Claim No. ARB 008/2020
THE DUBAI INTERNATIONAL FINANCIAL CENTRE
LIMSA (PTY) LTD
(1) LORDON A TRADING PLATFORM OF DUBAI MULTI COMMODITIES CENTRE
Second to Fourth Defendants
Amended JUDGMENT OF JUSTICE WAYNE MARTIN
UPONthe Claimant’s claim filed on 28 January 2020 (the “Claim Form”)
AND UPONhearing Counsel for the Claimant and Counsel for the Defendants at a hearing on 5 May 2020 (the “Hearing“)
AND UPONthe Claimant having filed a Notice of Discontinuance on 3 May 2020, discontinuing all issues against the Defendants, as set out in the Claim Form, except in respect of the costs in this case
AND UPONreviewing all other relevant documents on the Court
IT IS HERBY ORDERED THAT:
1. The Claimant shall pay the Second to Fourth Defendants’ costs in the sum of AED 168,180.00 within 14 days of this order.
2. The Claimant shall pay the First Defendant’s costs of the proceedings and the hearing on 4 May 2020, and in that respect shall pay a total USD 86,275.30, into Court, within 14 days of this order. This amount represents 50% of the total amount claimed by the First Defendant in its Bill of Costs.
3. The balance of the First Defendant’s costs shall be assessed by the Registrar
Date of issue: 19 May 2020
Summary of Judgment
1. The claimant
2. RDC 34.15 provides that unless the Court orders otherwise, a claimant who discontinues a claim is liable for the defendant’s costs incurred up to and including the date on which notice of the discontinuance was served. For the reasons which follow I have concluded that the claimant has failed to displace the presumption inherent in that rule and that the claimant should pay the costs of all defendants.1
3. The claimant Limsa (Pty) Ltd (“Limsa”) is a company registered in L Country engaged in the trade of L goods.2
4. The first defendant was sued in the name of “Lordon”, (“Lordon”) a trading platform ofX Centre is an entity of the Government
5. The second – fourth defendants, namely Lendi, Lander and Leone respectively are all entities engaged in the trade ofL goods.
The substantive dispute
6. Limsa had a trading relationship with an L company called Lastin Exports Private Limited (“Lastin”). In general terms, the usual arrangement was that Limsa would supply L goods to fill orders placed with Lastin by its clients.4In accordance with these arrangements, Limsa supplied L goods to each of the second – fourth defendants and sent invoices to those defendants for the price of the L goods supplied (including VAT payable on the sale of L goods in L Country).5
7. Limsa asserts that its only contractual relationship was with Lastin, and not with the parties to which it supplied L goods, including the second – fourth defendants.6That proposition appears to be contentious.
8. Because the L goods supplied to the second – fourth defendants were exported fromL Country, Limsa obtained a refund of the VAT which it had paid to the government
9. Mr Limsa, the director and principal of Limsa, became a member of the LORDON on 27 November 2018. He was not a member of LORDONLORDON at the time of the transactions involving the second – fourth defendants. However, it seems he was a member of the LORDON at the time the relevant VAT was refunded to Limsa.
10. X Centre has promulgated By-laws relating to the operation of the LORDON. Those By-laws contain provisions relating to membership of the Exchange, and for the resolution of disputes between members.8The By-laws also contain provision for the investigation of members in relation to various forms of misconduct, including failure to meet business obligations.9The same Bylaw (Article 8) provides that if the Dispute Resolution Committee investigating such a matter finds the complaint made out, it may recommend the imposition of disciplinary sanctions to the Board of the LORDON. The sanctions may include the imposition of an obligation to carry out a mandatory instruction.10The By-laws also contain provision for the arbitration of disputes between members.11The conduct of an arbitration pursuant to those provisions is conditional upon the parties signing an arbitration agreement in the absence of which “the arbitration cannot proceed”.12Any arbitration conducted pursuant to the By-Laws is to be conducted by a sole arbitrator appointed by the Dispute Resolution Committee of the Y Centre. The By-laws also make provision for the mediation of disputes between members.13
11. It seems that the second – fourth defendants lodged complaints with the LORDONLORDON with respect to Limsa’s refusal to refund the VAT on their purchases, although the documents initiating those complaints are not in evidence. At all events it seems clear that a mediation was conducted under the auspices of the LORDON. Mr Limsa attended the mediation, as did representatives of the second – fourth defendants. No resolution of the dispute was achieved.
12. Following the failure of the mediation, Dr LantiLanti of the LORDONLORDON (“Dr LantiLanti”) sent an email to all parties on 11 September 2019. In that email he advised that the second – fourth respondents had requested that the dispute move from mediation to arbitration, and that the LORDON Dispute Resolution Committee had agreed that the request could proceed. Dr LantiLanti went on to advise:
“According to the LORDON By-laws (section 9.2) we will require all parties to agree to arbitration within seven (7) working days. We request that you sign the LORDON Arbitration Agreement and return it to me as soon as possible.
Assuming all parties agree to arbitration all parties will have up to fifteen (15) days to file a written response to the LORDON. (section 9.3)
The LORDON Dispute Resolution Committee will then appoint an Arbitrator and conduct the Arbitration Proceedings (section 9.4).”
13. By letter dated 18 September 2019 Limsa replied to that email advising that it did not agree to the proposed arbitration for a number of reasons.14By email dated 30 September 2019 Dr Lanti replied to that letter, in which he asserted:
“The onus is on Limsa (Pty) Ltd to prove that the LORDON does not have jurisdiction over this case. We have consulted with legal counsel and you shall be forced to state any lack of jurisdiction in your Defence.
In light of your decision not to adhere to a request for arbitration we will have to follow the due processes. The claimants have submitted their claims which I am enclosing … and I am now notifying you that you have fifteen (15) days to submit your Defence.”
