DIFC Courts

Taaleem P.J.S.C. v (1) National Bond Corporation P.J.S.C. and (2) Deyaar Development P.J.S.C. [2010] DIFC CFI 014

April 16, 2014 Court of First Instance -Judgments

Claim No: CFI 014/2010

THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS

IN THE COURT OF APPEAL

BEFORE JUSTICE ROGER GILES

BETWEEN

DEYAAR DEVELOPMENT P.J.S.C.

Second Defendant/Appellant

and

TAALEEM P.J.S.C.

Claimant/Respondent

and

NATIONAL BOND CORPORATION P.J.S.C

First Defendant

JUDGMENT OF JUSTICE ROGER GILES

UPON reviewing the Appeal Notice filed on 5 March 2014

1. This is an application for leave to appeal against the decision of Justice Sir David Steel in Taaleem PJSC v National Bonds Corporation PJSC (CFI 014/2010, 19 February 2014). The applicant is the second defendant, Deyaar Developments PJSC ("Deyaar").

2. The Claimant, Taaleem PJSC ("Taaleem"), acquired a one-third interest in the bulk of the residential units in the property known as Sky Gardens, with finance from the first defendant, National Bonds Corporation PJSC ("NBC"). Thereafter Taaleem negotiated to sell its interest in the property to Deyaar. The trial judge held that there was a concluded agreement for the sale or transfer by Taaleem to Deyaar of Taaleem's interest in the property, and that the agreement was not to be set aside on the ground that the Chairman of both companies had promoted the interests of Taaleem to the detriment of Deyaar.

3. I am exercising the jurisdiction of the Court of Appeal as a single judge (RDC 44.150), without a hearing (RDC 44.151). I should grant leave to appeal only where I consider that the appeal would have a real prospect of success, or that there is some other compelling reason why the appeal should be heard (RDC 44.8). I have not requested submissions from the respondents (see RDC 44.27).

4. For the following reasons, in my opinion leave to appeal should be refused.

5. There are fifteen grounds of appeal, supported in the application by a skeleton argument and materials to which they draw attention. It should be said that a number of the grounds appear to have been framed without close attention to the trial judge's reasons, or to the significance of the ground to the outcome in the proceedings. The application is not assisted by these features.

Ground 1

6. This ground challenges the holding that a concluded agreement was made on 4 December 2008. It states five matters "in particular", which become seven matters (and seven only) in the skeleton argument.

7. Most of the matters are asserted inconsistencies between a concluded agreement as at 4 December 2008 and what the trial judge said, or is said to have said, in other parts of his reasons. I do not think they have any substance. There are attributed to the trial judge findings which regard to what he said do not bear out: the most stark occasion is a finding that the contract was "pushed through" at a board meeting on 23 December 2008, when in the referenced paragraph the trial judge said that it was difficult to see how the Chairman pushed through the transaction when he was not even present. To the extent that the attributions approach reality, there are no inconsistencies. For example, an observation as at 9 December 2008 that the parties were "contemplating an amendment to an existing agreement" is consistent with a concluded agreement to be given effect in that manner: the trial judge found that "the transaction was to proceed by amendment to the Tripartite Agreement".

8. The further matter is that the trial judge found that due diligence was not complete by 23 December 2008 but "took no account of the fact that it is in the nature of due diligence that it is a process which precedes a contract". Again, I do not think this has substance. The trial judge considered the course of due diligence, found that it was completed or nearly completed in early December, and was satisfied that a concluded agreement was not subject to due diligence. Due diligence may often precede a concluded contract, but need not do so.

9. I do not think that, taken together, the seven matters offer real prospects of success in overturning the finding of a concluded agreement.

Ground 2

10. An important plank in Deyaar's case was an MOU signed on 19 May 2009, said to record the position as at 9 December 2008 and from its terms indicating a then state of negotiation. The trial judge gave extensive consideration to its significance, and was satisfied that it was not intended to be an accurate record. Rather, it was brought into existence at Deyaar's request to provide a backdated explanation for a payment made by Deyaar, in the face of an investigation by the Government Financial Audit Department, and its terms were not consistent in many respects with the true position.

11. This ground is that the trial judge "erred in law" in failing to consider whether the evidence of Mr Ziad Azzam, the CEO of Taaleem, was unreliable because he had signed a false MOU. The material evidence of Mr Azzam is not clearly identified; indeed, Deyaar cites extracts from his evidence which it says are inconsistent with a concluded agreement as at 4 December 2008, and so relies on some of his evidence. However, the trial judge refers to Mr Azzam's explanation for signing the MOU notwithstanding its inaccuracy, and no doubt the ground is particularly directed to this.

