June 15, 2023 Technology and construction division - Orders
Claim No: TCD 001/2020
IN THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS
IN THE COURT OF FIRST INSTANCE
TECHNOLOGY AND CONSTRUCTION DIVISION
BETWEEN
(1) GATE MENA DMCC (FORMERLY HOUBI OTC DMCC)
(2) HUOBI MENA FZE
Claimants
and
(1) TABARAK INVESTMENT CAPITAL LIMITED
(2)CHRISTIAN THURNER
Defendants
ORDER WITH REASONS OF JUSTICE SIR RICHARD FIELD
UPON considering the Claimants’ Application No. TCD-001-2020/18 dated 23 May 2023 (the “EOTA”) for an extension of the time by which they must provide security for the costs of their appeal under the Order with Reasons of Justice Sir Richard Field dated 5 May 2023 (the “SFCA Order”) to 4 pm 15 October 2023
AND UPON considering the SFCA Order and the reasons stated therein for making the said order
AND UPON considering the Order with Reasons of Justice Sir Richard Field dated 13 February 2023 (the “Stay Order)
AND UPON reading the 7th and 8th witness statements of Mr Peter Oliver Smith (“Mr Smith), the 6th witness statement of Sultan Bin Kharsham Al Ali (“Mr Al Ali”) and the 11th witness statement of Mr Christian Franz Thurner (“Mr Thurner”), the Second Defendant herein (“D2”)
AND UPON considering the written submissions dated 29 May 2023 served on behalf of the First Defendant (“D1”)
AND UPON considering the letter to the Court dated 5 June 2023 by D1’s attorneys, KBH Limited (“KBH”) and the letter to the Registry dated 6 June 2023 by the Claimants’ attorneys, Charles Russell Speechlys LLP (“CRS”)
IT IS HEREBY ORDERED THAT:
1. Paragraph 1 of the SFCA Order shall be amended so as to read:
“The Appellants must provide security for the Respondents’ costs of the appeal herein by paying into Court by 4.00 pm on 10 July 2023 the total sum of AED 1,551,591.99, whereof AED 969,386.99 will secure the costs of R1 and AED 582,205 will secure the costs of R2”.
2. The Claimants/Appellants shall pay the costs incurred by the Defendants/Respondents in resisting this EOTA to be the subject of a detailed assessment by the Registrar on the standard basis, if not agreed.
Issued by:
Delvin Sumo
Assistant Registrar
Date of issue: 15 June 2023
At: 3pm
SCHEDULE OF REASONS
Introduction
1. The date for the payment of the sum specified to provide security for the costs of the appeal in the SFCA (2 June 2023) was fixed in the knowledge that on 17 April 2023 Chief Justice Zaki Azmi had given permission for the remaining grounds of appeal to be heard but in ignorance of when the appeal was likely to or would come on to be heard.
2. Following the Chief Justice’s decision, the parties were asked to provide their availability dates for the hearing of the appeal and, following a difference between them as to the length of the appeal and the Claimants’ counsel becoming unavailable for a previously agreed window of 3 – 7 July 2023, the Claimants proposed a revised windows of 18 – 29 September 2023 and 1 – 31 October 2023 which were not acceptable to D1 because of the unavailability of counsel during the Autumn. The Claimants then took the position that they would agree to a hearing in January 2024 on condition that the Defendants agreed to extend the time for the payment of the security sum to October 2023, which condition was roundly rejected by D1. Finally, on 19 May 2023, the parties confirmed to the Registry that they were available for a hearing in the period 15 -17 January 2024. Four days’ later the Claimants issued their EOTA.
3. Previously, on 17 May 2023 the parties agreed to a consent order which provided that the detailed assessment of costs of the first instance proceedings would be stayed until 14 days after the outcome of the appeal was known.
The case advanced in opening by the Claimants
4. The Claimants’ submissions are advanced in the 7th and 8th witness statements of Mr Smith. In the first of these witness statements Mr Smith contends or avers as follows:
4.1 As the Defendants well know, the Claimants are currently without the means to pay the interim costs orders directed to be paid by the costs order dated 21 February 2023 (the “Costs Order”).
