DIFC Courts

Supergems M.E LTD v Daman Real Estate Capital Partners Limited [2012] DIFC CFI 021

December 15, 2013 Court of First Instance -Judgments

Claim No: CFI-021-2012

THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS

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

IN THE COURT OF FIRST INSTANCE

BEFORE JUSTICE SIR DAVID STEEL

Between

SUPERGEMS M.E. LTD

Claimant

-v-

DAMAN REAL ESTATE CAPITAL PARTNERS LIMITED

Defendant

Hearing: 21–22 August 2013

Counsel: Bushra Ahmed and Sharon Lakhan (KBH Kaanuun) instructed by Al Zarooni Advocates and Legal Consultants for the ClaimantCharles Buderi and Serena Boscia Montalbano (Curtis, Mallet-Prevost, Colt & Mosle LLP) for the Defendant

Judgment: 15 December 2013

JUDGMENT OF JUSTICE SIR DAVID STEEL

Introduction

1. The Defendant carries on business as a property developer in the DIFC. The Claimant seeks to recover from the Defendant the sum of AED 18,697,794 which represents the total of sums paid by the Claimant to the Defendant between 5 June 2007 and 19 January 2009. These sums constituted 80% of the purchase price of one residential unit (36D) and 50% of the purchase price of four office units (01-101, 01-105, 01-106 and 02-207) within a new 65 floor tower development at the DIFC known as The Buildings by Daman.
2. The grounds upon which the Claimant pleaded its entitlement to repayment was that, by virtue of letters dated 10 October 2011, 23 November 2011 and 8 December 2011, it lawfully terminated the relevant sale and purchase agreements (“SPAs”) relating to each of the units on the grounds that the Defendant had breached the SPAs by failing to complete the construction of the units either by the contractual completion date or by any lawful extension of that date.

3. The Claimant also sought damages in the sum of AED 1,107,000 representing the fees which the Claimant had paid to the DIFC Registrar of Real Estate on 6 December 2009 in respect of applications which it made concerning title to the 4 office units and which expenditure had consequently been wasted.

4. The Defence simply alleged that no SPAs had ever been executed by the Defendant and, accordingly, it was contended that the claim must fail. In this regard the Defendant placed reliance on Article 16 of the draft SPAs furnished by the Defendant which provided:

“Once duly executed by both parties, this agreement shall be effective and binding upon the parties from the date first indicated…”

The Defendant further relied on the fact that the parties had executed Reservation Agreements in relation to the properties as a precursor to SPAs. These expressly excluded matters of sale and ownership, topics which by law needed to be evidenced and executed in writing.

Background

5. The background is as follows. On various dates in June and July 2007 the parties executed Reservation Agreements in respect of each unit. They were broadly in the same terms. In particular, they required an immediate deposit of 10% of the purchase price; the balance of the entire price to be paid in instalments as prescribed in the individual Reservation Agreements.
6. Part B of the Reservation Agreements set out the terms and conditions. These included the following:
“…
3. These terms and conditions relate only to the application and reservation procedures for the Property. The full terms and conditions of the sale and purchase, delivery and ownership of the Property shall be contained in the Sale and Purchase Agreement (hereinafter referred to as the “Agreement”).

4. The Reservation Deposit is payable by the Applicant to the Seller as a non-refundable deposit upon the date of signing this Reservation Form in order to reserve the Property.

