Laabika (2) Labhdi v (1) Ladu (2) Lakesh [2021] DIFC CA 008 (07 September 2021)

In the Name of His Highness Sheikh Mohammad Bin Rashid Al Maktoum, Ruler of Dubai IN THE COURT OF APPEAL BEFORE CHIEF JUSTICE ZAKI AMI, H. E. JUSTICE SHAMLAN AL SAWALEHI AND JUSTICE ROBERT FRENCH BETWEEN (1) LAABIKA (2) LABHDI Appellants/Claimants and (1) LADU (2) LAKESH Respondents/Defendants JUDGMENT Hearing : 2 September 2021 Counsel : Mr Antonio M Varvaro instructed by Antonio M Varvaro Legal Consultants DMCC for the Appellants. No Appearance for the Respondent. Judgment : 7 September 2021 ORDER UPON HEARING Counsel for the Appellants on 2 September 2021 AND there being no appearance by counsel for the Respondents AND service upon the Respondents having been proven AND UPON READING the submissions and evidence filed and recorded on the Court file, IT IS HEREBY ORDERED THAT: 1. The Appellants’ appeal is allowed. 2. The Orders of the Court of First Instance issued on 20 June 2021 are set aside. 3. In lieu thereof IT IS ORDERED THAT: 3.1 There be judgment by default for the Claimants in the amount of USD 3,009,675. 3.2 There be interest payable on the judgment sum according to the Rules of Court and the Practice Direction. 3.3 The Defendants to pay the Claimants’ costs of the claim. 4. The Respondents to pay the Appellants’ costs of the appeal to be assessed by the Registrar if not agreed. Issued by: Nour Hineidi Registrar Date of Issue: 7 September 2021 Time: 2pm JUDGMENT CHIEF JUSTICE ZAKI AZMI, H. E JUSTICE SHAMLAN AL SAWALEHI AND JUSTICE ROBERT FRENCH IN AGREEMENT: Introduction 1. This appeal raises the question whether a provision of a loan agreement ( “Loan Agreement” ) providing for any claim arising out of it to be brought in the “Courts of Dubai” is sufficient to confer jurisdiction on the Dubai International Financial Centre Court of First Instance ( “CFI” ). The Claim 2. The Appellants, Laabika and Labhdi , lodged a claim in the Technology and Construction Division of the DIFC CFI. It was subsequently transferred to the CFI. The named Defendants, the Respondents to this appeal, are Ladu Capital Investments LLC ( “Ladu” ) and Lakesh General Trading FZE ( “Lakesh” ). 3. The claim was for a sum of € 2,000,000 converted in the Claim Form to AED 8,888,689.52. Brief details of the claim set out in the Claim Form alleged that on 30 September 2016 the Appellants signed a Loan Agreement with the First Respondent and lent it an amount of € 2,000,000. According to clause 4 of the Loan Agreement, the loan was to be repaid by the borrower by way of instalments on the due dates and in the amounts stipulated in the Repayment Schedule. That Schedule, which was attached to the Loan Agreement, provided for repayment of the full amount of € 2,000,000 on 31 March 2017 together with € 50,000 as “interest amount” until that date. The agreed interest rate was 2.5% for six months. 4. The Loan Agreement was amended on 27 May 2018. According to the brief particulars, the Appellants agreed to assign the loan to the Second Respondent, Lakesh,in its alleged capacity as a trustee company. The Amended Loan Agreement expired on 27 November 2018. 5. The Appellants contended that they had tried several times to contact the Respondents, but had not been successful. A Legal Notice served in August 2020 by the Appellants’ attorney on behalf of the Appellants had been ignored. 6. The remedies sought were: “1) A ruling stating that an amount of EUR 2.000.000 (Two million or the equivalent in AED) is to be paid severally and jointly by the Defendants along with 5% interest rate as per the loan agreement until payment. 2) Any other damages to be determined by the Court. 3) The cost of bringing this action.” Detailed Particulars of the Claim 7. Detailed particulars of the claim were also lodged. In the detailed particulars, the Appellants cited Article 870 of the UAE Civil Transaction Law (Federal Law No 5 of the year 1985 as Amended) according to which “If the loan is cancelled or terminates, the lender must return the thing lent to the owner …”. On its face the duration of the Loan Agreement was for six months. The loan was “rolled over” on 27 May 2018 upon the signing of the Amendment to the Loan Agreement Contract and the execution of a document entitled the “Trust Agreement”. The Loan Agreement expired on 27 November 2018. The Appellants contended that it was the Respondents’ legal duty to reimburse the amount of the loan by the end of that month. The Documentation 8. Three documents are relevant. They are the Loan Agreement, the Amendment to the Loan Agreement Contract and the Trust Agreement. 