24 above. The Board Resolution of 13th October 2007 itself makes no reference to notice of termination of the MOU already having been given by Mr. Decker on 11th October nor does it ratify the giving of that notice by him.

39. The allegation that notice of termination of the MOU had been given on 11th October was first formulated in paragraph 11 of 8II's Defence and Counterclaim served on 14th February 2008. No reference was made in that pleading to the Board Resolution of 13th October 2007. Up to that time 8II had relied on the submission that because the deposit cheque was not a manager's cheque and was not provided on the day of signature of the MOU, that contract automatically terminated, and, implicitly, 8II was therefore entitled to sell its interest in Unit 1007 to Future Investment on 21st October without notice to Ithmar. Accordingly, the terms of the Resolution, in particular the declaration that the MOU was terminated "effective immediately", do not reflect any prior notice of termination to Ithmar via Ms. Boustany or otherwise. In view of Mr. Decker's account in his evidence of his having contacted Mr. Perez of 8II, having told him of the absence of a manager's cheque and the delay in the provision of any cheque and having consequently received instructions from Mr. Perez to terminate the MOU with immediate effect, it is surprising to say the least that the Board Resolution dated two days later made no mention of Mr. Decker's termination by notice to Ms. Boustany on 11th October. Mr. Perez has not been called to give an explanation of these events and no explanation has been given of his absence as a witness. The Resolution itself was not signed by Ms. Jill Bauer, who had signed other board resolutions disclosed, and who described herself as Executive Administrator of 8II. Nor was it disclosed until it was exhibited to Mr. Decker's witness statement on 8th June 2008 shortly before the trial, in spite of the Order of Dep. Chief Justice Hwang dated 6th April 2008 that all additional documents to be relied upon should be served by 10th April 2008.

40. I have carefully considered both Mr. Decker's explanation in the course of his oral evidence of his conduct between 9th October and the swearing of his affidavit of 28th November 2007 as well as the submissions in support of those explanations advanced by Mr. Kaashif Basit, counsel for 8II. However, I have come to the conclusion that Mr. Decker's evidence is entirely untrue. His attempts to explain what he said in the email exchange with Ms Boustany are quite incredible. Having been advised at some stage after he swore that affidavit but before service of 8II's Defence and Counterclaims on 14th February 2008 that it might be necessary for 8II to prove that notice of termination was given to Ithmar soon after Mr Decker was aware of the defect in and delay in provision of the deposit cheque, he has injected into his account of events the notice of termination said to have been given by his telling Ms Boustany on 11th October 2007 that the deal with Ithmar was dead. I have no doubt that at the time when she spoke to Mr Hasan by telephone on 7th November 2007 she did not know for certain that 8II was treating the MOU as terminated or that 8II had already sold its interest in Unit 1007.

41. I am bound to say that I am not able to accept the veracity of the document containing the apparent Board Resolution of 13th October 2007. It was, in my judgment, concocted well after that date for the purpose of bolstering the case advanced by 8II as to the perceived importance of the omission to provide a manager's cheque on the day when the MOU was signed.

42. However, it is to be observed that the allegation that, because of the absence of a manager's cheque and the delay in the provision of a deposit, 8II was entitled to dispose of Unit 1007 without more was first articulated on 22nd November 2007 by counsel appearing on behalf of 8II at the return date hearing of Ithmar's application for an injunction against 8II. Counsel stated that he was advancing that point subject to taking instructions. This point finds no expression in the e-mail exchange between Mr Decker and Ms Boustany that concluded on 9th November 2007 and I infer that it was not a point that anyone at 8II had entertained at any time earlier than 22 November 2007. The Board Resolution dated 13 October 2007 was therefore probably created at some time after 22nd November 2007. It was in his affidavit of 28 November 2007 that Mr Decker first relied on the point and it was in Counsel's skeleton argument before the Court of Appeal dated 10th January 2008 that the point was first advanced as a considered part of 8II's defence, albeit as an alternative to the submission that the MOU was not a binding contract.

The Claimant's Submissions as to Liability

44. In this connection, Ithmar relies on Art 86 of the Contract Law 2004 which provides as follows:

45. It is submitted that 8II has failed to make good any of these requirements for fundamental non-performance and therefore entitlement to terminate the MOU. Thus, provision of the deposit cheque one day late in the form of a company cheque and not a manager's cheque did not substantially deprive 8II of what it was entitled to expect under the MOU. Nor was strict compliance with the deposit cheque requirements ever made of the essence of the contract. Nor was the failure to provide a manager's cheque on 9th October intentional or reckless, but simply an oversight by Mr. Sansom. Further, the omission to provide the deposit cheque on time and in the right form did not give 8II reason to believe that Ithmar could not be relied on to complete. Since 8II never objected about the lateness of the cheque or about its not being a Manager's cheque it was not in a position to form any reason-based belief as to whether it could rely on Ithmar to complete.