5. If:
a) the applicant does not deliver the signed Agreement to the Seller within fifteen (15) days of the date of receipt of the Agreement from the Seller; or
b) clearance of the Reservation Deposit into the Seller's bank account is not achieved within seven (7) days of the date of this Reservation Form; or
c) clearance of the Instalment Payments into the Seller's bank account is not achieved within seven (7) days from the due date of the instalment as specified in the Payment Schedule in the Particulars in Part A above; or
d) the Applicant cancels this reservation at any time prior to delivery of the signed Agreement to the Seller for any reason whatsoever, then the reservation of the Property in the name of the Applicant will immediately extinguish and lapse and the terms of this Reservation Form will have no further force or effect and the Seller will be free to sell the Property to any third party. Furthermore, in such event, the Seller shall be entitled to retain the full Reservation Deposit as pre-estimated liquidated damages (“Compensation”), which the Applicant expressly agrees is a true and reasonable pre-estimate of the damages that will be suffered by the Seller as a result of the Applicant's default. If clearance of the Reservation Deposit has not been achieved, then the Compensation shall become immediately due to be paid by the Applicant to the Seller and collectable as a debt.
6. The Seller reserves the right to cancel this Reservation Form at any time prior to the signing of the Agreement by providing the Applicant with prior written notice, whereupon the Seller shall refund the Reservation Deposit in full to the Applicant and this Reservation Form shall immediately terminate and all rights and obligations between the parties will have no further force and effect.”
7. All five deposits (totaling AED 3,514,252) were duly paid to the Defendant, the written receipts for the money noting that the same were: “Non-Refundable. Subject to Realisation”. Between November 2008 and March 2009, the Claimant made further payments making up the total referred to earlier. There was some controversy as to whether these payments were made pursuant to the “Payment Schedule” contained in the Reservation Agreements or similar schedules contained in the draft SPAs referred to below.
8. In due course, Asteco Property Management LLC (“Asteco”), a real estate management company retained by the Defendant to be in charge of selling the units, sent two sets of SPAs for all five units to the Claimant for signature. It appears that an authorised representative of the Claimant duly executed them and returned them to Asteco. Indeed, on 8 June 2008 and 30 August 2008, the Claimant sent two letters to Asteco asking for acknowledgment that it had received the returned SPAs. Asteco countersigned those two letters.

9. These documents were not disclosed by either party. The Claimant had kept no copies. As to the copies executed by the Claimant and forwarded to the Defendant, there was a dispute as to whether, as the Defendant contended, these documents had gone astray either in the offices of Asteco or the Defendant or whether, as the Claimant contended the Defendant having signed them (or at least having had the opportunity to sign them) decided to suppress them and seek execution of a different form of SPA as a replacement.

10. On 14 December 2008, Ms Nadimeh Mehra, Head of Development Capital and Placement at the Defendant, wrote to the Claimant as follows:

“We would like to inform you that the last SPA's SPAs which were signed by yourself and sent back to Daman Investments, are missing from our offices. We would appreciate it if you could sign another SPA with the same terms and conditions of the previous one. Your co-operation in this matter is highly appreciated.”
A new set of SPAs were duly forwarded to the Claimant by Asteco the next day. Thereafter, the Defendant pressed for execution of the same on 18 March 2009, 7 April 2009, 9 August 2009, 6 February 2010 and 8 March 2010 without success. In the meantime, as already indicated, the Claimant continued to make instalment payments up to January 2009. The last payment made was in March 2009 in respect of the DIFC Caveat Registration costs.
11. Despite no response to the continuing requests for return of the signed replacement SPAs, the Defendant on occasion communicated with the Claimant as if the Claimant was a party to one or more SPAs. For instance, on 28 June 2009, Mr Mahdhar Al Tamimi, the Chief Operating Officer of the Defendant, wrote as follows:
“Kindly be informed that we expect to complete the works and start the handover process of the Project during a six-month period beginning by the fourth quarter 2010 to the first quarter 2011. The change to the original anticipated date is due to contractor related issues, delays and insufficient material supplies which are out of our control. These developments have obliged us to revise the Project completion dates pursuant to the provisions of your sales and purchase contract.”