9. The Loan Agreement was made between the Appellants and the First Respondent. It recited that the First Respondent had requested the Appellants for a loan to finance its business and that the Appellants agreed to grant the loan subject to the terms and conditions of the Agreement. 10. By clause 4.1 the loan was to be repaid by the First Respondent “by way of installments on the due dates and in the amounts stipulated in the Repayment Schedule.” 11. Clause 4.2 provided: “4.2 The Borrower shall pay interest on the outstanding amount of the Loan as per the Interest Rate as detailed in Schedule (A) attached hereto until the Loan is repaid in full.” 12. Clause 4.4 provided: “4.4 Without prejudice to the Lender’s other rights stipulated under this Agreement and applicable laws, in case of a default by the Borrower to make any instalment on its due date, the Borrower hereby acknowledges and agrees to pay a penalty, as specified in Schedule (A) attached hereto, over the Interest Rate from the date such installment is due until payment of the same is made in full.” 13. Clause 10.2 provided for events of default and in particular: “10.2.1 the Borrower fails to make any payment towards the Loan or Interest or any other amount hereunder when due …” 14. Clause 10.1 provided: “10.1 Where any of the Events of Default should occur, as listed in 10.2 hereof, the Lender may, at its sole discretion, declare the outstanding Principal Amount to be immediately due and payable whereupon the outstanding Principal Amount together with accrued interest thereon and all other sums due hereunder shall become so payable until such Event of Default is rectified without further presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower.” 15. Clause 11 of the Loan Agreement provided: “11. Law and Submission to Jurisdiction 11.1 The laws applicable in the Emirate of Dubai shall govern this Agreement and any controversy or claim arising out of or in relation to this Agreement or the breach thereof, shall be brought in the courts of Dubai. 11.2 Nothing in this Clause (11) shall affect the right of the Lender to serve legal process in any other manner permitted by law or limit the right of the Lender to bring any action or proceeding against the Borrower and/or the Guarantor or their property in the courts of another jurisdiction.” 16. Schedule (A) contained the following entries: ““Interest Rate” 2.5% interest rate for 6 months. “Loan Amount” Euro 2,000,000/- (Five Hundred Thousand [sic] Euro) borrowed by the Borrower from the Lender pursuant to the terms and conditions of this Agreement. “Interest Rate” Euro 50,000/- “Tenor” Minimum 6 months from the date of receiving the Loan Amount by the Borrower. “Roll Over” The loan may be roll over, based on the written confirmation from both the parties and Interest amount is to be paid on a monthly basis. “Repayment Schedule” Amount Maturity Date Euro 2,000,000 3 March 2017 17. The Amendment to the Loan Agreement Contract made on 27 May 2018 identified the First Respondent, Ladu, as the “First Party” and the Appellants as the “Second Party”. The amendment was said to be as follows: “1. The [First Party] beneficiary is assigned by Mr Laabika , and MS Labhdi , in the capacity of 100 percent beneficiary owner of LAKESH GENERAL TRADING FZE ”, License no 001 a Limited Liability Company Free Zone Company, licensed in the Ajman Free Zone and operating under the laws of the United Arab Emirates. ( THE SECOND PARTY ). 2. The loan terms and conditions are as per the previous agreement with out any changes in either party obligation and tenor/schedules. 3. On maturity revised agreement will be signed under the assignee LAKESH .” 18. It appears from the recitals of the Trust Agreement that the First Respondent, Ladu, held 100% of the shares in the capital of Lakesh. However, as also appears from the recitals, the Appellants were said to be '”the actual and beneficial owner of the aforementioned shares held by [the First Respondent, Ladu] on a trust basis as a nominee shareholder, as expressed herein.” The substantive terms of the Trust Agreement went into detail about the obligations and constraints imposed on the First Respondent, Ladu, as trustee of the shares in Lakesh. It is sufficient to refer to clause 9.7, which provided: “9.7 This Agreement and the agreements entered into contemporaneously herewith shall be governed by and construed according to the laws of the Emirate of Dubai and the United Arab Emirates and the parties hereto submit to the non-exclusive of the Dubai Courts.” [sic] The word “jurisdiction” should obviously have appeared after the word “non-exclusive” and has been omitted in error. However, the relevant jurisdictional provision is that to be found in the Loan Agreement which continues in effect to govern the relationship between the Appellants and Lakesh by reason of clause 2 of the Amendment to the Loan Agreement Contract. 