46. Further, Mr Punwar draws attention to Art. 84 and Art. 87 of the DIFC Contract Law 2004 by which it is provided as follows:

48. Thus, Mr Decker having ascertained on 11th October 2007 both that the deposit cheque had not been provided on the day when the MOU was entered into and that the cheque was a company cheque and not a manager's cheque, 8II failed to give any notice that it was terminating the MOU due to Ithmar's breach until that point was relied on in Mr Decker's 28th November 2007 affidavit, seven weeks after 9th October and more than five weeks after 8II had sold its interest in Unit 1007 to Future Investment. 8II was therefore not entitled to treat the MOU as terminated because it failed to give notice to Ithmar of termination within a reasonable time of 11th October 2007.

49. It is submitted that 8II was not entitled to give notice of termination to Ms Boustany who was not acting at the relevant time as Ithmar's agent to receive such notice. She was the agent of 8II, as shown by Mr Decker's recognition of her entitlement to commission, and was under no duty to Ithmar to transmit to it notice of termination of the MOU given to her by 8II. Further, the circumstances relating to performance under the MOU were such that the only appropriate means of giving it was directly to 8II and not through an agent. In any event, 8II had not established that notice of termination was ever given to Ms Boustany, whether within a reasonable time or at all.

50. It followed that 8II, either having no grounds upon which to terminate the MOU or, if it did have such grounds, having failed to give notice of termination within a reasonable time, was in breach of the MOU by having disabled itself from completing in accordance with the terms.

Defendant's Submissions on Liability

52. Mr Basit submits that, against this background, it must have been obvious to Mr Sansom that the provision of a manager's cheque, representing as it did, cleared funds was of major importance to 8II. As accepted by Mr. Sansom in cross-examination, in the event of Ithmar's breach by failure to complete, the deposit cheque would have been at risk because it would have had to be released to the seller in satisfaction of the penalty under clause 4 and in spite of the wording of clause 4(c.) which failed to reflect what the parties had agreed. Mr Decker's evidence was to the same effect.

53. I interpose that in this regard the wording of clause 4(c) is manifestly the result of a drafting error. The whole purpose of the designation of Tamimi as holder of the cheque in escrow was clearly that Ithmar would relinquish all physical control over it in case the penalty became payable whereupon Tamimi would release the cheque to 8II so as to enable it to collect the amount of the penalty. If in that event the cheque had to be released to Ithmar, the whole purpose of the escrow provision would be destroyed.

54. The evidence of 8II's expert Dubai property agent, Ms Rabia Khan, and of Ithmar's expert property manager, Mr Charles Chambers, is also relied on as supporting the view that the payment of a deposit by means of a manager's cheque, being equivalent in substance to a payment in cash, would be relied on by a seller as a strong demonstration of the buyer's seriousness in proceeding with the transaction to completion. Mr Basit submits that, even if clause 7 was not a provision which was of the essence of the contract, the failure to provide a manager's cheque not only substantially deprived 8II of what it was entitled to expect under the MOU but also was a breach which would give 8II reason to believe that it could not rely on Ithmar's future performance under the MOU. That breach would therefore be a fundamental non-performance within Art. 86(2)(a) or (d) of the Contract Law 2004 which would independently entitle 8II to terminate the MOU.

55. It is further submitted that time for provision of the deposit cheque was of the essence of clause 7. Failure to do this "on the date that the Parties sign this Memorandum" was therefore not only a breach but, by reason of Art. 86(2)(b) of the Contract Law 2004, amounted to fundamental non-performance under the MOU. In this connection Mr Basit refers to Art. 64 which provides as follows:

56. It is submitted that the effect of these provisions is that whenever a precise time is fixed by, or determinable from, the contract it will be of the essence. Mr Basit relies by way of analogy on the well-established principle of English Law that a term of a contract for the sale of goods which requires a letter of credit to be opened by the buyer by a certain date is "in the nature of a condition" to the effect that a failure to comply with such a term entitles the seller to treat the contract as repudiated: see Nichiman Corporation v Gatoil [1987] 2 Lloyd's Rep. 47 per Kerr LJ at page 53. In this connection reliance is placed on the dual function of the deposit cheque: not only did it secure the penalty which would fall due if the buyer failed to complete but it would also provide part of the mechanism for payment of the price if the buyer did complete as appears from clause 8 of the MOU. To this extent it performed a similar function to a letter of credit. I interpose that the analogy with a letter of credit is not exact because under clause 8 of the MOU the buyer is given a residual measure of control over release of the cheque to the seller by Tamimi.

57. Reliance is also placed by 8II on the evidence of Rabia Khan that any seller of realty in Dubai would require a deposit at the time of signing an MOU.

58. Mr Basit challenged the argument advanced on behalf of Ithmar that late provision of the deposit cheque did not amount to fundamental non-performance because the delay involved was so slight — delivery of the cheque to Tamimi having been effected on the day following signature of the MOU. He submitted by reference to the speech of Lord Wilberforce in Bunge v Tradax [1981] 2 Lloyd's Rep 1 at page 5 that if, as he submitted, the correct analysis of clause 7 was that time was of the essence in the sense that any breach by delay, however slight, would be repudiatory, it was irrelevant that the actual breach involved a trivial delay.