12. In the absence of signed copies of the SPAs or any explanation as to why no signatures were forthcoming, Ms Mehra wrote to the Claimant's CEO Mr Rajesh Mehta on 22 November 2010 to explain that signature of the agreements was a “necessary step to protecting your investments and interests in these properties”. In particular, it was emphasised that executed SPAs would be needed to gain title. Despite this, as relied on by the Claimant, three days later Ms Mehra wrote to the Claimant giving details of the engagement of a new contractor in an effort to eliminate further delay. The letter went on:

“Your contractual terms and conditions (e.g. Clause 4.1 and 12.1 [of the SPAs]) take account of this situation and allow us to extend the expected date of completion of your office…”

13. In mid June 2011 Mr Mehta requested a meeting with representatives of the Defendant to discuss “various issues”. Mr Mehta was in return asked to identify the items he wanted to discuss so as to direct matters to the right person within the Defendant's organisation. The response from Mr Mehta was that the meeting was for the purpose of discussing:

a) The clauses of the SPA (“which we don't agree to since many years”)
b) Delay of the project for more than 2 years (“which is not acceptable”).

14. Although this indicated that Mr Mehta was still considering signing the replacement SPAs, this was the first indication that there was any issue as to their terms since the replacement sets had been dispatched 2 ½ years earlier. It proved difficult to arrange the meeting as a result of Mr Mehta's commitments. Indeed, the Defendant expressed some irritation in an email dated 3 July 2011 in regard to the third postponement of the meeting by Mr Mehta. Furthermore, it was pointed out that aside from the execution of the Reservation Agreements and the payments made by way of deposits and/or instalments thereunder, the terms of the SPA were non-negotiable.

15. The meeting continued to be postponed from various dates, always at the request of Mr Mehta. The Defendant in its e-mail dated 18 July 2011 then asked the Claimant to specify the clauses with which they were in disagreement. The response from the Claimant was to identify a large number of clauses that were either “not acceptable” to it or “required major changes”. These included the provisions relating to default and termination. No details were given as to the identity of the clauses which were not acceptable or the changes that were being demanded.

16. On 15 August 2011, Ms Mehra sent letters in relation to each property giving notice of a decrease in the “as built” area adding:

Daman would like to herby [sic] give you notice as per clause 8.3 of the Sale and Purchase Agreement that there will be a difference in the amount you will pay…”

17. In October 2011, having been unable to negotiate any change to the terms, the Claimant served a document entitled “Legal Notice to terminate the agreement and refund all funds paid by client (Purchaser)” in respect of all the properties. The notice was expressly premised on the existence of five SPAs. Further notices to like effect were served in November and December calling for refund of payments made given the failure to deliver the units. Further letters purporting to terminate the SPAs and claim a full refund were thereafter sent as set out in Paragraph 2 above. No refunds were made by the Defendant. These proceedings were instituted on 5 June 2012.

Discussion

18. Before discussing the oral evidence and the arguments as to the existence or otherwise of the SPAs, it is worth focusing for a moment on the position that would arise on the basis of the assertion made by the Claimant that duly executed SPAs in fact existed.

19. Clause 11.3 of the SPA limits the right of recovery by a purchaser in the event of delayed delivery. Where the purchaser has complied with all its obligations, including the timely payment of instalments of the purchase price, but the actual completion date does not occur within six months of the Anticipated Completion date as contractually extended, the seller is liable to pay a “penalty” rate of interest on the installments paid. The seller incurs no further liability.

20. It was not a topic that received much if any attention during the hearing but it may well be that, even if the SPAs were concluded, the Claimant's claim for return of all payments is misconceived. It is true that if an event of Force Majeure causes the Anticipated Completion date to be extended by more than 12 months, either party is entitled to terminate the agreement under Clause 12, in which event the instalments would be repaid. Quite how this provision works given that the Anticipated Completion date is itself extended by Force Majeure under Clause 4 is difficult to determine. But it matters not, as it was the Claimant's case, as I understand it, that no Force Majeure event had occurred.