19. The language of the Amendment Agreement is difficult to construe. It is necessary to refer to the witness statement of the Second Appellant, Ms Labhdi , to get an understanding of the circumstances surrounding the Amendment Agreement and the Trust Agreement. The Witness Statement of Labhdi 20. The factual circumstances surrounding the Loan Amendment and the Trust Agreement were set out in a witness statement provided by the Second Appellant, Ms Labhdi , dated 22 June 2021. The declaration was made in Italian and translated into the English language. The facts as she set them out can be summarised as follows: (a) in 2016, the Appellants, Ms Pieri and her husband Laabika , met Mr Lajjak, an Emirati citizen and the manager of the First Respondent, an investment company with offices in Dubai; (b) the Appellants appointed an Italian lawyer, Lunar to assist them in negotiating with the First Respondent with a view to the investment of € 2,000,000; (c) on 30 September 2016, the Appellants reached an agreement with the First Respondent which they considered satisfactory. They signed a loan agreement with the First Respondent and proceeded to transfer the sum; (d) Ms Labhdi said she had asked her lawyer to clarify in Italian what the contractual clauses were and in particular the dispute resolution clause. In the event of a dispute with the First Respondent she and her husband did not want to turn to an Arabic-speaking court. Their lawyer had assured them that the Loan Agreement provided that the law governing the contract was that of Dubai and that any legal action could be brought before any court in Dubai; (e) a few months later Mr Lajjaktold the Appellants, through Mr Lunar, that it would be preferable to transfer the funds to a trust company, the Second Respondent, which was wholly owned by the First Respondent. Mr Lajjak was a director of the Second Respondent. He suggested that the Appellants were the “true Ultimate Beneficial Owners” of the Second Respondent which only belonged to the First Respondent in appearance; (f) on 27 May 2018, the Appellants signed the “Trust Agreement” and agreed that the First Respondent would transfer their money to the Second Respondent. In that negotiation they were assisted by Mr Lunar who had direct contact with Mr Lajjak. Again, according to Ms Labhdi , her lawyer assured her that in the event of a dispute they could turn to any court in Dubai, including DIFC Courts, where the official spoken language is English. Reference was then made to clause 9.7 of the Trust Agreement; and (g) Ms Labhdi confirmed that they had never agreed to any contract provision for the exclusive jurisdiction of any Arabic-speaking court. 21. It appears from the Amendment to the Loan Agreement Contract and the Trust Agreement that there was an agreed assumption by the Second Respondent of responsibility for the debt on the basis of an extension of the term of the debt by a further six months beyond the term provided by the Loan Agreement. On the face of it, that did not extinguish the liability of the First Respondent in the event of default by the Second. Any default judgment against the Respondents should be joint and several. Successive Claim Forms 22. The first Claim Form, to which reference has already been made, was issued in the Technology and Construction Division of the CFI and given the number TCD-002-2021. It was issued on 10 February 2021. Upon the transfer of the matter from the Technology and Construction Division, a Claim Form was issued in the CFI on 29 April 2021 between the same parties and given the claim number CFI-049-2021. The amount claimed was expressed in USD 2,420,337.51. The Request for Default Judgment, which is discussed next, was issued in CFI-049-2021. The Request for Default Judgment 23. On 9 June 2021, the Appellants submitted a request for default judgment on the basis that the Respondents had not filed either an Acknowledgment of Service, an admission, or a defence to the claim and the time for doing so had expired. The amount of interest claimed from 30 September 2016 to 31 March 2021 was USD 589,338.00. 