4.2 He is informed by Mr Mohit Davar (“Mr Davar”) and Mr Al Ali, (who effectively control the Claimants’ conduct of these proceedings) that they are holding discussions and settlement negotiations in other, unrelated proceedings, that they believe are likely to lead to the payment of up to several million dollars that would enable them to satisfy the order for security for costs.
4.3 The proposed new date for the payment of the security ordered (15 October 2023) is approximately 3 months prior to the start of the appeal hearing and would be well in advance of when any work required to be done in preparation for the appeal would be likely to start.
4.4 If the due date is extended as requested and the Claimants come into the necessary funds sooner than the new payment date, the Claimants would be willing to pay the sums ordered immediately.
4.5 In the above premises, to refuse the EOTA would “pose a very significant risk that the Claimants’ appeal would be stifled which would be a particularly unconscionable and egregious [outcome] where the Claimants are the innocent victims of a substantial fraud that lost them millions of dollars of Bitcoin” and they have permission to appeal on all their pleaded grounds.
4.6 This significant risk of prejudice stands to be very carefully weighed against the fact that the Defendants would suffer no prejudice in granting the EOTA, particularly where no costs are being incurred and the security sum is to be paid into court and not to the Defendants and would only be paid to the Defendants if they eventually succeed on the appeal in a Judgment that inevitably would be reserved. As to the costs the Defendants have already incurred in respect of the appeal, the Defendants would be better off if the EOTA were granted because there is no way in which the ordered security can presently be paid. Accordingly, the Defendants opposition to the EOTA is wholly unreasonable.
D1’s responsive submissions
5. On behalf of D1, Ms Ahmed submitted as follows:
5.1 The Claimants’ submission that a refusal to grant the EOTA would stifle its appeal is a contention that has never been raised and is any event unsustainable. In previous submissions in the stay and SFCA applications, although the Claimants have described themselves as shell companies without any assets they have not contended that they lack the means of raising the necessary money to provide security for costs and pay their attorneys. Had they raised such a plea then, pursuant to the Court of Appeal’s Judgment in the Hammond Suddards case which was adopted by this Court in giving its reasons for the SFCA Order, they would have had to provide detailed evidence both of their financial situation in balance sheet and turnover terms and of their unsuccessful attempts to raise the necessary money. This they have never done and accordingly no credence should be given to this plea.
5.2 Further, given that: (a) they have not previously mounted a stifling of the appeal case and did not seek to appeal the SFCA order within the permitted time; and (b) the instant EOTA must be brought under the power conferred by RDC 4.71 which is not to allow litigants to have a second bite of the cherry, it is incumbent on the Claimants to demonstrate that there has been a material change of circumstance since the making of that order (see Vannin Capital PCC Plc v Al Khorafi and Others [2014] DIFC CFI 36 (11 February 2016)) and this they have failed to do.
5.3 Ms Ahmed also submits that there are other discretionary reasons why the EOTA should be dismissed, including, inter alia: (a) the relevance of a 135 day extension is not explained and appears to be arbitrary particularly since 15 October 2023 falls on a Sunday; (b) the Claimants continue to refuse to offer any undertaking that the security sum will be paid after the 135 days; (c) the Claimants have not offered to pay any sums towards the amount ordered; (d) the Claimants have refused to provide any evidence as to how they are funding their attorneys’ professional fees and the fees of their external London counsel, including a leading King’s Counsel; and (e) D1 will suffer real prejudice if the EOTA is granted because its leading counsel is tied up in other proceedings in London in the months September to December 2023 which means that the preparations for the appeal will have to be front loaded in large measure prior to 15 October 2023 putting D1 at the risk of not being compensated by the Claimants for these costs if the Claimants fail to come up with the money by 15 October 2023.
D2’s responsive submissions
6. D2’s responsive evidence and submissions contending that the EOTA should be dismissed are contained in Mr Thurner’s 11th witness statement. Briefly put, they are as follows:
6.1 The Court can have no confidence in the Claimants’ implied proposition that they will be able to provide the ordered amount of security at any time prior to the Court of Appeal hearing on 15 January 2024 and in the meantime D2 has had to incur costs resisting the EOTA and will be put to future expense as the Claimants apply again, as they are certain to do as time goes by for a further extension.
