The Dubai International Financial Centre

Claim No: CA 008/2021

THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS

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

IN THE COURT OF 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

ORDER

UPON HEARINGCounsel for the Appellants on 2 September 2021

ANDthere being no appearance by counsel for the Respondents

ANDservice upon the Respondents having been proven

AND UPON READINGthe 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 thereofIT IS ORDERED THAT:

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,LaabikaandLabhdi, 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:

16. Schedule (A) contained the following entries:

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:

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, MsLabhdi, 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, MsLabhdi, 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:

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:

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:

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 includingGoel 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, namelySunteck Lifestyles Ltd v Al Tamimi & Co Ltd & Anor; ^[2]Taaleem PJSC v National Bonds Corp & Anor ^[3]andInvestment 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:

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.

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.