24. The request asserted that the claim, translated in Arabic with supporting documents and translator’s declaration, had been served by DHL. 25. There was also an assertion of the jurisdiction of the DIFC Courts as follows: “Jurisdiction: According to the Judicial Tribunal (JT) decision (Cassation n. 4/2019, pages 15 & 16) DIFC Court may hear cases brought before it and it may issue orders and decisions when the parties have agreed to submit their dispute to the Courts of the UAE without determining the priority competence (similar decision: Cassation n. 15/2018 JT). In the Loan agreement (attached) the parties agreed to defer any dispute to the Courts of Dubai (art. 11.1).” 26. Clause 11 of the Loan Agreement provided: “11. Law and Submission to Jurisdiction: 11.1 The laws applicable in the Emirate of Dubai shall govern this Agreement and any controversy or claim arising out of or in relation to this Agreement or the breach thereof, shall be brought in the courts of Dubai. 11.2 Nothing in this Clause (11) shall affect the right of the Lender to serve legal process in any other manner permitted by law or limit the right of the Lender to bring any action or proceeding against the Borrower and/or the Guarantor or their property in the courts of another jurisdiction.” 27. The supporting documents filed with the Request for Default Judgment included the Loan Agreement and a supporting affidavit by Lunar, a legal practitioner in Italy who deposed that in 2016 he had been appointed by the Appellants to assist them in a negotiation with the First Respondent. He confirmed that on 30 September 2016 the Appellants had signed a Loan Agreement with the First Respondent. He referred to provisions of clause 11.1. He confirmed that on 27 May 2018, the Loan Agreement was amended and that the Appellants agreed to assign the loan to the Second Respondent in the alleged capacity of a trust company. The Decision of the CFI 28. On 20 June 2021, His Excellency Justice Nassir Al Nasser, referred to what he called “the third request” made by the Appellants on 9 June 2021 for a default judgment in accordance with Rule 13.1(1) and (2) of the RDC. Upon reviewing the relevant agreements and the Appellants’ submissions and the case file, His Excellency found as follows: “AND PURSUANT TO Article 5(A) of the Judicial Authority Law, Dubai Law No 12 of 2004, as amended, which provides a number of limited gateways through which the DIFC Courts has jurisdiction over a claim, which are, as relevant “civil or commercial claims or actions where the parties agree in writing to file such claim or action [with the DIFC Courts] whether before or after the dispute arises, provided that such agreement is made pursuant to specific, clear and express provisions.” 1. The Request is not one prohibited by RDC 13.3(1) or (2). 2. The Defendants have failed to file an Acknowledgement of Service or a Defence to the claim (or any part of the claim) with the DIFC Courts and the relevant time for so doing has expired (RDC 13.4). 3. The Claimant filed a Certificate of Service in relation to the First Defendant in accordance with RDC 9.43 on 22 March 2021 and 31 May 2021. 4. The Claimant filed a Certificate of Service in relation to the Second Defendant in accordance with RDC 9.43 on 6 June 2021. ACCORDINGLY, IT IS HEREBY ORDERED THAT: 1. The Application is dismissed. 2. The DIFC Courts has no jurisdiction to hear and determine this claim. 3. The Claimants shall bear the costs of this Application.” 29. By a further Order dated 13 July 2021, His Excellency ordered that the Appellants’ Application for Permission to Appeal be granted on the basis that, pursuant to RDC 44.19, there was “a compelling reason on why the appeal should be heard”. The Appeal Notice — Grounds for Appeal 30. The stated grounds for appeal set out in the Appeal Notice are: “1) Misinterpretation of article 5(A)(2) of the Judicial Authority Law – JAL – (Dubai Law No 12 of 2004) in combination with the contractual provisions. The Judicial precedents of DIFC Courts and the contractual construction….” There follows a list of relevant authorities including Goel and Others v Credit Suisse (Switzerland) Limited [1] . Supporting documents were lodged with the Appeal Notice — they being basically documents already on the Court record in support of the Request for Default Judgment. Service of the Permission to Appeal and Appeal Notice 31. On 1 July 2021, pursuant to RDC 44.34 the Appellants served their Appeal Notice seeking permission to appeal, a statement of the grounds of appeal and a skeleton argument along with supporting documents on each Respondent. The service was processed by courier. 