6.2 The Claimants are allegedly funded in this dispute by Mr Davar and Mr Al Ali, yet no evidence of their financial situation has been adduced and no fresh undertakings to pay the Defendants’ costs have been provided. In addition, the Claimants have produced no evidence as to the source of the funding they are providing to their lawyers to pursue the appeal.
6.3 The Claimants’ evidence in support of their belief that a settlement in another dispute is likely to lead to a considerable sum of money is vague and very uncertain.
6.4 The Claimants relied on their impecuniosity in resisting the application for security for the costs of the appeal, yet the Court granted the application. It is accordingly not open to the Claimants to rely on their lack of funds to support their contention that if the EOTA is refused their appeal will be stifled.
6.5 The Claimants have failed to show that the grant of the EOTA would mitigate the risk of their appeal being stifled because they have not provided any cogent evidence, assurance or undertaking that payment of the ordered sum will be made by 15 October 2023. Also, it is not for the Claimants to make assumptions as to when D2’s preparation for the appeal will be undertaken.
6.5 The EOTA is part of a conspicuous strategy on the part of the Claimants to defer all payments to the Defendants until the appeal hearing and as such is an abuse of process that cannot be permitted to continue.
The Claimants’ factual evidence in reply provided by Mr Al Ali’s 6th witness statement dated 31 May 2023
7. The impecuniosity of the Claimants
7.1 The first claimant (“Gate Mena”), originally called Huobi OTC DMCC, assigned its claim against the Defendants to the second defendant (“Huobi Mena”) on 23 September 2021. Then on 27 September 2021, Huobi Mena sold its majority shareholding in Gate Mena to an unrelated third party.
7.2 Gate Mena is a nominal claimant only. Neither Mr Al Ali nor Mr Davar has any control over it. At the time the shareholding in Gate Mena was sold to the third party, it did not have any ostensible assets or cash and its value was derived solely from its trading license.
7.2 Gate Mena previously had two bank accounts, one with Signature Bank, the other with Silvergate Bank in the US which was liquidated in February 2023. On 3 February 2023, Mr Al Ali received a cheque for USD 506.45 representing the closing balance on this account.
7.3 Huobi Mena and Gate Mena each had accounts with Signature Bank. Huobi Mena has not been operational since 2019. Both accounts were shut down in September 2019.
7.4 Huobi Mena does not have any cash or assets and has not had a bank account since September 2019. Mr Al Ali does not have possession of any hard copy records and there is no way in which he can access historic bank statements.
7.5 Mr Al Ali confirms that the Claimants do not have any assets, cash or other funds available to them and therefore would be unable to pay the AED 1,551,591.99 ordered to be paid by 2 June 2023 if that order is not amended with the consequence that the Claimants’ appeal would be stifled.
7.6 D1 is wrong when it submits that the Claimants clearly have access to extensive resources to be able to fund at least two sets of legal proceedings. The Claimants are significantly indebted to CRS, with legal fees outstanding and remaining unpaid from September 2021. Huobi Mena is also indebted to its Hong Kong lawyers in respect of arbitration proceedings in Hong Kong under the auspices of the Hong Kong International Arbitration Centre (the “HKIAC”) in which Huobi Mena is a claimant.
8. The discussions to settle the Hong Kong arbitration claim
8.1 Paragraphs 12 to 16 of Mr Al Ali’s witness statement state as follows:
“12. I respond to paragraphs 20 – 21 of D1’s Submissions as follows. As Mr Smith says at paragraph 30 of his Seventh Witness Statement (“Smith 7”), there are ongoing settlement discussions taking place in respect of other, unrelated proceedings.
13. Those proceedings are arbitration proceedings, the terms of which are confidential. I am therefore not able to disclose extensive details of them, nor are the Defendants entitled to that information. Nevertheless, for the purpose of protecting the Second Claimant’s legal rights in the present proceedings, I am able to confirm that those proceedings are a Hong Kong-seated arbitration under HKIAC (reference HKIAC/A20270) and that the Second Claimant in these proceedings is a claimant in those proceedings. I confirm that the First Claimant in these proceedings is not a party to the Hong Kong proceedings. I disclose this information for the sole purpose of the Application and such information remains confidential and may not be used for any other purpose.