21. That said, I move on to the essential question which was whether the original SPAs were executed by both parties as contended in the Particulars of Claim. In this regard it was the position adopted by the Claimant that “ the allegation that the sale and purchase agreements could not be found was a ruse designed to get [the Claimant] to execute fresh sale and purchase agreements with materially different terms.” This allegation leads to an immediate discussion of the oral evidence called by the parties:-

a) The Claimant called Mr Mehta. He struck me as a most unsatisfactory witness. He was at pains to avoid answering any questions directly and confined himself to seeking to advance his case by argument. He was, however, a poor advocate as well.
b) The Defendant called Ms Mehra. In contrast she struck me as a reliable witness who responded to questions in a direct and convincing manner.

22. However, impressions can be misleading and it is important to assess the credibility of the witness evidence by reference to the contemporary documents, the probabilities and the motives of the parties: see Grace Shipping v. Sharp & Co [1987] 1 Lloyd's Rep. 207 at p.215.

23. It is (or has become) common ground that the SPAs were executed by the Claimant and were sent to Asteco. It is a necessary part of the Claimant's case that the Defendant received them from Asteco but then chose to suppress them (whether counter-signed or not) and ask for entirely new versions to be signed. In my judgment the Claimant has fallen wholly short of establishing any such proposition:

(a) The only rationale for such a course of action (as indeed the Claimant asserts) is that the replacement SPAs were on different (and from the Defendant's point of view) more beneficial terms. But this suggestion can be rejected almost out of hand:

i. There was no contemporary complaint about any such variation.
ii. Indeed the complaint eventually made was simply as to the terms contained in the draft without any suggestion that they were different from the SPAs originally signed.
iii. The list of clauses allegedly unacceptable or requiring major revision was prepared by an assistant of Mr Mehta who had no personal knowledge of the transaction and, by definition, no document to draw a comparison with. I conclude that the assistant was simply asked to identify clauses which he thought might merit an attempt at renegotiation.
iv. In any event I accept Ms Mehra's evidence that there was in fact no possibility of any disparity. Each version had been drawn down from Asteco's computer system as a standard form. Ms Mehra was the person responsible for any alterations to the standard form. She stated that she had not approved any change. I accept that evidence which was scarcely challenged.
(b) Considerable emphasis was placed by the Claimant on Ms Mehra's letter of 14 December 2008 which was inconsistent with the Defendant's pleaded case. However I am not remotely persuaded that there was also an inconsistency between the letter and Ms Mehra's witness statement to the effect that: “I never received the SPAs signed by the Claimant and, therefore, I never countersigned them.”

24. I conclude that the SPAs were at some stage mislaid and were never executed by the Defendant. If they had been executed, it is difficult to identify any motive on the part of the Defendant to suppress them. Equally it is difficult to see what motive the Claimant would have to refuse to execute the replacement SPAs if it was satisfied, as it contends, that the first set had been signed by both parties but erroneously said to be lost.

25. Indeed Ms Ahmed realistically recognised that such was the probability in the course of her submissions on behalf of the Claimant. Nonetheless she sought to argue that the parties proceeded on the basis that, despite the absence of executed SPAs, they were bound by the terms of the SPAs as drafted and obtained leave to amend the pleadings to that effect. It is fair to say that the amendments were not entirely easy to follow. In summary, it would appear that the point being put was as follows:

(a) The Reservation Agreements related only to reservation procedures. They were agreements that were only agreements to agree and/or came to an end once the 10% deposit was paid.
(b) It can thus be inferred that the parties' relationship was thereafter governed by the terms of the SPAs as confirmed by the letters of 28 June 2009, 25 November 2010 and 15 August 2011.