32. Proof of service was by way of shipment receipts, and statements of delivery to each of the Respondents from DHL. 33. On 27 July 2021, the Appeal Permission granted by the CFI on 13 July 2021 was served on the Respondents. Again, proof of service was before the Court in the form of shipment receipts and proof of delivery from DHL. 34. This Court is satisfied that the Respondents have been served with notice of this Appeal and that they have not responded. The Appellants’ Contentions 35. The Appellants contended that the decision of the CFI was wrong on the basis of a misinterpretation of Article 5(A)(2) and Article 6 of the Judicial Authority Law ( “JAL” ) – (Dubai Law No 12 of 2004) when read with the contractual provisions. The Appellants submitted that the CFI was wrong to hold that the statutory gateway requirements of Article 5(A)(2) are satisfied only by a specific indication of DIFC Courts as the selected judiciary for any dispute. That submission appears to be an inference about the reasoning of the CFI in the short preamble to its procedural findings and the order of dismissal. 36. The Appellants referred to the decision of this Court in Goel and three earlier decisions of DIFC Courts, namely Sunteck Lifestyles Ltd v Al Tamimi & Co Ltd & Anor; [2] Taaleem PJSC v National Bonds Corp & Anor [3] and Investment Group Private Ltd v Standard Chartered Bank [4] . The Question of Jurisdiction 37. The claim relies upon the jurisdiction agreed in clause 11.1 of the Loan Agreement which applies to the Second Respondent by virtue of the Amendment to the Loan Agreement Contract. The jurisdiction of the CFI in this case must, if it exists, be found in Article 5(A) of the JAL. That Article provides in the relevant parts: “(A) The Court of First Instance: (1) The Court of First Instance shall have exclusive jurisdiction to hear and determine: (a) Civil or commercial claims and actions to which the DIFC or any DIFC Body, DIFC Establishment or Licensed DIFC Establishment is a party; (b) Civil or commercial claims and actions arising out of or relating to a contract or promised contract, whether partly or wholly concluded, finalised or performed within DIFC or will be performed or is supposed to be performed within DIFC pursuant to express or implied terms stipulated in the contract; (c) Civil or commercial claims and actions arising out of or relating to any incident or transaction which has been wholly or partly performed within DIFC and is related to DIFC activities; (d) Appeals against decisions or procedures made by the DIFC Bodies where DIFC Laws and DIFC Regulations permit such appeals; (e) Any claim or action over which the Courts have jurisdiction in accordance with DIFC Laws and DIFC Regulations. (2) The Court of First Instance may hear and determine any civil or commercial claims or actions where the parties agree in writing to file such claim or action with it whether before or after the dispute arises, provided that such agreement is made pursuant to specific, clear and express provisions.” 38. Subparagraphs (3) and (4) are not material for present purposes. 39. It is not necessary to repeat at length the discussion of the jurisdiction of DIFC Courts undertaken by this Court in Goel. It is sufficient to refer to the salient conclusions set out in that judgment. (a) it is a constitutional fact in the Emirate of Dubai that the Courts of Dubai are the courts created by the Laws of the Emirate. When the term “the Courts of Dubai” is used in a contract the ordinary meaning, absent content and purposes pointing in a different direction, refers to all of the Courts of Dubai. When by an agreement the parties subject themselves to the jurisdiction of “the Courts of Dubai” an important contextual limit is that only those courts which have relevant jurisdiction will be covered. Where the jurisdiction of a relevant court is required by law to be enlivened by the agreement of the parties, as in Article 5(A)(2), it is still able to be embraced within the ordinary meaning of “the Courts of Dubai”; (b) the lack of ambiguity in the circumstances of the Goel case was sufficient to treat “the Dubai Courts” as a specific, clear and express reposing of the relevant jurisdiction in the DIFC Courts, albeit that it may also have covered the onshore courts; and (c) the construction of terms such as “Courts of Dubai” and “the Courts of the Emirate” will depend upon their particular context. The history of the transactions in issue in Goel was central to the constructional conclusion. 