12. The trial judge accepted that Mr Azzam signed the MOU to help Deyaar, Mr Azzam having said that its accuracy "was not the most pressing thing, certainly not in my mind". It was well open to the trial judge (and certainly there was no error in law) to have accepted Mr Azzam's evidence, and to have found that the MOU was not intended to be an accurate record. Further, the evidence of Mr Azzam cited by Deyaar is not inconsistent with the existence of a concluded agreement as at 4 December 2008. I do not think this ground has any prospects of success.

Ground 3

13. This ground is that the trial judge failed to identify the terms of the concluded agreement; in the skeleton argument it is asserted that "this was because…he could not do so" and that no terms had been agreed. The ground is not relevantly developed in the skeleton argument.

14. The trial judge found that the parties had agreed on "the price and other essential terms". While he did not enumerate the terms, the core agreement can be found in his reasons; in particular, he found that the final draft of the amendment to the Tripartite Agreement was available by 20 November 2008.

15. To the extent that the ground of appeal is that the terms of the agreement could not be found, in my view it is not reasonably arguable. Any complaint that the trial judge did not find the terms of the concluded agreement is not a matter for appeal. Orders have not yet been made. The trial judge left it to the parties to prepare orders in the light of his judgment, and any debate over what the terms are will arise in settling the orders, if necessary with application to the trial judge to resolve disagreement.

Ground 4

16. This ground is that the trial judge erred in finding that board approval had been given (by Deyaar) on 23 December 2008. Two reasons for the error are given; they need not be set out.

17. The trial judge considered that the concluded agreement was not conditional upon board approval, although going on to find that any condition was met; so any error matters not. However, the reasons given have no substance. The matters to which they refer are not concerned with board approval, and are consistent with an existing concluded agreement.

Ground 5

18. An issue in relation to board approval was whether the board had received transactional materials on which it could have given approval. A board pack was provided, but the pack available at trial was incomplete. The trial judge said that it was probable that the missing items were in the possession of Deyaar, and inferred that full disclosure had been made to the board.

19. This ground is that the trial judge erred in law so inferring, when there had been an extensive disclosure process and disclosure statements in the proceedings.

20. The trial judge cannot have been unaware of this, and it was open to him (and certainly not an error of law) to have held as he did. As with Ground 4, however, board approval does not matter because the trial judge considered that the concluded agreement was not subject to board approval. And even if there was some shortage in the materials provided to the board, the minutes expressly recorded approval subject to due diligence; the trial judge found that approval was granted on the basis that management would complete due diligence. I do not think this ground has any substance.

Ground 6

21. This ground is that the trial judge was in error in saying, as he twice said, that no party contended that the MOU constituted a binding agreement. The elaboration in the skeleton argument is that Taaleem had sought a three month extension of the MOU, so it must have been recognised by Taaleem as a binding agreement.

22. The skeleton argument does not support the ground, since it does not address what the parties contended at trial. However, even if the ground be taken to be asserting error in regarding the MOU as non-binding, the trial judge comprehensively found that it was not intended to record the true position between the parties. The MOU was extended by a countersigned letter, but this counts for little against the reasons given for the trial judge's findings. Again, there is no substance in the ground.

Ground 7

23. Most of the negotiations were between Mr Azzam and Mr Markus Giebel, the CEO of Deyaar. The trial judge said, not when considering the making of a concluded agreement but when considering Deyaar's case that the Chairman of both companies had promoted the interest of Taaleem to the detriment of Deyaar, that Mr Giebel was acting independently of the Chairman and "clearly had authority to conclude the transaction".

24. This ground is that the trial judge was wrong in finding that Mr Giebel had authority to conclude the transaction. In the skeleton argument it is said that the trial judge based his finding on a power of attorney granted to Mr Giebel, and that on its true construction the power of attorney did not give him the necessary authority. The argument does not descend to why the power of attorney was deficient in its grant of authority.

25. Early in his reasons the trial judge refers to, and sets out an extract from, the power of attorney. It very likely did authorise Mr Giebel to make the concluded agreement, but in any event the trial judge did not tie his actions to the power of attorney. His authority as CEO of Deyaar would have sufficed. Further, on the trial judge's findings the board approved the transaction, and there is insufficient reason to regard that conclusion as erroneous. I do not think this ground has real prospects of success.

Ground 8

26. The trial judge said that Deyaar's case that the Chairman of both companies promoted the interests of Taaleem to the detriment of Deyaar "faced a formidable threshold difficulty". He said that Deyaar made clear that it did not allege dishonesty or fraud, but "there can be no doubt in my judgment that the experts were all agreed that knowledge of a director's breach of duty in concluding a contract is insufficient justification for setting aside the contract".

27. This ground is the trial judge was in error in saying that the experts were agreed. It is said in the skeleton argument that no such agreement is to be found in their reports, their joint memorandum, their joint note, or their oral testimony. This is not elaborated.