59. It is further submitted that Mr. Sansom's evidence that on 9th October 2007 he and Mr. Decker agreed that the deposit cheque would be provided to Tamini "as soon as possible" should not be accepted, not having been mentioned in Mr. Sansom's witness statement and, if accepted, should not be construed as extending the time for provision of the deposit cheque beyond the end of that day.

60. Mr. Basit further submits that, as an independent point, Ithmar's breach in failing to provide a manager's cheque on 9th October 2007 amounted to fundamental non-performance because it was reckless non-performance within Art 86 (2)(c). It is argued that, whereas Mr. Sansom stated in evidence that he had read the MOU and was fully aware of the time requirement and the need for the manager's cheque, yet he failed to comply with those requirements on 9th October. His only explanation was that by the time the meeting with Mr. Decker was over it was too late to arrange a manager's cheque and to have it deposited with Tamini and that he overlooked the need to deposit the manager's cheque that day. It is submitted that his admission that he made a mistake in this regard does not go far enough and that, in as much as he was aware of the requirements of clause 7, his omission to comply was reckless: he failed to do so because it would have been inconvenient to do so, given the time when the meeting with Mr. Decker finished.

61. Mr. Basit strongly challenged Ithmar's submission that termination of a contract on the grounds of fundamental non-performance could only be effected by notice to the innocent party. He submitted that termination was automatic and that the giving of notice was nowhere stated to be the exclusive means of so doing. In this connection he pointed to the provisions of Art. 81(3) of the Contract Law which provides:

62. He submitted that here was an example of an express provision permitting the parties to agree automatic termination but although there was such general provision there was good reason to imply such a term either on the officious bystander test or the need for business efficiency test. That implication should arise from the fact that the MOU provided no means whereby 8II could monitor the buyer's compliance with the requirements of clause 7 of the MOU and therefore would not necessarily be in a position to give notice of termination because it might not have the information that there had been fundamental non-performance. Further, given the rapidity with which the property market was moving, the seller would not have wanted a notice requirement because that would have given the buyer the opportunity to delay performance rather than allowing the seller simply to put the property back on the market.

63. As to the issue whether 8II gave notice of termination, apart from to specific submissions on the evidence which I have taken fully into account in reaching the conclusions which I did in relation to Mr. Decker's contacts with Ms Boustany from 10th October 2007 to 9th November 2008 (see paragraph 40 above), it is submitted that the burden of proof that the notice was not given rests on Ithmar rather than on 8II to prove that it was given.

64. It is submitted that Ms Boustany did have authority from Ithmar to receive as its agent notice of termination from 8II. She was the sole intermediary acting as a channel of communication between both parties to the MOU. As such she at least had apparent authority to act on behalf of Ithmar to receive notice of termination. Mr. Basit referred to Art. 131 of the Contract Law which provides as follows:

65. He submitted that Ithmar's conduct would, reasonably interpreted, have caused 8II and particularly Mr. Decker to believe that Ithmar had authorised Ms. Boustany to receive notice of termination on its behalf. Further, such authorization would reflect normal practice in relation to sales of realty in Dubai. In this connection Mr. Basit relied on the part played by Ms. Boustany as sole intermediary in the course of the prior negotiation of the terms of the MOU. He also relied on the evidence of a Mr. Azaher, who had in October 2007 attempted to sell residential property to Mr. Decker with Ms. Boustany acting as intermediary and whose evidence was in effect that she was authorized to give and receive all relevant information relating to the deal. Further, the duty to pass on between buyer and seller all information relevant to the deal continued after an MOU had been entered into and until completion.

Discussion as to Liability: Was 8II entitled to terminate the MOU?

67. The function of the deposit cheque which had to be provided under clause 7 of the MOU was:—

69. In these circumstances the provision of a deposit cheque in accordance with clause 7 was a term of major importance to the seller under the MOU. Indeed, in as much as the deposit cheque was to provide 8II with a means of obtaining payment of the penalty or part payment of the purchase price it had characteristics similar to a letter of credit. Although it is true that by clause 8 Ithmar was given the opportunity of arresting disbursement of the deposit by withholding its written confirmation to Tamimi that the Conditions Precedent under clause 3 had been satisfied, the deposit cheque held in escrow by Tamimi would still provide 8II with security should it then claim against Ithmar that confirmation had been wrongly withheld.