14. I digress to observe that this assertion appears to ignore the provision in the By-laws of the LORDON to which I have referred, which expressly conditions any arbitration upon the execution of an arbitration agreement by the parties, and which provides that in the absence of such an agreement, the arbitration will not proceed.15
15. There were further written communications between Mr Limsa and Dr Lanti in which the latter referred to the process which was to ensue as an arbitration. In his email to Mr Limsa of 7 November 2019 he advised Mr Limsa of the composition of the “Arbitration Committee” and of the time and place at which it would convene on 12 November 2019. The reference in that email to the “Arbitration Committee” comprising 3 members is inconsistent with Article 9 on the By-Laws of the LORDON, which requires any arbitration pursuant to that Article to be conducted by a sole arbitrator . Further, included within the transcript to which I will shortly refer is what appears to be the text of an email dated 17 October from Dr Lanti to all parties advising that the hearing which would take place on 12 November was a hearing of the Dispute Resolution Committee (DRC) of the Y Centre. The email refers to the DRC making a final recommendation to the LORDON Board “for approval”, which is consistent with the procedure prescribed by Article 8 of the By-Laws of the Y Centrerelating to disciplinary investigations, but also consistent with Article 9 relating to arbitration, which requires the arbitrator to make a recommendation to the LORDON Board, which then makes the final decision.
16. A form of transcript of the process which then ensued is in evidence. It commences:
“Arbitration meeting 12/11/2019. 14:00
Location: X Centre Boardroom, 50th Floor, Almas Tower, Dubai, UAE
Formal LORDON Arbitration Hearing following a failed mediation case.”
17. I digress to observe that it is common ground that the hearing was conducted outside the geographical boundaries of the Dubai International Financial Centre, but within the Emirate
18. The transcript records that Limsa was represented by Mr Limsa. The transcript also records that Mr Limsa left the meeting at 7.20 pm, before some of the evidence was taken. The transcript further records that at the conclusion of the hearing a lawyer advising the LORDON observed:
“We will wrap up by saying that within the next 30 days an Award will be made in writing and will be publicised so then therefore you will have your Award you can take it further from there.”
19. The transcript concludes with the following:
“Arbitration hearing is over!!”
20. The decision which followed that hearing is set out in a document published by the X Centre/LORDON on 12 December 2019. As its terms are material to the course which the proceedings in this Court ultimately took, it is necessary to set out much of that document.
21. The document is headed:
“Lordon (LORDON) Dispute Resolution Committee Ruling: 12 December 2019.”
22. Then follows a list of the parties to the dispute and a short description of the substance of the dispute. The document then provides:
“The defendant made a special plea regarding the jurisdiction of the LORDON over the case. The Dispute Resolution Committee (DRC) requested that a Guideline be prepared by Lext legal counsel to rule on the jurisdiction of the Lext over the matter. Based on this Guideline the DRC panel has found that jurisdiction is vested with the LORDON on the following basis:
(1) all of the parties (except for Leone (whose Bourse Antwerpsche Diamantkring, has consented to the LORDON’s jurisdiction) – are members of the LORDON;
(2) all of the parties have valid membership of the LORDON;
(3) in absence of another Bourse claiming jurisdiction, the LORDON established its legal authority to proceed;
(4) the LORDON Dispute Resolution Committee has received no evidence of substance to support Misjoinder;
Mr Limsa became a member of the LORDON on 27 Nov 2018. Note the dispute arose the day after the VAT was refunded by the RSA Government and was due to be returned to the claimants. Mr Limsa indicated it was refunded during the course of Jan/Feb 2019.
The DRC ruled in favour of the claimants (Lander X Centre, Lendi X Centre and Leone) and gave Mr Limsa 30 days to pay (or make a payment schedule acceptable to the claimants) for the outstanding dues of $331,506.76 as follows:
|Lander X Centre:||$99,602.21|
|Lendi X Centre:||$86,064.20|
LORDON Dispute Resolution Committee”
23. I digress to observe that the form of the decision appears somewhat inconsistent with the terminology used in the proceedings which preceded it. In some of the communications which preceded the hearing, and in the hearing itself, the process was described as an arbitration, although as I have noted, in other communications the process was described as a hearing of the Dispute Resolution Committee. The document recording the decision makes no reference to an arbitration, or to an award, and does not take the form of an award. In particular, it is not signed by all members of the panel, nor does it purport to declare the rights of the second – fourth defendants in a form which would be susceptible to enforcement by a Court. In short, there is nothing on the face of the decision or in its terms which would suggest that it is an arbitral award.
24. Rather, the terms of the decision appear entirely consistent with the characterisation of the proceedings as a disciplinary hearing pursuant to Article 8 of the By-laws of the LORDON, and with the characterization of the decision as the conclusion of that process. Express reference is made to Article 8 in the decision, which is described as the decision of the Dispute Resolution Committee referred to in that Article. The decision takes the form of providing a period within which Mr Limsa is to pay moneys to the second – fourth defendants, consistently with the power conferred by Article 8 to order the performance of “mandatory instructions”, failing which “Disciplinary Sanctions” may be invoked.
25. It is not necessary to form a final view as to the proper characterisation of the proceedings or the decision under the By-laws of the LORDON. It is sufficient to note that the terms of the decision published on 12 December 2019 gave rise to a very real question as to that characterisation.
26. I also digress to observe that there is nothing in the letter which would suggest that the decision of the Dispute Resolution Committee had been referred to the Board of the Y Centrefor final determination- a procedure required under both Article 8 relating to disciplinary investigations, and Article 9 relating to arbitrations.
27. On 12 January 2020 lawyers acting on behalf of Limsa wrote to the LORDON. The heading of the letter refers to an arbitration between the parties. The text of the letter refers to “a purported arbitration award dated 12 December 2019” and asserts that for the reasons set out in the letter:
“…that Award is void and of no effect by reason of lack of jurisdiction on the part of the Tribunal
28. The letter went on to enunciate reasons in support of that assertion. The letter concludes:
“Our purpose in writing to you is therefore to require you by close of business on 14 January 2020 to confirm firstly that you accept that the purported Award dated 12 December 2019 is of no effect, secondly to confirm that you will take no disciplinary steps of any description against our client; thirdly, that you accept that LORDON has no jurisdiction to entertain the claims brought by the present Claimants.