28. The trial judge should not be taken to have meant, as the ground appears to assume, that the experts expressed agreement with each other on the point. It is clear that he did not; he went on to refer to "clear evidence" of two of the experts and to consider the evidence of the third and implicitly come to the conclusion that that expert's view was the same. Deyaar does not support the ground by reference to evidence of the experts to the contrary of the trial judge's conclusion.

29. The ground leads nowhere unless there be made out a case that knowledge of a director's breach of duty is sufficient justification under UAE law for setting aside a contract. The ground maybe no more than carping with words; if more is intended, the argument does not attempt to do this. I do not think the ground has any substance.

Ground 9

30. This ground is that the trial judge erred in law in concluding that UAE law does not provide a remedy where one company knowingly receives the benefit of breach of duty by a director or senior officer of another company (here, the Chairman).
31. In the referenced paragraph the trial judge recorded Deyaar's submission that a serious breach of duty met the requirement of fraud, and went on—
"But there was no basis for this submission and, if there had been, it would fall foul of the concession. Deyaar were left in the somewhat unhappy position of contending that, if UAE law did not furnish relief in these circumstances, it ought to. But there is no room in a civil law jurisdiction with a civil code to develop the law in the manner suggested even if otherwise thought justified".

32. This ground leads nowhere, because the trial judge was evidently not satisfied that the Chairman's actions constituted a serious breach of duty: that is why he said that there was no basis for the submission, and he also later gave reasons for concluding that the transaction was not brought about by the Chairman. In any event, the skeleton argument does not usefully support that under the existing law relief would be available in the circumstances. It is little more than the assertion that relief should be available; and in the absence of argument for the existing law providing a remedy, I am not persuaded that the necessary legal basis for the ground has real prospects of success.

Ground 10

33. This ground is that the trial judge failed to deal with the submission that serious or substantial breach of duty met any requirement labelled "fraud".

34. The skeleton argument is not entirely congruent with the ground. It first contests that Deyaar had said that it did not advance any allegation of dishonesty or fraud, but in the passage from the transcript cited in the skeleton argument it appears to me that this was the position advanced. Then it is said that the article of the Civil Code to which the trial judge referred did not support that fraud or dishonesty was required, so that fraud was not a necessity. There is insufficient reason to doubt the trial judge's conclusion from the evidence of the experts, which the skeleton argument does not address.

35. Finally it is said that the trial judge did not deal with the submission that serious or substantial breach of duty met the label "fraud"; but he did, and in any event in saying that there was no basis for the submission he did not regard the Chairman's actions as constituting serious breach of duty. As I have said, subsequently in his reasons the trial judge found that the Chairman did not bring about the transaction, so in any event there was no relevant breach of duty on his part; and the trial judge further found that even if the transaction was avoidable, Deyaar ratified it. These two matters are the subject of Grounds 11 and 12, and as next appears they do not attract leave to appeal.

Ground 11

36. This ground is that the finding that the Chairman did not bring about the concluded agreement is contradicted by a number of enumerated matters. The skeleton argument elaborates these matters; it is sufficient to say that, while the Chairman played a part in negotiations, they are not persuasive against the trial judge's conclusion. I do not think they offer real, or any, prospects of success on this ground.

Ground 12

37. As I have mentioned, the trial judge held that Deyaar ratified the contract. This ground was that such a conclusion would need to be supported by evidence from the period after the Chairman ceased to be Chairman on 1 July 2009, and it was not. The skeleton argument did not elaborate.

38. Again, the ground is distant from the trial judge's reasons. The trial judge said as to ratification that Deyaar "treated the property as its own in 2009 and indeed took no steps to terminate it until service of its Defence in June 2010". The skeleton argument does not address the evidence or lack of evidence of those matters, which clearly extended beyond 1 July 2009.

39. It may be added that, even if Deyaar did not ratify the contract, it would be necessary to succeed on prior grounds of appeal before Ground 12 became material.

Ground 13

40. It was not necessary for the trial judge to consider whether Deyaar had made out its case that Taaleem was aware that the Chairman was in breach of duty. The trial judge nonetheless enumerated a number of "difficulties with the proposition". One was that in the negotiations between Mr Giebel and Mr Azzam there was agreement on a price "which constituted a substantial discount on the market price" and for a number of reasons was attractive to both sides.

41. This ground is that the finding that the price was a substantial discount on the market price is contradicted by other findings of the trial judge.

42. In the skeleton argument the ground is not supported by reference to the evidence, but by reference to two observations in the reasons. One is that in June 2008 sales of the units were weak, and the other is that by 31 December 2008 prevailing rates for residential units in the DIFC were less than the agreed figure.