14. I confirm that the settlement discussions are at an advanced stage, with key settlement terms having been agreed in principle. I am not in a position to respond to all the questions raised at paragraph 21 of D1’s Submissions nor do I believe that I am required to. I nevertheless confirm that the settlement amount, due to be paid in those proceedings is approximately USD 11 million, from which the costs of those legal proceedings and other obligations will need to be met. Once such costs are deducted, I calculate that in excess of USD 3 million (AED 11 million) will be available to meet the Claimants’ obligations in the present proceedings, which include the payment on account of security for costs and the Claimants’ legal fees (both incurred and anticipated).
15. Given that the key settlement terms are agreed in principle, I believe that the parties should be in a position to sign a settlement agreement within the next 2 months. In respect of the Variation Application, the Claimants have requested until 15 October 2023 to make payment into Court on account of security for costs. I view this as the longstop date by which the settlement funds should be available – if funds are not available by this date, then I believe there is very limited prospect that the Claimants will be able to satisfy the SfC Order at all.
16. Once a settlement agreement has been signed by the parties, I anticipate that Huobi MENA will open a bank account in short order to receive the settlement sum. Huobi MENA will then be able to pay the security for costs into Court as soon as it receives the monies into its account. As Mr Smith suggests at paragraphs 38 and 42 of his Eighth Witness Statement (“Smith 8”), I confirm that the Claimants are willing to pay the security for costs into Court sooner than the 15 October 2023 deadline if the settlement sum is received at an earlier stage. I believe that a period of approximately 2 – 3 weeks may be necessary for Huobi MENA to re-open a bank account and satisfy the requisite formalities and for the monies to then be received into Huobi MENA’s bank.”
Proposed undertaking
9. In paragraphs 18 and 19 of his 6th witness statement Mr Al Ali states:
“18. In light of what I say at paragraph 16 above, I am prepared to provide an undertaking to the Court (should the Court deem it necessary) that: (1) the Claimants shall pay or procure the payment of the security for costs into Court within 2 working days of the settlement funds having been received pursuant to the terms of the settlement agreement in the Hong Kong arbitration; and (2) in any event, the Claimants shall pay or procure the payment of the security for costs into Court by no later than 4pm on 15 October 2023, failing which the Claimants accept that their appeal shall be debarred.
19. I confirm that I would be happy to amend the date in paragraph 18(2) to 16 October 2023 in light of the comments made at paragraph 36(c) of D1’s submissions.”
10. The Claimants’ reply submissions are set out in Mr Smith’s 8th witness statement. I summarise below what I regard as the more substantial contentions. That said, I have of course taken into account all the submissions contained in Mr Smith’s statement.
10.1 D1 incorrectly asserts in its submissions that it is not that the Claimants cannot pay but they will not pay. Contrary to what is said in paragraph 51 (b) (iii) in the SFCA Order, the Appellants have not obtained funds to pay their solicitors to prosecute the appeal. As Mr Al Ali deposes in paragraph 11 of his 6th witness statement, since September 2021, legal fees due to CRS have not been paid and remain outstanding.
10.2 Indeed, this mistake in the reasons for the SCFA Order is an arguable ground in itself for allowing the requested variation of that order.
10.3 When advancing their submissions in response to the application for security for the costs of the appeal the Claimants did not advance a stifling of the appeal argument because they did not contemplate the possibility of being required to pay as much as AED 1,551,591.99 into Court within only 28 days.
10.4 There is no rule of law or practice that prevents the Claimants from running the stifling argument in this separate application. RDC 4.7, under which this variation application is made, is in the same terms as the English CPR 3.1(7). Neither of these rules provides any guidance as to how the discretion conferred is to be exercised. The Vannin Capital case related to evidence that could have been raised or adverted to in the earlier hearings. When the Claimants filed their evidence in the earlier application herein, they did not know that the appeal hearing would only take place in the following year. Citing Oyston and Anor v Rubin and Anor [2021] EWHC 448 (Ch) and Tibbles v SIG Plc [2012] EWCA Civ 518, Mr Smith contends that the correct test is whether in the light of all the circumstances, it is just to revisit the decision. In Oyston, Miles J upheld a case management decision made by a Master that varied a previous order given by a Master by allocating the trial of a Part 8 Claim to a High Court Judge. Since the first order had been made, the respondent had added a claim for declaratory relief; the availability of a High Court Judge to hear the case had been confirmed and the respondent’s availability had improved on having changed his counsel. In giving Judgment, Miles J observed that, in the well-known case of Tibbles, it was noted that the jurisdiction to reopen orders is highly fact sensitive and depends on that context.
10.5 Given the delay in the appeal coming on to be heard, there is no material prejudice to the Defendants since work on the hearing will be delayed for many months.
10.6 There is now no good reason why the Claimants should have to pay security for costs 7.5 months before the appeal hearing and the Defendants have failed to provide any proper reason to the contrary or properly to explain how they would be prejudiced if security for costs is not paid by 2 June 2023.
10.7 The deadline of 15 October 2023 is not arbitrary. It was chosen for being the date falling 3 months before the listed start date for the appeal.
10.8 If D1 really intends to undertake work preparing for the appeal in the summer, that is their choice and cannot be a reason for refusing to grant the variation application.
KBH’s letter dated 5 June 2023 addressed to the Court
11. KBH went too far in sending this letter addressed to myself via email to the Registry. What KBH should have done was to make an emergency application on notice for a short oral hearing at which an application would be made for the 6th witness statement of Mr Al Ali and Mr Smith’s 8th witness statement to be declared inadmissible, which is what is contended for in the letter.
12. I have decided however to allow the letter to be taken into consideration since it is replied to in detail by the letter dated 6 June 2023 sent to the Registry by CRS, to which I refer below.
13. KBH contends that both of the aforementioned witness statements are inadmissible on the grounds that: (i) the contents of Mr Al Ali’s witness statement is not “reply” evidence but is evidence that should have been served in the Claimants’ first round of evidence served in support of the variation application, to which D1 could and would have replied; and (ii) Mr Smith’s evidence breaches Practice Direction 1 of 2016 because it introduces matters that are controversial and makes legal submissions which are not advanced only for the purpose of introducing controversial facts or documents without adducing any factual evidence going to the merits of the case.
14. In case the Court is minded to admit the challenged reply evidence, KBH submits:
14.1 The Claimants have not adduced any evidence of a change of circumstance to justify their application.
14.2 The Claimants have continued to fail to provide evidence of their personal wealth which is something the Court has remarked on in making some of the recent previous orders.
14.3 The evidence regarding the payment of CRS’s fees is opaque and is: (a) at odds with previous statements such as “the Claimants will need cash to cover the [appeal] process”2; “the Claimants also need to conserve their funds in order to fund the appeal”3; and (b) does not make it clear whether the Claimants are now saying that they have not paid any fees to CRS or have paid some but not all: this should be clarified.
CRS’s letter to the Registry dated 6 June 2023
15. The salient points made in CRS’s letter are:
15.1 The Claimants’ witness statements served in reply were responsive to the contentions raised by D1 and were not required to have been advanced in the Claimants’ first round of evidence and submissions.
15.2 Mr Smith’s 8th witness statement was not in breach of Practice Direction 1 of 2016 since paragraph 4 thereof provides that the Court take into account a purported expert opinion given in a witness statement made by a lawyer acting for one of the parties in arriving at its decision, but only relying on that opinion as a submission.
15.3 It was proportionate and reasonable for Mr Smith’s 8th witness statement to contain both legal submissions and factual evidence.
15.4 The Claimants’ evidence is not opaque; on the contrary it is clear and supported by a statement of truth (unlike D1’s submissions).
15.5 Without prejudice to the Claimants’ position that no clarification of their evidence as to fees outstanding to CRS is required, CRS has instructions that the debt owed to CRS exceeds the amount that the Claimants have been ordered to pay on account of security for the Defendants costs of the appeal.
Discussion and Decision
16. I begin by rejecting Mr Smith’s submission that the alleged mistake/misunderstanding in paragraph 51 (b) (iii) of the SFCA Order is a ground for revisiting the SFCA Order. The observation in paragraph 51 (b) (iii) reflected the statements that are identified in paragraph 14.3 above and the Claimants have accepted the SFCA Order by not having sought to appeal it within the stipulated time to do so.
17. In my Judgment, the fixing on 19 May 2023 of the appeal hearing for three days starting on 15 January 2024, almost two weeks after the issuance of the SFCA Order on 5 May 2023, is a matter that provides a foundation for the Claimants’ application to extend the time for payment of the sum ordered to be provided as security for the costs of the appeal. That said, the question to be addressed is whether, notwithstanding this point in the Claimants’ favour, in all the circumstances of the case fairness and justice require that there be an extension of time and if so, how long that extension should be.
18. The Claimants submit that the requested extension to 15 October 2023 is necessary in the interests of justice to avoid their appeal from being stifled. It is trite law that, for such a contention to succeed in the context of security for costs, the applicant must demonstrate on the balance of probabilities that: (i) it lacks the necessary funds to provide the security sought and has failed to find the necessary financing despite exploring all reasonable possible sources of finance; and (ii) the appeal has a real prospect of success. In addition, since they are not challenging the validity of the SFCA Order, in this case the Claimants must establish that the requested extension is just and appropriate having regard to the interests of all the parties and all the circumstances of the case, including the finding that I made in the stay proceedings that “the Claimants … proceeded with their very large damages claim when they must have known … certainly by the time of the Assignment Agreement dated 1 September 2021 … that neither of them was worth powder and shot and the security for costs ordered to be provided was likely to fall significantly short of covering the costs that would be awarded to the Defendants if the claim was dismissed”.
19. I am somewhat sceptical of the reason given by Mr Smith for the stifling submission not having been previously advanced4 since it seems to me that the submission could only have assisted in the Claimants stay application5 and their resistance to the Defendants’ application5 that the Claimants’ permission to appeal be subject to the provision of security for costs and D1’s application that they honour the interim costs order in its favour6. However, in my opinion, the failure to run the stifling argument previously is not a bar to their running the argument in this application.
20. Although I have decided not to accept D1’s application that the evidence served by the Claimants in reply be ruled inadmissible, I am abound to say that I am unimpressed by the Claimants’ failure to adduce the evidence provided in Mr Al Ali’s 6th witness statement at the same time as they served Mr Smith’s 7th witness statement. As I have indicated above, it is well-known that a stifling case requires full and frank evidence as to the applicant’s financial position and I think that the evidence now supplied by Al Ali as to the financial position of the Claimants and the state of play in the settlement negotiations in the Hong Kong arbitration proceedings should have been served at the outset of the application. Instead, the Claimants’ evidence in respect of these matters when they opened their application consisted only of Mr Smith’s statement founded on information provided by Mr Al Ali and Mr Davar that: (a) the Claimants had not yet met the financial obligations imposed by the 21 February Order and the Defendants are presently not in a financial position to meet the obligations imposed by the SFCA Order by the stipulated deadline of 2 June 2023; and (b) the Claimants are in the process of holding discussions and settlement negotiations in other, unrelated proceedings, which they believe is likely to lead to the payment of a considerable sum of money (up to several million dollars) which would allow them to satisfy the security for costs condition.
21. I reject the Claimants’ submission that the proposed extension of time for payment of the security does not give rise to any prejudice to the Defendants. In my Judgment, the Defendants will be significantly prejudiced by having the uncertainty as to whether the costs already incurred in the appeal and the costs that will be incurred in preparing for the appeal prior to 15 October 2023 will be covered by the security ordered to be paid by the SFCA Order. In my view, this prejudice is not assuaged by the undertaking offered by Mr Al Ali that the security sum will be paid within 3 days of receipt of sufficient funds arising from a settlement of the Hong Kong arbitration.
22. After very considerable reflection, I have to come to the view that the Claimants have made out a case that the time for payment of the security sum be extended but having regard to: (a) the increasing prejudice to the Defendants the longer be the extension granted; and (b) the fact that the Claimants continued with their damages claim beyond September 2021 when they well knew they did not have sufficient resources to pay the Defendants’ costs if the claim failed and that the security provided was in any event going to be inadequate, the extension I grant is to 4:00 pm (Dubai time) on 10 July 2023.
23. Finally, it is my opinion that the extension sought was unreasonably long and having regard to my criticism of the Claimants’ failure to adduce the evidence contained in Mr Al Ali’s 6th witness statement in their first round of evidence I direct that the Claimants must pay the Defendants’ costs in resisting the EOTA to be the subject of a detailed assessment by the Registrar on the standard basis, if not agreed.