In the event that we do not receive the confirmation which we have requested, we shall take appropriate steps to protect our client’s position, including if necessary, commencement of proceedings in DIFC Court which by virtue of the Memorandum of Understanding between X Centre and DIFC Courts
29. I digress to observe that although the letter expressly refers to that portion of the decision of 12 December 2019 which proposed disciplinary action, the letter appears to proceed on the assumption that the decision was an Arbitral Award
30. Although not in evidence, it can be inferred from a letter of 23 February 2020 from Dr Lanti of the LORDON to the Secretary General of the World Federal of L goods Bourses (“Lext”) that on 14 January 2020, following the expiry of the period given to Limsa to pay the specified amounts to the second – fourth defendants, Mr Limsa was suspended from the LORDON until further notice. Apart from the demand in the letter of 12 January 2020 that I have set above, to the effect that the LORDON completely renounce the decision of 12 December 2019, Limsa made no request to suspend the operation of that decision pending further discussions or negotiations. Rather, it commenced proceedings in this Court.
The Court proceedings
31. Limsa commenced these proceedings on 28 January 2020. The Claim Form briefly describes the claim in the following terms:
“This is an Arbitration Claim made pursuant to part 8 … of the DIFC Court Rules
32. In the portion of the Claim Form where the claimant is required to identify the law
“Arbitration law, DIFC Law No. 1 of 2008 and Memorandum of Understanding between X Centre and the DIFC Court.”
33. The Claim Form identifies the remedies sought in the following terms:
“(1)A declaration that the purported Award dated 12 December 2019 is void and of no effect.
(2)A declaration that the dispute between the Claimant and the second, third and fourth defendants is subject to the laws ofL Country.
(3)An Order restraining LORDON its servants or agents from publishing to any third party any communications whatsoever relating to the purported Award.
(4)An account of damages
(6)Further or other relief.”
34. Brief Particulars of Claim were filed contemporaneously with the Claim Form. Assertions made in this document, which include allegations with respect to the nature and extent of the contractual relationship between Limsa and the second – fourth defendants, and assertions with respect to procedural irregularity including lack of impartiality and conflict of interest are entirely inconsistent with the assertion in the Claim Form to the effect that the claim was unlikely to involve any substantial dispute of fact. This much was acknowledged by Limsa when, after commencing the proceedings, it applied for an order that the Part 7 procedure be adopted instead of the Part 8 procedure. A practice of inappropriately commencing proceedings under Part 8, and then seeking to adopt the Part 7 procedure is not a practice which should be encouraged by this Court.
35. In the Brief Particulars of Claim it is asserted that the Court has jurisdiction to hear the matter by reason of the Memorandum of Understanding (“MOU”) between X Centre and DIFC. Although the decision of 12 December 2019 is described as an Arbitral Award, no reference is made in the Brief Particulars of Claim to the DIFC Arbitration Law.
36. It is common ground that Limsa made no attempt to comply with the requirements which must be satisfied before proceedings can be commenced against the Government of Dubai.16It will be necessary to return to this omission in due course.
37. On 19 February 2020 all defendants filed acknowledgments of service. In those documents all defendants gave notice of an intention to contest the jurisdiction of the Court, and X Centre gave notice of its intention to contest the validity of service. On 4 March 2020 all defendants filed applications in which they asserted that the Court lacked jurisdiction to entertain the claim, and also disputed the efficacy of service. X Centre also relied upon the claimant’s failure to comply with the pre-action requirements as a basis for setting aside the claim. In the meantime, it seems that there were communications between the parties in relation to the possibility of the dispute being referred to International Arbitration17. However, nothing came of those communications.
38. On 28 February 2020, Dr Lanti wrote to lawyers in X Country who were acting on behalf of Mr Limsa and his companies and who had threatened to commence proceedings against the Lext. In that letter, Dr Lanti described the impugned decision as “the decision of the LORDON Dispute Resolution Committee dated 12 December 2019 (the Decision)”. He asserted:
“Despite the unreasonable nature of your demands, we are concerned to avoid any unnecessary aggravation or escalation of this matter. We also wish to have sufficient time to properly consider the allegations set out in your emails. For these reasons, we are prepared to agree to write the Lext stating that our requests/notifications in relation to the Decision should be considered as suspended, on a temporary and without prejudice basis, while we consider the allegations set out in your emails with the benefit of legal advice.
We trust that this will resolve your client’s immediate concerns and that your clients will promptly take all reasonable steps to avoid putting any party to any unnecessary cost and inconvenience in relation to this matter.”
39. On 9 March 2020, Dr Lanti wrote again to the lawyer representing Limsa. In that letter he asserted:
“The Decision and related matters shall be reviewed by a newly appointed Dispute Resolution Committee as part of an investigation under Part 8 of the LORDON’s By-laws.
We will ensure that your letter and the issues raised in the letter are considered in the context of that investigation.
In the meantime, the Decision will not be relied on by the LORDON, and no further action will be taken by the LORDON in reliance on the Decision.
As referred to in our letter dated 28 February 2020 and pursuant to your client’s request we have suspended our notifications to the Lext on a temporary and without prejudice basis. That suspension remains in place.
Further, we have previously requested that the Lext take no action in reliance upon the Decision, until further notice. The Lext has confirmed that it has taken no action to date in respect of the LORDON’s notifications or the Decision.
It is therefore not clear on what basis your clients maintain any action against the Lext, or threaten action in relation to the Decision.”
40. I digress to observe that it is clear from this letter that the process which was to be followed was a disciplinary investigation pursuant to Article 8 of Bylaws of the LORDON, not an arbitration pursuant to Article 9. That approach is consistent with a characterisation of the Decision of 12 December 2019 as the outcome of a disciplinary investigation, rather than an arbitration.
41. Consistently with the letter of 9 March 2020 to Limsa’s Belgian lawyer, Dr Lanti wrote to the Lext on the same day confirming its earlier request to treat the LORDON’s notifications in relation to the Decision of 12 December 2019 as suspended, on a temporary and without prejudice basis, and to take no action in relation to or in reliance upon the Decision until further notice. The letter confirmed that the Decision would be reviewed by a newly appointed Dispute Resolution Committee as part of an investigation under Article 8 of the By-laws of the LORDON.
42. Despite the terms of the correspondence from Dr Lanti to which I have referred, Limsa showed no disinclination for the active pursuit these proceedings. To the contrary, it continued to press its application for the adoption of Part 7 procedures and on 18 March filed its Responses to the defendants’ applications challenging jurisdiction and service.
43. In those Responses Limsa asserted that this Court had jurisdiction to entertain its claim on five alternative grounds, namely:
(1) By reason of the MOU between X Centre and the DIFC Courts.
(2) By reason of Article 5(A)(1)(d) of Law No. 12 of 2004 in respect of the Judicial Authority at Dubai International Financial Centre (the“JAL”), relating to appeals against decisions or procedures made by DIFC bodies.
(3) Articles 42 – 44 of the DIFC Arbitration Law, which are concerned with recognition and enforcement of Arbitral Awards.
(4) Article 31(3) of the UAE Civil Procedure Code.
(5) Article 53.1 of Federal Law No. 6 of 2018 on Arbitration.
44. Limsa’s Response also contains the following assertion:
“The defendants treated the matter as an arbitration and only since the commencement of these proceedings has it been attempted to rebadge the dispute as some sort of disciplinary measure.”
45. This appears to be the first occasion upon which Limsa’s legal representatives recognised the distinction between characterisation of the decision of 12 December 2019 as an Arbitral Award on the one hand, and as the outcome of a disciplinary investigation on the other. The proposition that such a distinction only emerged after the commencement of the Court proceedings appears to overlook the terms of the decision of December 2019 itself, and the various aspects of that decision to which I have referred.
46. The defendants’ challenges to jurisdiction and service of the claimant’s application for an order adopting Part 7 procedures were listed for hearing before me on 4 May 2020. Skeleton arguments were filed by the parties prior to that hearing. In its Skeleton the claimant relied only on the jurisdictional grounds I have identified at 1 and 3 in its earlier Response – namely, the grounds relying upon the MOU and Articles 42 – 44 of the DIFC Arbitration Law. At the hearing, counsel for Limsa confirmed that I could regard the other grounds identified in the Response as having been abandoned by the Skeleton.
47. On 23 April 2020 the lawyers acting for Limsa in these proceedings wrote to the solicitors acting for X Centre referring, apparently for the first time, to the letters from Dr Lanti of 28 February and 9 March 2020 which I have set out above. In that letter, it was asserted:
“The DIFC Court proceedings were commenced to seek assistance from the DIFC Court on the validity of the purported “Arbitral Award” of 12 December 2019. It is clear that the LORDON accept that there is fundamental difference between a decision as described in the letter dated 28 February 2019 and an Arbitral Award. It is clear that there was no arbitration proceeding concerning an “Arbitration Award” rendered by due process of law but at best a “disciplinary decision” signed by one person, a Mr D, basing himself unfortunately upon undisclosed legal opinion.
We invite you to confirm that from the perspective of the X Centre LORDON that their involvement in the current arbitration related proceedings is no longer necessary based on the concessions made by your Client.
We invite you to take instruction and consider the above to avoid any further unnecessary escalation or increase in costs. If you confirm this is the case, the present DIFC proceedings will become moot and our client would be prepared to discontinue them on the basis that there is no Order as to costs.”
48. The lawyers acting on behalf of X Centre responded to that letter by letter dated 27 April 2020. In that letter, after referring to the distinction drawn between an Arbitral Award and a disciplinary proceeding in Limsa’s Response to the jurisdictional challenges, the lawyers stated:
“If an express confirmation would now persuade your client that its claim is fundamentally flawed and should be discontinued without delay: X Centre confirms by this letter that it does not consider the Decision to be an Arbitral Award in form or effect.”
49. After reiterating earlier assertions to the effect that the claim was fundamentally flawed in a number of respects, the letter concluded with the suggestion that the proceedings should be discontinued immediately with the usual consequence that Limsa would be responsible for X Centre’s costs up to and including the date on which the notice of discontinuance is served.
50. In the days which followed, which were the days immediately preceding the hearing scheduled before me, the legal representatives for Limsa and X Centre exchanged various communications on the subject of a possible discontinuance and its terms. It is unnecessary to chronicle that correspondence in any detail, other than to observe that, in the result, on 3 May 2020 Limsa filed a Notice of Discontinuance in respect of all its claims other than its claim for costs. The parties then agreed, with my concurrence, that the hearing scheduled for the following day would be used to hear their competing arguments with respect to the costs of the proceedings.
Costs – legal principles
51. The legal principles governing the allocation of the parties’ costs of proceedings in this Court are to be found in the Rules of Court, augmented if necessary, by principles which have evolved in common law courts
52. In the circumstances of this case, the appropriate starting point is RDC 34.15 which provides:
“Unless the Court orders otherwise, a claimant who discontinues a claim is liable for the defendant’s costs incurred up to and on the date on which the Notice of Discontinuance was served on him or his legal representative
53. So, there is a presumption that a claimant who discontinues will be liable for the costs of all the defendants up to and including the date on which Notice of Discontinuance is given, unless the Court orders otherwise. In effect, the rule confers upon the Court a discretion to depart from the presumptive position. It is to be inferred from the terms of the rule that good cause would have to be shown to justify departure from the default position created by the Rule.
54. Guidance as to the approach to be taken with respect to the exercise of the discretion conferred upon the Court by RDC 34.15 is to be found in Part 38 of the Rules, which sets out principles generally applicable to the exercise of the Court’s discretion with respect to costs. RDC 38.7 embodies the general rule to the effect that costs follow the event, while reserving to the Court a power to depart from that general rule. RDC 38.8 provides that in deciding what order (if any) to make about costs, the Court must have regard to all the circumstances including the conduct of the parties. RDC 38.9 provides that the conduct of the parties includes:
“(1) conduct before, as well as during the proceedings;
(2) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;
(3) the manner in which a party has pursued or defended his case or a particular allegation or issue; and
(4) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim.”
55. Brookes v HSBC Bank PLC18was concerned with the application of Rule 38.6(1) of the English Rules, which is cast in terms materially identical to RDC 34.15. The Court of Appeal approved a formulation of applicable legal principles by the trial Judge
“(1) when a claimant discontinues the proceedings there is a presumption by reason of CPR
(2) the fact that the claimant would or might well have succeeded at trial is not itself a sufficient reason for doing so;
(3) however, if it is plain that the claim would have failed, that is an additional factor in favour of applying the presumption;
(4) the mere fact that the claimant’s decision to discontinue may have been motivated by practical, pragmatic or financial reasons as opposed to a lack of confidence in the merits of the case will not suffice to displace the presumption;
(5) if the claimant is to succeed in displacing the presumption, he will usually need to show a change of circumstances to which he has not himself contributed;
(6) however, no change in circumstances is likely to suffice unless it has been brought about by some form of unreasonable conduct on the part of the defendant which in all the circumstances provides a good reason for departing from the Rule.”19
56. In this Court the decision of Sir David Steel DCJ in Firas Esreb v ES Bankers (Dubai) Limited (In Liquidation)20is to the same effect. In that case, after referring to RDC 34.15, the Court observed:
“A Claimant must show some unreasonable conduct on the part of the Defendant for there to be a departure from this default rule.”
The claimant’s contentions
57. In its written and oral submissions, Limsa draws attention to different aspects of the history of the proceedings and the dealings between the parties to support its contention that the Court should exercise its discretion to depart from the default position and award Limsa its costs of the proceedings as against all defendants. The fundamental proposition which underpins this contention is that Limsa was successful in achieving the objectives which underpinned the commencement of proceedings as a result of the concession made in the letter from the lawyers for X Centre dated 27 April 2020. Limsa contends that if that concession had been made earlier – indeed as early as by response to Limsa’s lawyers’ letter of 12 January 2020, all parties’ costs of the proceedings could have been entirely averted.
58. This proposition must be rejected for a number of reasons. The fundamental flaw in the proposition is that it elides the distinction between the characterisation of the decision of 12 December 2019 as an Arbitral Award on the one hand, and as the outcome of a disciplinary investigation on the other. As I have noted, the need to determine the proper characterisation of the decision arose from the terms of the decision itself viewed in the context of the proceedings which had taken place. The distinction was reinforced by the correspondence from Dr Lanti of 28 February and 9 March 2020 to which I have referred. Limsa came to appreciate that distinction no later than 18 March 2020, as is evident from the terms of its Response to the jurisdictional challenges. However, it was not until more than a month later that Limsa, by its lawyers, wrote on 23 April 2020 suggesting that such a distinction might provide a path to the resolution of these proceedings.
59. The terms of the concession made by X Centre in response to that letter are significant. There was no concession that the decision of 12 December 2019 was of no force or effect. To the contrary, the position adopted by X Centre in that letter was to the effect that the decision was not an Arbitral Award. Far from providing Limsa with everything which it had sought to achieve through the proceedings, that position, if and when accepted by Limsa, as it was, meant that its primary claim to set aside the Award pursuant to section 41 of the DIFC Arbitration Law must fail, and that this court
60. Put more bluntly, the submissions advanced on behalf of Limsa are based fundamentally on the proposition that if the decision of 12 December 2019 was not an Arbitral Award, it is a nullity and of no force or effect. That proposition is not correct. The position adopted by X Centre has been carefully expressed in all its correspondence and leaves open the proposition that the decision of 12 December 2019 was a valid decision following the conduct of a disciplinary investigation under Article 8 of the By-laws of the LORDON, albeit that the X Centre has agreed to suspend the operation of that decision until further notice.
61. In these circumstances it cannot be concluded that Limsa has substantially achieved the objectives which underpinned the proceedings which it commenced. To the contrary, when regard is had to its claims for relief, none of the matters which it sought have been achieved. In particular, there has been no declaration or concession that the decision of 12 December 2019 is void and of no effect, no declaration that the dispute between Limsa and the second – fourth defendants is subject to the laws ofL Country, no order restraining LORDON its servants or agents from publishing to any third party any communications relating to the decision of 12 December 2019, and no account of damages. In fact, Limsa has been entirely unsuccessful in achieving any of the objectives enunciated in its claim.
62. It is a fair inference from the correspondence to which I have referred, and from Limsa’s submission that there was an urgent need to commence proceedings, that the suspension of Mr Limsa’s membership of the LORDON was the primary mischief which Limsa sought to avert by the initiation of proceedings in this court. That mischief could only have been the consequence of the characterization of the process as disciplinary proceedings, rather than the arbitration of a dispute between members of the LORDON . Mr Limsa remains potentially liable to the sanction of suspension from the LORDON irrespective of X Centre’s acceptance of the proposition that the decision of 12 December 2019 was not an Arbitral Award.
63. Despite the authorities to which I have referred, Limsa does not accept that, as a matter of legal principle, it is obliged to establish some form of unreasonable conduct on the part of the defendants which provides a good reason for departing from the default position established by RDC 34.15. However, if such is required, Limsa asserts that X Centre acted unreasonably by failing to accede to the demands made in its letter of 12 January 2020 prior to the commencement of proceedings, having regard to the concession ultimately made on 27 April 2020. Limsa asserts that if such a concession had been made, the proceedings would have been entirely averted.
64. This submission suffers the same fundamental defect as Limsa’s other submissions, in that it misapprehends the nature of the concession made on 27 April 2020. By its lawyer’s letter of 12 January 2020, Limsa demanded confirmation that LORDON accepted that the decision of 12 December 2019 was of no effect, that it would take no disciplinary steps of any description against Limsa, and that it accepted that LORDON had no jurisdiction to entertain the claims brought by the second – fourth defendants. In its letter of 27 April 2020, X Centre did not concede any of those matters. To the contrary, it has preserved the right to take disciplinary action against Limsa and has asserted the jurisdiction to take such action. Although it has suspended the operation of the decision of 12 December 2019 until further notice, there has been no concession to the effect that the decision is of no force or effect.
65. Further, as X Centre correctly submit, prior to the letter from Limsa’s solicitors of 23 April 2020, there was no reason for X Centre to suppose that acceptance of the proposition that the decision of 12 December 2019 was not an Arbitral Award (in a context in which the only party which has ever asserted it was an Arbitral Award is Limsa), would result in the abandonment of the proceedings. To the contrary, at all times Limsa has asserted that the jurisdiction of this court is not dependent upon the Arbitration Law of the DIFC, but also exists by reason of the MOU between the X Centre and the DIFC Courts.
66. In these circumstances, it is difficult to see any basis whatever for Limsa’s assertion that it discontinued the proceedings because it substantially achieved its objectives, or that it would have done so earlier if X Centre had informed Limsa that it did not regard the decision of 12 December 2019 as an Arbitral Award. It is also difficult to reconcile the importance which Limsa now places upon the proposition that the decision of December 2019 was not an Arbitral Award with its delay in seeking a concession to that effect from X Centre for more than a month after it was aware of the distinction in characterisation to which I have referred.
67. X Centre invite me to infer that the true reason for Limsa’s discontinuance of the proceedings was an appreciation that they were doomed to fail because the Court lacks jurisdiction to entertain them. That proposition is clearly arguable. However, it is unnecessary for me to rule upon it. It is sufficient for me to conclude, as I do, for the reasons given below, that the proceedings were always doomed to fail for want of jurisdiction. That conclusion is sufficient to cement the defendant’s claims for costs irrespective of whether or not, or when, Limsa came to realise that its prospects of success in the proceedings were dismal.
68. Limsa’s contentions with respect to its claim that the second – fourth defendants should also pay its costs were sparse indeed. The single proposition advanced is the effect that those defendants should have conceded that the decision of 12 December 2019 was not an Arbitral Award. That submission suffers all the fundamental defects which I have identified in relation to the claim for costs against X Centre. Further, none of the contentions based upon communications between Limsa and LORDON/ X Centre are available as against the second – fourth defendants, as there were in effect no communications between Limsa and those defendants. It is also to be noted that there is no evidence that the second – fourth defendants treated the decision of 12 December 2019 as an Arbitral Award or took any steps to recognise or enforce that decision as if it was an Arbitral Award. Further, the second – fourth defendants took no active steps in the proceedings other than to challenge jurisdiction and contest service.
69. In that context, Limsa’s contention that the second – fourth defendants should pay its costs because they should have conceded Limsa’s claims is untenable. Those defendants were never invited by Limsa to concede anything, and never changed their position at any stage during the proceedings. Accordingly, Limsa has failed to establish any possible basis upon which the Court would be justified in making an order which disturbed the default position established by RDC 34.15 in relation to those defendants.
The defendants’ contentions
70. In their written and oral arguments, the defendants challenge the propositions advanced by Limsa in support of its claim for costs. For the reasons I have given, the defendants’ challenge to those propositions should be upheld.
71. In addition, all defendants assert that the proceedings were doomed to fail for want of jurisdiction, and that this is another reason why Limsa should pay their costs21.
72. X Centre further asserts that Limsa’s failure to comply with the pre-action protocol relating to the commencement of proceedings against government entities is another reason why Limsa should pay its costs, as compliance with those protocols may well have averted the proceedings in their entirety.
73. I will deal with contentions in turn, starting with the contentions relating to want of jurisdiction.
Did the Court have jurisdiction?
74. Limsa contends that it is neither necessary nor appropriate for the Court to form a view on whether the proceedings which it commenced were within the jurisdiction of the Court. There will of course be cases in which it would be inappropriate to in effect determine the substantive merits of a case solely for the purpose of determining where the burden of costs should lie. That will usually be the case if the cost and effort required to rule upon the substantive merits of the case is disproportionate to the costs in issue.
75. However, this is not such a case. The jurisdictional issue does not go to the substantive merits of the proceedings. As will be seen, it is a relatively simple and straight forward issue. Because the issue was to be heard the day after Limsa filed its Notice of Discontinuance, all the costs of presenting that issue to the Court had been incurred. Any additional costs arising from oral argument were averted when counsel for Limsa politely declined my invitation to disabuse me of my tentative impression that the proceedings were always doomed to fail for want of jurisdiction.
76. In the absence of such argument, my tentative impression has solidified, for the short reasons which follow.
77. It is convenient to commence a consideration of the jurisdiction in this case with a statement of some uncontentious principles relating to the jurisdiction of this Court:
(1) If a challenge is made to the jurisdiction of the Court the claimant carries the burden of proving that the Court has jurisdiction.22
(2) The jurisdiction of the Court of First Instance is defined by Article 5 of the JAL.23
(3) Although Article 19 of the DIFC Court Law
(4) In order to discharge the burden of proving jurisdiction, a claimant must establish that one of the “gateways” specified in Articles 5A(1) or (2) apply.25
(5) The civil and commercial laws of the UAE do not form part of the substantive law of the DIFC. Unless the Court is required to apply the substantive law of another jurisdiction for some reason, the substantive law of the DIFC will ordinarily govern proceedings in the Court.26
78. As I have noted, Limsa has vacillated in relation to the grounds upon which it asserts the Court has jurisdiction. The Claim Form seeks relief pursuant to Article 41 of the DIFC Arbitration Law, whereas the Response and Skeleton Argument invoke Articles 42 – 44 of that Law as the source of the Court’s jurisdiction. Article 41 is in Part 3 of the DIFC Arbitration Law, whereas Articles 42 – 44 are in Part 4. As will be seen, there is a significant difference in the scope of those Parts.
79. Further, as I have also noted, the Response to the challenges to jurisdiction relies upon three grounds which were abandoned in the Skeleton Argument.
80. Those grounds were properly abandoned. Article 5A(1)(d) of the JAL confers jurisdiction on the Court with respect to appeals against decisions or procedures made by DIFC Bodies where DIFC Laws or Regulations permit such appeals. Clearly in this case there is no decision by any DIFC Body, nor any Law or Regulation of the DIFC which permits a relevant appeal. Reliance upon Article 31(3) of the Civil Procedure Code of the UAE, and Article 53 of the Federal Law on Arbitration was misconceived, as those laws do not form part of the substantive law of the DIFC.
81. The two bases of asserted jurisdiction retained in the Skeleton Argument are, with respect, equally misconceived for the reasons which follow.
The Memorandum of Understanding
82. The MOU is not in evidence. It does not appear to be a public document. The only evidence of its terms that has been adduced in these proceedings is a reference to its provisions on the website of this Court. There is nothing in those references which would suggest that any part of the MOU is intended to have any effect upon the jurisdiction of the Court. To the contrary, the description of the MOU suggests that its provisions are directed to practical arrangements between the DIFC and the X Centre, including such things as remote access to the DIFC Small Claims Tribunal and practical arrangements with respect to mediation processes.
83. The significant point however is that, whatever the terms of the MOU, it is clearly incapable of expanding the jurisdiction of the Court. That jurisdiction is defined by Article 5 of the JAL, and can only be expanded by amendment to the JAL, or by some other legislative instrument. Clearly the MOU is not a legislative instrument.
84. Portions of Limsa’s submissions might be construed as suggesting that the MOU constitutes an agreement for the purposes of Article 5(A)(2) of the JAL. That proposition is equally misconceived. That Article is concerned with a written agreement between the parties to proceedings in the Court. Clearly the MOU is not an agreement between the parties to these proceedings.
The DIFC Arbitration Law
85. The primary relief sought in the Claim Form filed by Limsa was an order setting aside a purported Arbitral Award made on 12 December 2019. As appears from my narrative of the various communications in evidence before the Court, on that evidence Limsa is the only party to these proceedings which has ever asserted that the decision of 12 December 2019 constituted an Arbitral Award. When X Centre equivocally confirmed that it did not consider the decision of 12 December 2019 to constitute an Arbitral Award, Limsa relied upon that confirmation as the reason for discontinuing the proceedings, presumably on the basis that it accepts that the decision of 12 December 2019 did not constitute or purport to constitute an Arbitral Award.
86. Although it is probably not a matter which goes to the jurisdiction of the Court, it seems inconceivable that any court would exercise a power to set aside a purported arbitral award when:
(a) the document said to comprise the award does not describe itself as an arbitral award and has none of the characteristics of an arbitral award;
(b) the organization responsible for the promulgation of the decision has never asserted it constituted an arbitral award;
(c) the claimant for relief does not ultimately contend that it was an arbitral award; and
(d) none of the other parties to the proceedings which resulted in the decision have ever asserted that the decision was an arbitral award.
87. In any event analysis of the DIFC Arbitration Law confirms that Limsa’s assertion of jurisdiction on this basis was always misconceived. Essentially that is because it is common ground that the hearing which preceded the decision of 12 December 2019 took place outside the DIFC, and the decision itself was promulgated and published outside the DIFC. So, if what occurred is properly characterised as an arbitration, the seat of the arbitration was outside the DIFC.
88. Article 7 of the DIFC Arbitration Law27provides:
“(1) Parts 1 to 4 and the Schedule of this Law shall all apply where the Seat of the Arbitration is the DIFC.
(2) Articles 14, 15, Part 4 and the Schedule of this Law shall apply where the Seat is one other than the DIFC.”
89. As I have noted, in its Claim Form, Limsa sought relief pursuant to Article 41 of the DIFC Arbitration Law. That Article provides, relevantly:
“41(1)Recourse to a Court against an Arbitral Award made in the Seat of the DIFC may be made only by application for setting aside in accordance with paragraphs (2) and (3) of this Article.”
90. There are two reasons why this Article has no application in this case. First, by its express terms it is only concerned with Awards made in the Seat of the DIFC. Second, Article 41 is contained within Part 3 of the Law
91. These provisions limiting the jurisdiction of the Court to set aside arbitral awards to awards seated in the DIFC are entirely consistent with international principle. In A v B28, in the English High Court, Colman J observed:
“An agreement as to the seat of an arbitration is analogous to an exclusive jurisdiction clause. Any claim for a remedy going to the existence or scope of the arbitrator’s jurisdiction or as to the validity of an existing interim or final award is agreed to be made only in the courts of the place designated as the seat of the arbitration.”
92. In C v D29, the English Court of Appeal cited that passage with approval and observed that “a choice of seat for the arbitration must be a choice of forum for remedies seeking to attack the award”30.
93. This principle has been applied in the DIFC. In Meydan Group LLC v Banyan Tree Corporation Pte Ltd31Justice Steel cited C v D for the proposition that:
“A challenge to the validity of an award (as a matter of DIFC law and practice) should prima facie only be made in the court of the seat of the arbitration.”
94. It follows that if what occurred is properly characterised as an arbitration, it was seated outside the DIFC, in the Emirate of Dubai, and that any challenge to an Award or purported Award should have been made under Articles 53 and 54 of the Federal Arbitration Law32, in a court of competent jurisdiction. This Court is not such a court because, as I have noted, Federal civil and commercial laws (including the Federal Arbitration Law) do not form part of the substantive law of the DIFC.
95. As I have noted, in both its Response to the challenges to jurisdiction, and its Skeleton Argument, Limsa moved away from Article 41 of the DIFC Arbitration Law, and relied upon Articles 42 – 44 of that Law as the source of the Court’s jurisdiction. No doubt, that course was prompted by the fact that Articles 42 – 44 are within Part 4 of the DIFC Arbitration Law and therefore, by reason of Article 7, and the terms of the Articles themselves, they apply to arbitral awards irrespective of the arbitral seat. So, for example, Article 42 provides that an arbitral award shall be recognised as binding within the DIFC “irrespective of the State
96. However, Part 4 of the Law, and Articles 42 – 44 within that Part, are concerned with the recognition and enforcement of arbitral awards. There has been no application for recognition or enforcement of the decision of 12 December 2019 within the DIFC or to this Court. The only application which has been made in relation to the decision of 12 December 2019 is Limsa’s application to set it aside. It follows that Limsa’s reliance upon Articles 42 – 44 of the DIFC Arbitration Law is as misconceived as its reliance upon Article 41.
97. For these reasons, the proceedings instituted by Limsa were always doomed to fail for want of jurisdiction. If there has been any unreasonable conduct by a party to these proceedings, it lies in Limsa’s persistent prosecution of proceedings which were always doomed to fail for want of jurisdiction.
The pre-action protocol
98. It is common ground that the pre-action protocol relating to the steps which must be taken before proceedings can be commenced against entities comprising the Government of Dubai apply to the proceedings commenced against X Centre and that Limsa did not satisfy those requirements. Those requirements are to be found in RDC 41.19 and Article 3(D) of Dubai Law No. 3 of 1996.
99. RDC 41.19 provides:
“A claimant intending to commence proceedings against the Government must serve a notice of such intention at least 15 days before proceedings are served.”
100. Article 3(d) of Dubai Law No. 3 of 1996 provides:
“Lawsuits against Government shall be initiated against the Public Prosecutor as a defendant in his capacity as a representative of the Government, on condition this shall be subject to the following procedures:
(1) Any person who wishes to initiate the lawsuit shall lodge in writing the full details of his lawsuit at the office of the Legal Adviser of the Government of Dubai.
(2) The Legal Adviser shall, within 1 week as of receiving the claim, send a letter referring the lawsuit to the concerned authority to voice its opinion over the same. The concerned authority shall respond to the same within 15 days as of having received the letter of referral. In case 2 months pass as of submission of the lawsuit to the Legal Adviser without reaching settlement of the dispute in an amicable way, the claimant may take recourse to the competent court.”
101. Limsa contends that it was excused from compliance with these requirements because of the urgency of the situation. Whether the provisions to which I have referred should be construed as precluding a party from approaching the Court for urgent interim relief is a question that was not argued before me, and which should be left for another day. The fact is that Limsa did not seek any form of urgent interim relief from the Court.
102. The obvious purpose of the provisions to which I have referred is to provide the Government of Dubai with the opportunity to settle disputes in which it is involved before proceedings are instituted. Limsa’s failure to comply with those requirements in this case has deprived the Government of that opportunity.
103. An inference as to what might have occurred if Limsa had complied with the requirements to which I have referred can be drawn from what actually occurred. Within about a month of the initiation of the proceedings, the X Centre had advised both Limsa and Lext that the operation of the decision of 12 December 2019 was suspended until further notice. Further, less than two months after the proceedings were initiated, Limsa was aware that the X Centre did not contend the decision of 12 December 2019 constituted an Arbitral Award or was enforceable as such. This is of course the basis upon which Limsa ultimately discontinued the proceedings.
105. Accordingly, it is reasonable to infer, and I do infer, that if Limsa had complied with the pre-action protocols applicable to proceedings against the Government of Dubai events would have occurred within the two month “cooling off” period mandated by those provisions which would very likely have obviated the need for these proceedings. This is another cogent reason why Limsa should be ordered to pay the defendants’ costs of these proceedings.
Liability for costs – conclusion
105. For these reasons, Limsa has failed to establish any reason for the Court to exercise the discretion conferred by RDC 34.15 so as to displace the presumption that Limsa should pay all parties’ costs up to and including the date upon which Limsa served Notice of Discontinuance. Further, because the argument with respect to costs took place after Notice of Discontinuance was filed, Limsa should pay the defendants’ costs of that hearing as well.
Costs – quantum
106. Each party invited the Court to fix the costs to be paid by the party or parties against which orders were sought. To that end, each party provided to the Court a statement of the costs sought. This practice is to be encouraged, as it creates the opportunity to avoid a detailed assessment of costs and thereby avoid the time, additional cost, and the dissipation of limited Court resources consumed by the process of assessment.
107. The statements of costs were as follows:
|First Defendant:||172,550.60 USD|
|Second – Fourth Defendants:||213,540.00 AED|
108. It will thus be seen that the costs claimed by the claimant and the second – fourth defendants are in the same order of magnitude. However, when allowance is made for the currency in which costs are claimed by the first defendant, the amount claimed is of a different and significantly higher order of magnitude.
109. Having regard to the relativities between the costs claimed by the second – fourth defendants33, and the costs claimed by the claimant, I am satisfied that the costs claimed by second – fourth defendants are appropriate in amount. Counsel for the claimant did not advance any submission to the contrary.
110. At my invitation counsel for the first defendant provided a short statement of the reasons why the costs claimed significantly exceeded the costs claimed by other parties. On the basis of the materials before me, I am unable to determine whether the reasons given justify the costs claimed. In my view, that is an issue best resolved by a detailed assessment pursuant to RDC 38. In accordance with Practice Direction No. 5 of 2014, I should order 50% of the amount claimed in the first defendant’s statements of costs to be paid on account before the costs are assessed unless there is a reason to order otherwise. I can see no reason to order otherwise, and note that the first defendant is an entity of the Government of the Dubai, with the consequence that if the costs assessed should come in at less than 50% of the amount claimed, the claimant can be confident that it will receive a refund of the difference between the amount paid in advance and the costs assessed. The cost to be paid by the claimant to the second – fourth defendants, and the amount to be paid on account of the first defendant’s costs should each be paid within 14 days of my orders.
111. For the reasons given, there will be an order that the claimant pay the costs of all defendants, including the costs of the hearing on 4 May 2020. In the case of the second – fourth defendants, those costs will be fixed in the amount of $213,540.00 AED to be paid within 14 days. In the case of the first defendant, the costs to be paid will be assessed in accordance with RDC Part 38. The claimant is to pay an advance on account of those costs in the amount of $86,275.30 USD or its equivalent within 14 days.
Date of issue: 19 May 2020