43. However, prevailing rates were not necessarily applicable to the Sky Gardens development, and Deyaar refrains from referring to paragraphs of the reasons recording a real estate broker's view that the property should attract a substantial premium over other offerings in the area and plans, in the face of the weak sales, to put the project on the international market. It does not matter, since it is quite clear that Mr Giebel conducted the relevant negotiations and considered that the transaction was in Deyaar's interests, and if the price was not a discounted price the trial judge's other reasons for declining to find that Deyaar had made its case out on the facts remain. There is nothing in this ground.

Ground 14

44. This ground is that the trial judge—

"… erred in holding that it was common ground that the issue of whether Deyaar assumed Taaleem's obligation to repay NBC can be determined by reference to DIFC law (para 76)".

45. The ground is not developed in the skeleton argument, in which it is said only that it speaks for itself.

46. Again, there does not seem to have been appreciation of the trial judge's reasons.

47. In the referenced paragraph the trial judge identified as the "threshold issue", whether the negotiations between Taaleem and Deyaar for the acquisition by Deyaar of Taaleem's rights and obligations in respect of Sky Gardens lead to a legally binding agreement under which Deyaar assumed or agreed to acquire such rights and obligations, including Taaleem's obligation to repay NBC for the financing it provided to Taaleem to purchase its interest in Sky Gardens. He continued—

"It is common ground that this issue can be determined by reference to DIFC laws since it is not suggested by any party that the application of UAE law would give a rise to a different result".

48. First, the identification of the relevant law was in relation to assumption by Deyaar of Taaleem's obligation to repay NBC as part of a legally binding agreement: it was in relation to whether a concluded agreement had been made. Secondly, the trial judge should not be taken to be recording an overt agreement on common ground; rather, because no party suggested that the application of UAE law would give rise to a different result, DIFC law was to be applied. When the skeleton argument does not descend to any elaboration, and in particular does not suggest that some other law was applicable and support that suggestion, I am not persuaded that there is any substance in the ground.

Ground 15

49. This ground is simply that the trial judge "erred in failing to consider Issues 5 and 6 of the Agreed List of Issues".

50. A list of issues was agreed. Issue 1 was whether Deyaar and Taaleem entered into a legally binding agreement under which the former assumed or agreed to acquire the latter's rights and obligations in respect of Sky Gardens, including Taaleem's obligation to repay NBC in respect of the financing it had provided to Taaleem to purchase the interest in Sky Gardens. Issues 5 and 6 were predicated on an affirmative answer to issue 1, and in summary were—

Issue 5: Whether there was a novation or an assignment to Deyaar of Taaleem's obligation to repay NBC, and in either case whether NBC could sue Deyaar;

Issue 6: Whether Deyaar and NBC otherwise reached a binding legal agreement in relation to Sky Gardens or its financing, and if so what agreement.

51. At the commencement of his reasons the trial judge said that the dispute centred on whether Taaleem or Deyaar was liable to repay NBC a sum in excess of AED 200 million advanced by NBC to Taaleem. Thereafter he referred to the central issue of whether there had come about a concluded agreement by which Taaleem transferred its rights and obligations in respect of Sky Gardens to Deyaar or alternatively if Deyaar had agreed to purchase its interest in Sky Gardens, and to Taaleem's claim that there had been a novation between it, NBC and Deyaar.

52. The trial judge's conclusion that a contract of sale or at least transfer was concluded in December 2008 and that "there was a concluded agreement for transfer of Taaleem's interest in Sky Gardens to Deyaar on 4 December 2008" does not spell out the position as between Deyaar and NBC. There are a number of references in the reasons to that position: for example, an email from NBC on 20 October 2008 recording the structure of the transaction deals with Deyaar's acquisition of Taaleem's interest in Sky Gardens and also its undertaking the financial obligations to NBC, and an addendum to the Tripartite Agreement was prepared apparently involving NBC's finance. Nonetheless, the position as between Deyaar and NBC is not made clear in the reasons, and to that extent I accept that the ground voices a valid complaint.

53. However, the consequence is not leave to appeal. As with Ground 3, Deyaar's obligations towards NBC will be stated in the orders yet to be made. Nothing has been done towards making them; if the parties cannot agree on translating the trial judge's reasons into (presumably) declarations as to whether Taaleem or Deyaar is liable to repay the AED 200 million to NBC and otherwise the financial obligations between the parties, the trial judge can be asked to resolve their dispute in settling the orders. That is Deyaar's proper avenue, not appeal.

54. I have considered whether the grounds of appeal in combination warrant leave to appeal, notwithstanding that individually they do not offer real prospects of success; and also whether there is some other reason for granting leave to appeal. A large amount is at stake, but I am not persuaded that there is a proper basis for appeal on examination of the trial judge's reasons and the grounds of appeal as a whole.

55. Accordingly, I order that the application for leave to appeal filed on 5 March 2014 be dismissed.

Issued by:

Natasha Bakirci

Assistant Registrar

Date of Issue: 16 April 2014

At: 3pm