26. I regret that I regard this submission as hopeless for a number of reasons:

(a) The Reservation Agreements expressly govern the contractual relationship between the parties until the SPAs are in force. They are not agreements to agree. They do not terminate on payment of the deposit but remain effective throughout the period of the Payment Schedule. Failure to meet the payments leads to the cancellation of the reservation of the property. In addition, the Defendant was entitled to cancel at any time prior to the signing of the SPAs (subject to a refund).
(b) It is correct that the Reservations Agreements are only concerned with the reservation procedure. Matters of purchase, delivery and ownership were to be covered by the SPAs. But, as already noted, DIFC law requires that dispositions of real property must be in writing (see Art. 18 of DIFC Law No. 4 of 2007). There was no basis upon which the transactions could proceed absent executed SPAs. There has been no disclosure on the topic but it is to be inferred that registration with the DIFC was achieved by virtue of the Reservation Agreements.
(c) There was no inference to be drawn from the payment of instalments. Such were provided for in both the Reservation Agreements and the draft SPAs albeit on somewhat different terms as to dates and amounts. The reality is that both sides were proceeding on the assumption that SPAs would be executed in due course. But until the SPAs came into force the only contractual commitment between the parties was under the Reservation Agreements (unless they had lapsed under their own terms as discussed below).
(d) It is correct that some of the correspondence from the Defendant was on the basis that the Claimant was a buyer under the terms of SPAs. But as Ms Mehra explained (and I accept) these were standard form letters sent to all investors. There were contemporary letters from Ms Mehra's department pressing for signature of the SPAs which drew attention to the fact that this was necessary to achieve registration of title in the Claimant's name.

27. I should add that I also reject the claim advanced on some form of unjust enrichment. The Reservation Agreements were duly performed by both parties. The point is no more than a complaint that the Reservation Contract was unduly one-sided. It does support a cause of action. Accordingly the case advanced by the Claimant both in its original claim and its amended claim must be dismissed. Does it follow that there is in effect stalemate, the Claimant unable to recover the instalment payments and the Defendant unable to sell the units to a third party?

28. Following the hearing I asked the parties for assistance on this topic. Both sides provided fairly elaborate written submissions. Unfortunately the Claimant largely used the opportunity to repeat all the submissions originally made on its claim which I have covered above. When asking for the parties observations, it had struck me that the answer might lie in Clause 5 of the Reservation Agreement. The Claimant did not deliver the signed replacement SPAs within 15 days and I suggested that, in the wake of the loss of the original SPAs, Clause 5(a) arguably remained applicable with reference to the replacement SPAs with the result that the reservation lapsed (but the monies paid less the 10% deposits were returnable). Somewhat surprisingly I did not understand the Claimant to adopt this argument or indeed pursue any submission which did not entail the return of all payments made, including the deposit, on the premise that the Reservation Agreements had no validity.

29. The Defendant's position was that, given the continued discussions between the parties as regards the replacement SPAs and concurrent payment and acceptance of instalments, it could not be contended that the Reservation Agreements had in fact lapsed following the prescribed 15 day period after receipt of the replacement SPAs. The thrust of the argument was that Clause 5(a) had in effect been put on hold pending the time when there was no further purpose in so doing given it had become clear that the refusal by the Claimant to sign the SPAs would be permanently maintained (coincident, on the Claimant's case, with the issuance of the proceedings). The Defendant went on to maintain that in the event that Clause 5(a) was thus reactivated it would be obliged to return the instalments save for the deposit but such was not an outcome which could be legitimately achieved whilst the Claimant insisted that there were valid SPAs in existence.

30. The position is that the Defendant has substantial sums paid by the Claimant in hand. The Claimant continues to insist that the governing agreements are on the terms of the SPAs and will not, even in the alternative entertain, any case based on the Reservation Agreements. I had hoped that costs might be saved by my attempt to invite a broader view of the case. Regrettably this attempt has failed. The claim must be dismissed with costs. That said it seems to me that the Defendant would be disposed to settle any further proceedings (assuming they would not be an abuse of process) by cancelling the reservations and returning the instalments less the deposit. I would say that whether this is reflection of the engagement of Clause 5(a) or not that outcome would seem realistic.

Issued by:
Natasha Bakirci
Assistant Registrar
Date of Issue: 15 December 2013
At: 4pm