70. There are, however, two distinct dimensions to the obligation of the buyer under clause 7 which are now relevant:

72. Given the circumstances in which the MOU was entered into and the volatile nature of the market for office property in the DIFC area, as well as the structure of the MOU, I conclude that on its proper construction the clause 7 provisions as to the deposit cheque are such that they require strict compliance and that such compliance is of the essence of the contract. The Contract Law 2004 does not in terms precisely replicate English Contract Law's concepts of conditions, any breach of which entitles the innocent party to terminate the contract or in nominate terms breach of which may entitle the innocent party to terminate the contract if the consequences of the breach are such as to deprive the innocent party of substantially the benefit it was anticipated he was entitled to derive from performance of the contract. Instead, there is Art 86(2) which prescribes "fundamental non-performance" as the yardstick for entitlement to terminate for breach. The example of breaches of contract to which regard is to be had as amounting to fundamental non-performance and which are, in my judgment, to be construed disjunctively, include at (b) breach of an obligation calling for strict compliance which is of the essence under the contract. It is unnecessary for there to be an express statement that compliance with the term is of the essence of the contract: it is sufficient if as a matter of construction or trade practice this is implied. That it should be implied in this instance is supported by the English Law cases with regard to deposits under contracts for the sale of realty: see Millichamp v Jones [1982] IWLR 1422 per Warner J at p.1430 and United Scientific Holdings v Bromley Borough Council [1978] AC 904 per Lord Diplock at p.929; and under contracts for the sale of goods Portaria Shipping Co v Gulf Pacific Navigation Co. Ltd. [1981] 2 Lloyd's Rep 180 per Robert Goff J p.185 and, in the analogous case of an obligation to the buyer to open a letter of credit, Nichimen Corporation v Gutoil [1987] 2 Lloyd's Rep. 47, per Kerr L.J. at p.53.

73. I therefore conclude that Ithmar's failure to provide a manager's cheque by way of deposit on the date upon which the MOU was signed did indeed amount to a fundamental non-performance of the MOU.

74. In this connection the conversation between Mr. Sansom and Mr. Decker at their meeting on 9th October 2007 in the course of which, as I find, Mr. Sansom indicated that the deposit cheque would be provided as soon as possible is nothing to the point for two reasons:

(ii) The other reason is that Ithmar never did provide a manager's cheque, even on 10th October 2007. Accordingly, even if the delay in providing the deposit cheque had been curable on that day, the failure to provide a deposit in compliance with clause 7 of the MOU was not in the event cured because Ithmar provided only a company cheque to Tamimi.

75. Having concluded that Ithmar's breach of clause 7 amounted to a fundamental non-performance of the MOU on the grounds stated above, it is sufficient to consider quite briefly the other grounds advanced by 8II for fundamental non-performance.

76. I do not consider that an omission to provide a deposit by means of a manager's cheque on the date of signing the MOU but providing instead a company cheque one day late did amount under Art 86(2)(a) of the Contract Law to the substantial deprivation of 8II of the benefit it was entitled to expect under the MOU. It was merely temporarily deprived of security in respect of part of the consideration for the sale and in respect of the penalty which fell due if Ithmar ultimately failed to complete. It was not obliged to terminate the deal. Had it pointed out the deficiencies to Ithmar or given notice under Art 84 of the Contract Law requiring performance which complied with clause 7, the evidence of Mr. Sansom strongly suggests that he would have realised his mistakes and rectified them at once.

77. Nor do I consider that Mr. Sansom's conduct in failing to provide the manager's cheque on the day of signature or at all was reckless as distinct from negligent. Having heard his oral evidence on this issue, I believe him when he said that he had carelessly overlooked the requirements of clause 7. I do not find that while adverting to the requirements of that clause he put forward a company cheque one day late without caring whether or not that complied with clause 7. He might have been seriously negligent but he was not reckless.

78. Article 86(2)(d) appears to require that some breach must first take place and secondly that the fact of that breach "gives the aggrieved party reason to believe that it cannot rely on the other party's future performance." This is a somewhat obscure provision for it does not make clear whether it is the subjective perception of the aggrieved party which is to be considered or his reasonable perception. Nor is it clear whether the "future performance" referred to is the performance of the contract as a whole or only of any individual provision of it. In my view, the provision should be construed as meaning that non-performance causes the aggrieved reasonably to believe and that the future performance referred to is the performance of the essential substance of the contract remaining to be performed.

79. I am not persuaded on the evidence that Mr. Decker was ever caused by Ithmar's breach to believe that 8II could not rely on Ithmar to complete. The contents of the email exchange with Ms Boustany between 5th and 9th November 2007 do not suggest any real concerns about this and Decker's overriding concern at this time was not that Ithmar would withdraw, leaving Tamimi only with a company cheque by way of deposit, but that 8II would lose the opportunity of increasing its profit on resale by selling to Future Investments.

80. Consequently, in my Judgment, the only basis upon which 8II can establish that there was fundamental non-performance by Ithmar is the failure of Ithmar to comply with clause 7 of the MOU.

Automatic Termination

83. Accordingly, the only way in which the MOU could terminate on the grounds of Ithmar's fundamental non-performance would be by 8II giving notice in accordance with Art.87(1).

Did 8II give Notice of Termination?

87. Accordingly, 8II has failed to establish that it terminated the MOU on 11th November 2007.

88. In arriving at this conclusion I have carefully considered the evidence of Mr. Alzaher with regard to his dealings with Mr. Decker through Ms. Boustany as sole intermediary for the sale of Mr. Alzaher's residential property to Mr. Decker personally. In the course of that transaction Mr. Decker provided a post-dated deposit cheque on 18th October 2007. It was post-dated to 25th October. According to Mr. Alzaher's evidence Ms. Boustany explained to him that the cheque would be backed by funds which would come in to Mr. Decker by 25th October. It is submitted by Mr. Basit on behalf of 8II that this shows that by 18th October 2007 Ms. Boustany was aware that 8II was about to sell Unit 1007 to Future Investments and consequently that 8II had terminated the MOU in this case.

89. I am not able to accept this submission. In particular, it cannot be inferred from Mr. Alzaher's evidence that Ms. Boustany had been informed by Mr. Decker of the source of the funds that were to be received by him by 25th October. Given that funds derived from the sale of Unit 1007 would belong to 8II and not to Mr. Decker and that 8II does not accept that 8II is simply an emanation of Mr. Decker, this submission is both ill-founded and inconsistent with another aspect of 8II's case.

90. As to (ii), although in view of my decision on (i), it is not necessary to decide whether Ms. Boustany had authority to receive any such notice of termination on behalf of Ithmar, I shall briefly indicate my conclusions on that issue.

91. I find on the basis of the evidence given by Ms Rabia Khan and Mr. Charles Chambers that it is relatively commonplace for buyers and sellers of commercial property in the secondary market in Dubai, including the DIFC, when negotiating the terms of a memorandum of understanding or similar contract, to rely on a sole intermediary broker as a channel of communication. I further find that where the parties intend that notices prior to completion required under the memorandum or other agreement should be given through the medium of the sole intermediary express provision is sometimes made for this in the memorandum or agreement. Absent such express provision, there is no common practice to the effect that a broker — originally having acted as intermediary up to the entering into of the memorandum — will continue in that capacity for the purposes of communication between the parties up to the time of completion. Sometimes this happens — often because a broker wishes to hang on to the deal up to completion so that he can get in his fees from one side or both. In general, however, it cannot be assumed that, once the deposit has been paid and the memorandum entered into, the authority which both parties had previously given to the intermediary to give and receive communications as to the transaction, will automatically continue up to completion.

92. In the present case there was nothing either in the MOU or in any other communication between the parties to indicate that Ithmar continued to vest in Ms. Boustany authority to receive on its behalf communications relating to the transaction form 8II, and specifically to receive communications impacting on Ithmar's rights and obligations under the MOU, such as, for example a notice of termination.

93. The relevant approach to evidence of the creation of apparent authority is set out in Art. 131 of the Contract Law at paragraph 64 above. On the basis of the primary and expert evidence before me it could not be inferred that, just because Ms. Boustany had, previously to the signature of the MOU, acted with authority from Ithmar to receive from 8II communications relating to the negotiation of that contract, she also had the authority of Ithmar to receive notice of termination for fundamental non-performance.

94. I conclude that Ms. Boustany was not the agent of Ithmar to receive notice of termination once the MOU had been signed.

95. Accordingly, even if, contrary to my findings, Mr. Decker had told Ms. Boustany on 11th October 2007 that 8II was treating the MOU as terminated, that would not be notice of termination to Ithmar. If she had transmitted that information to Ithmar, even having no duty to do so, it is arguable that by reason of Art. 13(2) of the Contract Law the notice would be effective but since that does not arise on the facts in this case, I express no concluded view on that point.

96. As to (iii) — notice of termination to be given within a reasonable time — it is not suggested that Mr. Decker gave notice to Ms. Boustany on any occasion later than 11th October 2007. I have no doubt that if such notice had been given, that would have been within a reasonable time of Mr. Decker's discovery that the deposit cheque did not comply with clause 7 of the MOU. In this connection what is a reasonable time would depend on all the circumstances of the case, including the contractual deadline for completion — 15 November 2007 — and the facility afforded by Art. 80 of the Contract Law 2004 whereby a non-performing party is given the right to cure any non-performance even if fundamental, at its own expense subject to certain conditions. That Article provides as follows:

Causation of Loss

99. There are two bases for this submission.

It was submitted that because Mr Sansom mistakenly believed that the 50 per cent requirement applied to the October 2007 instalment and not to the January 2008 instalment and further that any such payment would have to be made in cleared funds, Ithmar would have been unprepared to complete with the correct amount of cleared funds on 15th November and so would fail to perform the MOU.

102. I therefore hold that the absence of these licences is irrelevant to the issue of causation. Although Ithmar might not have been able to carry on its business from Unit 1007 without the licences, it could hold a valuable unit of property, appreciating in value, which it could always re-sell probably at a profit. Its loss consists of the deprivation of the whole of that benefit which it was entitled to derive from the MOU. Further, and in any event, I find on the basis of Mr Hasan's evidence that Ithmar could readily have obtained at least a DIFC licence to enable it physically to move into Unit 1007 for according to his evidence, which I accept, he had received a personal assurance to that effect from the Governor of DIFC.

103. The absence of a DIFC or DFSA licence would therefore not have prevented Ithmar from completing.

Quantum of Damage

105. In the alternative it is submitted that the correct measure of loss is the difference between the contract price and the market price at the date when Ithmar could reasonably have replaced Unit 1007 after it had ascertained on 28 November 2007 that 8II had disposed of that property to Future Investments, provided always that there was an available market. It is submitted that given that there was no alternative comparable property, having regard to size prestige and availability, it is again appropriate to take the value of the property at the date of trial or judgment. He refers to the following provisions of DIFC law.

106. Contract Law 2004:

Discussion

111. In addition to those provisions of the Law of Damages and Remedies already referred to, it is relevant to draw attention to the following:—

112. Although under DIFC law English Law is the "default" system where there is no specific applicable provision of DIFC Law or of another body of law selected by the contract, there can be no doubt that the DIFC codified law relating to the ascertainment of the correct measure of damages for breach of contract is on the face of it so closely modelled on Common Law principles that in construing the applicable codified provisions of that law it is appropriate to add flesh to the concise bones of these legislative provisions by looking to the manner in which the Common Law courts in England and elsewhere have given effect to similar principles. Whereas the ruling principles are those laid down in the DIFC codes, the manner of application can properly be informed by reference to English law not as a default system but as an aid to construction and application.

113. Against this background it is clear by reference to the Law of Damages and Remedies that the correct approach to the measure of damages for fundamental non-performance of a contract for the sale of land by a seller is the difference between the contract price and the (higher) market price of available and objectively comparable property at the date of the breach or at such later date by which the innocent party could in all the circumstances reasonably have been expected to replace the property the subject of the contract. Whether, or when he does in fact purchase replacement property is in the ordinary case entirely immaterial. What matters is that point of time by which he ought reasonably to have acted, for, once that point of time has passed, his omission to act and any loss due to a subsequent rise in the market would ordinarily be proximately caused not by the other party's breach but by the innocent party's failure to mitigate his loss. I take this to be an accurate summary of the underlying principle as reflected in Lord Hoffman's observations in Banque Bruxelles v Eagle Star (Supra).

114. Clearly, there may be cases where there is no available comparable property and in such cases the court has to do its best to quantify the loss of value to the innocent party (Art 111(a) of the Contract Law, Art. 10(a), Art. 25, Art. 27(3) of the Law of Damages and Remedies).

115. There may also be cases, perhaps uncommon amongst commercial enterprises, as in Wroth v Tyler, supra, where circumstances relating to the innocent party and known to the non-performing party at the time when the contract was made are such as to make it impossible for the innocent party to mitigate his loss, due, for example, to lack of financial resources. In such cases the ordinary principle of reference to the date of breach may be inappropriate and the reference value date may be postponed until trial or judgment. That approach would probably ordinarily apply only where it was reasonably foreseeable when the contract was made that the innocent party would not be able to mitigate his loss in the usual way.

116. The expert evidence in the present case clearly establishes that on 28th November 2007, when Ithmar first received confirmation that 8II it had already disposed of its interest in Unit 1007 to Future Investments, demand for office space in the DIFC far outstripped supply. The effect was that the price was rising at the rate of 6% to 8% per month in the secondary market. The available space on offer had the unusual feature that it was still under construction. Dates for the hand-over of this space for occupation were extremely uncertain due to unpredictable delays on account of shortages of materials. For example, although Liberty House, including Unit 1007, was originally predicted to be ready for occupation by June 2008, it might not be ready until well unto 2009. Emirates Financial Towers was not due for hand-over until almost 6 months to one year after Liberty House. I infer that no less uncertainty attached to its ultimate availability. However, so great was the disparity between supply and demand within the DIFC that, on the evidence, date of hand-over appears to have a relatively small impact on the price. Licenses to carry on business within the DIFC without occupying premises within that area could be acquired on condition that the licensee would obtain premises within two years and such little evidence of the regulatory regime as there was suggested that this facility had been extended to January 2010.

117. There can be doubt on the expert evidence that office space in the DIFC represented for the purposes of comparability a unique source of property. Whereas there were available properties in Dubai, outside the DIFC, these could not be regarded as comparables for use at the main offices of a financial services business such as that of Ithmar. The reason for this is that other commercial organisations which would be potential customers of a private equity fund would be likely also to be located in the DIFC and further and particularly importantly that the carrying on of business in the DIFC would be regulated by the DFSA and subject to the DIFC legal regime which would be an important commercial advantage to any participant in the financial services industry. The existence of the dispensation in the DIFC regulatory requirement for office location in the DIFC area referred to in paragraph (116) above would not detract from the unique nature of premises within the DIFC.

118. Ithmar intended to finance the purchase of Unit 1007 for its head office by way of loans from one or more financial institutions. As already indicated, it funded the completion under the MOU, intended to take place on 11th November 2007 by borrowing the money from Finance House, one of the main investors in Ithmar. The evidence of Mr Hasan strongly suggested that the board of Ithmar could be persuaded to purchase suitable premises within the DIFC at a significantly higher price — he even contemplated AED 6000 per square foot. The funding would have been obtained because of Ithmar's perception that location of its head office within the DIFC was absolutely essential to its business activities.

119. I am satisfied that the potential availability to Ithmar of funding sufficient to pay a substantially higher price than the contract price in order to acquire a substitute property is at least one feature which takes this case out of the Wroth v Tyler type of situation where lack of financial resources makes replacement impossible for the innocent buyer. Thus, if there were an available market in comparable property in the DIFC in or after November 2007 the loss is to be measured by reference to the price of such property on that date by which Ithmar could reasonably have been expected to enter into a contract to acquire replacement office space. Accordingly, the enquiry now required is twofold:

(ii) if so, at what price?

120. As to (i), although demand far outstripped supply, the experts were broadly agreed that at least some office space comparable to Unit 1007 was available for purchase on the secondary market. In this connection it is important to appreciate that in order to be treated as a comparable it is not necessary that the alternative premises should be identical to Unit 1007: it is enough if they are broadly similar and would be reasonably physically suitable for the purpose for which space was required. The expert witness relied on by Ithmar — Mr Marcus Arbourne of Asteco Property Management Ltd — directed his evidence to comparable property transactions concluded in May and June 2008 because he had been asked to value Unit 1007 as at the date of trial. His report does not therefore consider the market five or six months earlier and therefore closer in time to November 2007 when Ithmar became aware of the breach of the MOU. However, I infer that the three comparables to which he refers — or similar premises — were likely to have been on the market at the beginning 2008 or soon after that. These three properties have significantly different areas: Buildings by Daman : 33,111 sq. ft; Emirates Financial Tower : 10,512 sq. ft and Liberty House c. 4200 sq. ft. The area of Unit 1007 was 9,874 sq. ft. and therefore the Emirates Financial Tower unit is that most closely similar in size. Mr Arbourne's evidence, slender as it is, also demonstrates that various other transactions in respect of comparable properties were concluded earlier in 2007 which suggests that there was probably a trickle of offered comparable property during the last quarter of 2007 and the first quarter of 2008.

121. In identifying property as a comparable it is, as submitted on behalf of 8II, necessary to leave out all subjective considerations which might influence a buyer's selection. For example, in the course of his evidence Mr Hasan referred to such matters as the (desirable) view over Sheik Zayed Road and the (undesirable) presence in the same block of another major private equity fund in competition with Ithmar. I accept the submission of Mr Basit, on behalf of 8II, that both are irrelevant to the identification of those properties as comparables.

122. I conclude on the whole of the expert evidence that as from 28th November 2007, although comparable properties were not in plentiful supply in relation to demand, there were probably at least a handful available at any one time. Further, assuming that it would have taken a few weeks for Ithmar to investigate the available properties, it is probably correct to take January 2008 as the point in time at which the value of comparables ought to be tested.

123. As to (ii), the price of any such comparable, there is a difference of opinion between the expert witness, Mr Robin Tey of Hamptons International, Dubai, relied on by 8II and Mr. Arbourne, relied on by Ithmar. Mr. Tey valued Unit 1007 at 10th December 2007 in the range AED 2633 to 2835 psf. and as at 19th June 2008 at AED 4051 psf. Mr. Arbourne valued Unit 1007 as at 11 June 2008 at AED 4500 psf but did not give a valuation in his report as at December 2008. However, Mr. Arbourne said in the course of his evidence that the average increase in the market value of office property in the period in question was 6% to 8% per month.

124. In my judgment, on the basis of these figures and having regard to Mr. Arbourne's evidence of concluded transactions in May and June 2008, a fair estimate of the value of a comparable property in January 2008 would be about AED 3000 psf.

125. In this connection I cannot accept as indicative of a realistic market price for comparables in Liberty House Mr. Hasan's evidence that on about 10th December 2007 he was advised by a broker, Ms Sally Sulima, that Unit 8 in that block was priced at AED 4500 per square foot. The evidence of Rabia Khan, which I accept, was that this was a considerably inflated asking price set by certain directors of ETA and that it was regarded as excessive at the time by those in the market. Indeed, it would appear to be far out of line compared with other prices for property in Liberty House in December 2007 and June 2008 of which Mr. Tey and Mr. Arbourne have given evidence.

126. Accordingly, I find that the price of a comparable property having approximately the same area as Unit 1007 in January 2008 would have been AED 29,622,000. This exceeded the price under the MOU by AED 1,974,800. That is therefore the amount of Ithmar's loss recoverable as conventional damages for breach by 8II of the MOU.

127. The claim by Mr. Decker in the course of his 5th November 2007 email exchange with Ms Boustany that he had an offer at AED 3400 psf for Unit 1007 cannot be treated as reliable evidence of the market price of that property or of a comparable in November 2007 for it is inconsistent with the evidence of both experts and, if it was indeed true, it would therefore represent an outlier.

Damages under Art. 40(1) of the Law of Damages and Remedies

Punitive Damages

129. Ithmar relies on Art. 40(2) of the Law of Damages and Remedies which provides as follows:

130. It is submitted by Mr. Punwar, on behalf of Ithmar, that the conduct of 8II and Mr. Decker calls for such an order as a deterrent against such conduct in the field of commerce in the DIFC where its laws are aimed at regulating commerce and giving investors the confidence to transact business here. He submits that, this being the first case where such an order has been sought, this Court now has an opportunity to send a clear message to those who carry on business in this jurisdiction that sharp practices will not be tolerated in the DIFC.

131. The following conduct is relied upon.

132. The breach of contract by 8II was deliberate and an attempt to make a profit at Ithmar's expense. Mr. Decker cynically attempted to take advantage of what he saw to be the absence of the remedy of specific performance of the MOU in the DIFC. Mr. Decker lied to Ms Boustany in the course of his messages to her on 5th and 6th November 2007 by telling her or implying that 8II had not yet sold Unit 1007. Following the order of Dep. Chief Justice Hwang on 14th November 2007 requiring 8II to disclose whether it had assigned its interest in the property to a third party and, if so, to whom and, on what terms, 8II failed at first to comply with that order. His delay was for the purpose of concealing the truth about its disposal of Unit 1007 thereby hiding from Ithmar facts which, if disclosed earlier, might have enabled Ithmar to obtain an order preventing the completion of the assignment to Future Investments.

133. Before considering whether the conduct of 8II merits an order for punitive damages it is necessary to refer to two matters relevant to what is relied as that conduct.

134. Firstly, I have already found that at no stage during his email exchange with Ms Boustany on 5th or 6th November or later did Mr Decker indicate to her that he had already disposed of 8II's interest in Unit 1007 to a third party. Accordingly I reject Mr. Decker's explanation of his reference to specific performance not being available. He never said anything to indicate that this was simply because 8II had already divested its right to the property. The sense of the message is that in the DIFC he was proof against a court order for specific performance.

135. Secondly, there is no evidence as to whether, had Mr. Decker disclosed in November 2007 the existence of the sale of Unit 1007 to a third party, Ithmar would have been able to prevent or arrest that transaction. Whether Mr. Decker's perception was that it would must remain a matter of conjecture.

136. That the conduct of 8II in breaking its contract with Ithmar was deliberate is not in doubt. Mr. Decker believed that his company was bound by the MOU but resolved nonetheless to dispose of Unit 107 to a third party. His error consisted in failing to give notice of termination of the contract and thereby giving Ithmar the opportunity to remedy its existing fundamental non-performance of the contract with regard to the deposit cheque (see paragraph 96 above). There is no evidence that Mr. Decker knowingly refrained from giving notice of termination during the period up to the time when 8II disposed of Unit 1007 on 21st October for the purpose of stopping Ithmar from remedying its breach. Indeed, his conduct suggests that he failed to appreciate that they were in breach amounting to fundamental non-performance. At the end of the day his only concern was to clinch a more profitable deal.

137. It is to be observed that on the proper construction of Art. 40(2) of the Law of Damages and Remedies the power to order additional or punitive damages is engaged only if it appears to the Court that the defendant's conduct producing the liability for actual damages has been not only deliberate but also "particularly egregious or offensive." This additional component is not defined further. However, given that commercial undertakings do not normally deliberately break their contacts unless it is to their financial or commercial advantage to do so, at least in the sphere of breach of contract, something going well beyond the pecuniary advantage of the contract breaker would seem to be essential. Looking for assistance to the Common Law cases on punitive damages, such as Rookes v Barnard in the field of tort, an example of such particularly egregious or offensive conduct might well be where the defendant's conduct was designed not only to benefit himself but also to cripple the plaintiff commercially by disreputable means. That is not to say that there might not be many other instances in the field of breach of contract but it does at least illustrate the level of seriousness of conduct contemplated by Art. 40(2). The power to order such additional or punitive damages ought to be exercised with some restraint and should be confined to those cases of conduct so shocking and deplorable as to go well beyond the normal cut and thrust of the market place.

138. Having regard to all the evidence of the conduct of Mr. Decker and 8II, including concealment of disposal of Unit 1007, I am not persuaded that their conduct amounting to the breach of the MOU was so shocking or offensive as to justify an order for additional damages.

Conclusion

141. The Counterclaim by 8II for the amount of the deposit under the MOU is dismissed.

Original Signed by:

Justice Sir Anthony Colman

Date: 24 November 2008