40. The approach outlined in Goel leaves open the question whether in the particular circumstances of this case reference to “the Courts of Dubai” is sufficient to enliven the jurisdiction conferred by Article 5(A)(2) of the JAL. 41. It is clear from what was said in Goel that the ordinary meaning of the term “the Courts of Dubai” is capable of meeting the requirement in Article 5(A)(2) JAL for a specific, clear and express provision conferring jurisdiction on the CFI. In Goel there were circumstances which specifically justified the application of the term “the Courts of Dubai” to the CFI. The transactional history in that case indicated that the DIFC CFI was initially the repository of exclusive jurisdiction under the relevant guarantees because one of the parties was a DIFC Establishment. The substitution of that party by a party which was not a DIFC Establishment, meant that the DIFC CFI no longer had exclusive jurisdiction under Article 5(A)(1)(a) JAL but was entirely consistent with the construction of the term “the Courts of Dubai” as including the DIFC CFI. That accords with the ordinary meaning of the term “the Courts of Dubai”. 42. In this case there are no surrounding circumstances to support a construction of the term “the Courts of Dubai” in the contract which would not apply their ordinary meaning, which includes the DIFC Courts. Consistently with Goel we hold that where the parties agree to repose jurisdiction in the Courts of Dubai then, absent constructional indication to the contrary, whether from the text of the contract or surrounding circumstances, the term will be interpreted as a sufficiently specific, clear and express provision for the purposes of Article 5(A)(2) JAL to confer jurisdiction on the DIFC CFI. The terms “specific”, “clear” and “express” each involves judgment of degree. What is sufficiently “specific”? What is sufficiently “clear” and what level of detail is required to meet the requirement of “express”? Where a term is used that on its ordinary and unambiguous meaning applies to the DIFC Courts, the fact that it picks up the onshore courts as well does not negate its application to the DIFC Courts. Nor does it negate that application as specific, clear and express. The jurisdiction conferred by Article 5(A)(2) is not exclusive and, consistently with that character, the parties can agree to have their disputes determined by DIFC Courts or any other Dubai Courts. The term “Courts of Dubai” could have been redrafted as “the Courts of the DIFC and the other courts of Dubai”. That would not have changed its meaning and it would be a triumph of form over substance to say the second verbal formula works, but the first doesn’t. In this case, of course, there was a surrounding circumstance that the Appellants expressly wanted any disputes under the Loan Agreement to be resolved in an English-speaking court. 43. In our opinion the appeal should be allowed and the orders of the CFI made on 20 June 2021 be set aside. The question that then follows is whether this Court should accede to the Appellants’ request to grant them default judgment against the Respondents. The Default Judgment 44. The Court is of the view that the amount claimed in the Request for Default Judgment is the amount the subject of the Loan Agreement coupled with interest at the rate prescribed in the Loan Agreement up to 31 March 2021. The Respondents have taken no steps to contest the claim at any stage. In our opinion the Appellants are entitled to the Default Judgment they seek and this Court orders accordingly. They will also be entitled to interest on the judgment according to the Rules of Court and the Practice Directions and to recover costs of the claim and the costs of this appeal. [2021] CA-002 (JDMT 29833GO421-0076). [Back] [2017] DIFC CFI-048 . [Back] [2010] DIFC CFI 014 . [Back] [2015] DIFC CA-004 . [Back] BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII