Claim No: CFI 013/2019
THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS
IN THE COURT OF FIRST INSTANCE
HEXAGON HOLDINGS (CAYMAN) LIMITED
(1) DUBAI INTERNATIONAL FINANCIAL CENTRE AUTHORITY
(2) DUBAI INTERNATIONAL FINANCIAL CENTRE INVESTMENTS LLC
JUDGMENT OF JUSTICE SIR JEREMY COOKE
|Hearing :||6 February 2022 – 22 February 2022|
|Counsel :||Tom Sprange QC and Benjamin Williams instructed by King & Spalding on behalf of the Claimant|
Tom Montagu-Smith QC instructed by Gibson, Dunn & Crutcher LLP on behalf of the Defendants
|Judgment :||2 March 2022|
UPONthe Judgment of H.E Justice Ali Al Madhani dated 25 March 2020
AND UPONthe Court of Appeal Judgment in CA-003-2020 dated 29 September 2020
AND UPONthe Re-Amended Particulars of Claim dated 14 March 2021
AND UPONthe Amended Defence dated 10 May 2021
AND UPONthe Amended Reply to Defence dated 17 May 2021
AND UPONreviewing the parties’ skeleton arguments
AND UPONreviewing all documents recorded in the case file
AND UPONhearing Counsels for the Claimant and Counsel for the Defendants at the hearing
IT IS HEREBY ORDERED THAT:
1. The Claimant’s claim for a declaration that it lawfully terminated the Joint Venture Agreement, as amended (the AJVA) is dismissed.
2. The Claimant’s claims for damages are dismissed.
3. The Claimant’s claims for restitution are dismissed.
4. The Claimant’s claims for interest and costs are dismissed.
5. In the absence of any agreement as to entitlement to costs within 14 days, the Defendant is forthwith to apply to the Court for directions for the determination of all issues of costs.
Date of Issue: 2 March 2022
1. The Claimant (“Hexagon”) is a company incorporated in Grand Cayman in the Cayman Islands which entered into a joint venture agreement with the First Defendant for development (the“Project”) of a parcel of land in the DIFC known as PA 01 (the“Project Land”). On dates between July 2005 and December 2006, the current ultimate beneficial owners (the“UBOs”) gained control of Hexagon on payment of a price of approximately US $122 million to the prior shareholders, Shaikh Juma Bin Maktoum Al Maktoum and Secure Investment Ltd (a company owned by Mr Al Huqani). According to an uncontroverted memorandum drafted by their agent, Mr Moukkadem, and sent to them, they gained control of Hexagon in August 2006 and details of the shareholdings in Hexagon, as they currently are, were notified to the Defendants in December 2006.The current UBOs are two brothers who are Saudi nationals, Mr Suleiman Al Majed and Mr Abdullah Al Majed, together with Mr Abdullah Al Romaizan and Mr Faiz Papadopoulos (“Mr Papadopoulos”).
2. The First Defendant is a body corporate established by the Government of Dubai pursuant to Law No. 9 of 2004 which owned the Project Land (and surrounding land) but transferred it, in 2006, to the Second Defendant, another similar body which was tasked with handling the investments of the state. Whilst Hexagon was aware of this transfer since at least 2008, formal notice of assignment of the rights and obligations under the AJVA was not given until October 2018. For the purposes of this judgment, there is little need to draw any distinction between the First Defendants (“DIFCA”) and the Second Defendants (“DIFCI”) and, save where it matters, I shall refer to them whether individually or collectively as the Defendants. It is not I think, disputed that, if liability rests upon either in respect of the matters in dispute, the late assignment was effective, and judgment should be entered against DIFCI.
3. The dispute between the Parties arises out of a Joint Venture Agreement dated 14 December 2003 (the“JVA”) as amended by an Amendment Agreement dated 5 May 2004 (the“AJVA”). The Joint Venture related to the development of the Project Land which is a valuable parcel of land in the DIFC, known as PA 01. The site is a prime site, albeit on the other side of Al Mustaqbal Street from the heart of the DIFC around the Gate, the Gate Precinct and the Gate Village. The AJVA was terminated by Hexagon on 19 November 2018, at which point there was no finalised Concept Design for the mixed- use development envisaged, let alone any building on the site.
4. It might be thought extraordinary that a joint venture agreement for the development of such a plot of land, in what is recognised as a primary location in Dubai, envisaged as taking a maximum of about 5 years to complete, should be terminated nearly 15 years later with nothing to show for it. The reasons for this lie at the centre of the dispute between the Parties, where Hexagon puts all the blame on the Defendants, although, as will become plain, it sought to renegotiate the AJVA from around March 2007 onwards. This led to a shareholders’ agreement in February 2008 (the“2008 SHA”) which, it is agreed, was ineffective as a matter of law and to later efforts to renegotiate the position represented by it.
5. There can also be no doubt, as accepted by two of Hexagon’s witnesses, Mr Abdullah Al Majed and Mr Abdul Samie Elfadil (Mr Elfadil) in cross examination, that the global financial crisis, which began in the USA in March 2008, began to affect Dubai in late 2008 and which, by the second quarter or middle of 2009, had impacted on all real estate development in progress and the availability of funding both for developers and purchasers. The travails of Dubai/DIFC at that time, leading to the formation of the Dubai World Tribunal are too well known to require further elucidation. This plainly would affect any development of the Project Land, although the Defendants, under the terms of the AJVA, were only bound to provide the Project Land itself as their contribution to the capital of the Joint Venture Company. The impact therefore fell, as between the Parties, on Hexagon, although its impact was disputed. Mr Elfadil, a witness for Hexagon, agreed that in 2009 it was not “foreseeable” (by which I understood him to mean it was not to be expected) that Hexagon could provide finance the total project costs in liquid cash, as required by the AJVA. That, I understood to be the effect of Mr Abdullah Al Majed’s evidence also.
6. Further attempts were made at renegotiation by Hexagon in 2010 and 2012 but by November 2011, the Defendants had formed the view that the AJVA was no longer effective by reason of the passage of time and the absence of any real progress in that period. The Defendants informed Hexagon in what have been referred to as the Renunciation Letters that they no longer considered themselves bound by the AJVA. It is Hexagon’s case that, thereafter, having reserved its right to terminate the AJVA on the basis of what the Defendants had said and done, the Parties then sought to negotiate a settlement by entering into a joint venture agreement on terms which were different in a number of respects to the AJVA, but which did not lead to any agreement. Hexagon then terminated the AJVA on 19 November 2018, in circumstances set out later in this judgment.
7. It might well be asked why it is that, with an AJVA concluded in May 2004, the development was not long since finished by the time the global financial crisis hit Dubai, particularly as the original JVA provided for completion of construction within 3 years of finalisation of the documents referred to in it and the AJVA provided for completion of construction within four and a half years of that event, and each provided for the documentation to be executed as soon as was reasonably practicable, (with some qualification). Whilst this is again the subject of dispute, and Hexagon maintained that it was all the fault of the Defendants in failing to implement the AJVA, it appeared to me that there were a number of other reasons for delay and for the fact that no construction work was ever effected, whether or not Hexagon could establish its case that the Defendants were in breach of the AJVA.
7.1. The first reason is that nothing happened between 2004 and 2006 whilst the preceding owners of Hexagon were selling their shares in it to the current UBOs.
7.2. The second reason is that it was not until the middle or end of 2006 that the current UBOs were in the driving seat at Hexagon, that their shareholdings were finalised and that they were in a position to progress matters.
7.3. The third reason is that Hexagon, under its new ownership, wanted to renegotiate the commercial terms of the AJVA as well as reaching agreement on some matters which were left undetermined by it, it being recognised that it was a high- level agreement with various items still to be agreed between the Parties. The Parties took time to reach agreement on such matters, including some of the critical commercial documentation contemplated by the AJVA.
7.3.1. The UBOs, through another company, Concept Holdings Limited, (“CHL”) and DIFCI did reach agreement on 19 February 2008 in the form of the 2008 SHA. It is common ground between the Parties that this did not come into effect as a matter of law, nor bring the AJVA to an end, despite expressly providing for that.
7.3.2. The reality was, however, that the Parties proceeded on the basis of the terms agreed in it for the next couple of years and both before and after it, sought to reach agreement on such matters as the Built-up Area (“BUA”), the Gross Floor Area (“GFA”) the split of the building for residential, office, retail or hospitality use, (“Use Mix”) and on the effect of roads planned by other authorities (the“Affection plan”), all of which had to be resolved because assumptions made or provisions in the AJVA no longer seemed best suited to the prevailing circumstances in DIFC, by reason of the passage of time.
8. It is said that one or both parties (and there is dispute between them as to where the fault lay) were slow in taking the steps required to move the Project forward, whether in settling on practical and technical matters that had to be resolved to further the Project or on commercial issues where either the AJVA was said to provide for potential revision or where it did not. Hexagon says that the Defendants were dragging their feet because they did not want the Project to go ahead, whilst the Defendants say that Hexagon lacked the organisation or capability to handle a high-quality development of this magnitude and there were doubts as to its seriousness and ability to do so.
9. It may be that the Defendants saw little need or purpose being served in taking further steps to implement various provisions of the AJVA until an agreed Concept Design had been finalised, with a related feasibility study and business plan. This never happened as the design consultants engaged were unable to produce a twin tower design which reached the standard set by Hexagon’s UBOs for the minimum level of efficiency for use of space in the buildings and no other design on a single tower basis appears to have been presented to the Defendants beyond a preliminary drawing. Until such a Concept Design was finalised and feasibility studies completed in the light thereof, the Project could not make any real progress on the ground, nor was there any point in incorporating a joint venture company (the“Joint Venture Company”) and transferring the Project Land to it, until there was some agreed basis on which the Project could proceed. More importantly however, there were commercial issues which Hexagon raised seeking amendment of the AJVA which took time to resolve in negotiations and, once resolved in the 2008 SHA, were resurrected by Hexagon seeking further changes in the light of the prevailing circumstances.
10. As already mentioned, the reality is that the Parties treated the 2008 SHA, agreed in February 2008, which was signed on behalf of both CHL and an entity described as [New Company] Limited by Mr Abdullah Al Majed, and by an authorised officer of DIFCI, as fully effective, even though the new company had not yet been incorporated. Expenditure had been incurred prior to the 2008 SHA, but more was incurred thereafter in the preliminary stages of development in Concept Design, preliminary Feasibility and Marketing Studies relating to the two-tower project, whilst seeking to agree with the Defendants some of the parameters which were not set out in either the AJVA or the 2008 SHA. CHL was a company incorporated in Jebel Ali Free Zone, owned by the same UBOs who owned Hexagon and was effectively a replacement for Hexagon in a revised joint venture arrangement, whilst [New Company] Limited was intended to be the DIFC Joint Venture Company which would act as the vehicle to carry out the development in which CHL and DIFCI would be the shareholders. Limited progress was made in agreeing the next steps following the 2008 SHA, but all came to a halt when the Design Concept was rejected by Mr Suleiman Al Majed and by CHL and the appointed designers’ engagement was consequently terminated in June 2019, whilst, at about the same time the effect of the global financial crisis hit Dubai.
11. The essence of Hexagon’s case is that the Defendants breached the AJVA in circumstance where such breach amounted to fundamental non- performance within the meaning of Article 86 of the DIFC Contract Law. Alternatively, it is said that the Defendants were in anticipatory repudiation of the AJVA as a matter of common law and/or made it clear, prior to the date for performance, that there would be fundamental non- performance within the meaning of Article 88 of the Contract Law, which entitled Hexagon to terminate the AJVA. The breaches are set out in paragraphs 18 and 19 Hexagon’s Reamended Particulars of Claim, where breaches of clause 3 of the AJVA are pleaded, and in paragraphs 20 and 21 where it is alleged that the Defendants, in emailed letters of 12 June 2012 and 27 September 2012 (the“Letters of Renunciation”) renounced the AJVA, followed by repeated oral renunciations in (inter alia) meetings on 17 May 2016 and 19 September 2017. It is submitted that all these causes of action accrued on 27 September 2012, and that these proceedings, which were commenced on 6 March 2019, are not barred by the 6-year limitation provision found in Article 123 of the Contract Law by reason of standstill agreements covering the period from 28 November 2017 – 31 October 2018, a period of 337 days. It is also submitted that there were continuing breaches between 2012 and 2018, or freshly accruing breaches whenever the Defendants maintained that the AJVA was not binding.
12. The Defendants deny any actual breach and contend that, by the time of the termination of the AJVA by Hexagon on 19 November 2018, they had made it clear that they did consider themselves bound by the AJVA and had called on Hexagon to comply with its terms on 10 October 2018, when Hexagon was seeking to negotiate joint venture arrangements which were far removed from the terms of the AJVA. This letter of 10 October was, in the Defendant’s submission, an attempt to bring Hexagon back to negotiating on the basis of the AJVA and to ascertain if they had any serious intention of proceeding with the Joint Venture Project in accordance with its terms, with the necessary finance. To their surprise, instead of having that effect, it resulted in Hexagon choosing to terminate the AJVA. The Defendants’ letter of 10 October 2018, was, in the submission of Hexagon, a bad faith litigation tactic and not a good faith attempt to perform the AJVA and it was entitled to rely on the earlier breaches by the Defendants in the years before 2013, in respect of which Hexagon had reserved all rights, as justifying termination, as well as the “offer of non-conforming performance” in the 10 October letter.
13. The reality, in the Defendants’ submission, was that Hexagon and its shareholders had long since sought to depart from the terms of the AJVA, had agreed the 2008 SHA in different terms, had sought to renegotiate again in 2010 and 2012, putting forward terms which were unacceptable to the Defendants, and, following the Letters of Renunciation, had attempted further to negotiate terms more favourable to themselves, whilst attempting sporadically to reserve their rights under the AJVA. Apart from any issue of renunciation or anticipatory non- performance, which it maintained was cured, the breaches complained of were contrived and virtually all time barred, since the vast majority occurred prior to 2012.
14. It became clear in Hexagon’s skeleton and oral argument at the trial, if it was not clear before from its pleadings, that Hexagon’s case essentially relied on the breaches prior to October 2012 (the“Earlier Period”), since it stated that all the negotiations thereafter were attempts to settle the dispute which had arisen from the Letters of Renunciation in June and September 2012. If, as the Defendants maintained, any renunciation had been withdrawn before 19 November 2018, then Hexagon’s case wholly depended on such breaches in the Earlier Period, and the only relevance of subsequent matters was the light they could cast on the alleged bad faith and failure to exercise best endeavours as required by the AJVA in the Earlier Period.
15. In its case in oral opening, Hexagon contended that the Defendants never really intended to engage with it in relation to the Joint Venture and that their participation was all filibustering on a grand scale. Essentially, what was thus alleged was that the Defendants had, once the UBOs had identified themselves as owners of Hexagon, decided not to proceed with the joint venture or the AJVA, and acted out a charade in which they simulated engagement without intention to proceed. Whilst at various stages in its submissions, Hexagon eschewed allegations of bad faith as such, in the sense of dishonesty or lack of fair dealing, and focussed on alleged failures to use best endeavours, at other times what was alleged was tantamount to, if not actually equivalent to allegations of fraud, even though that was never put to any of the Defendants’ witnesses and in particular to Mr Bisher Barazi (Mr Barazi) , as it should have been if that was the case being made. As pleaded, Hexagon’s case was, apart from renunciation, that there were breaches by the Defendants in failing to achieve the results required by clause 3 of the AJVA following requests or demands made by Hexagon.
16. It is self- evident, as Mr Barazi said in evidence, that the Defendants would want the site developed because of its position not far from the centre of the DIFC. I am satisfied that the Defendants wanted the plot to be successfully developed and where there was some delay in decision making on the part of the Defendants, that was not caused by any desire on their part to stymie the progress of the development. The Defendants had every reason to see the joint venture succeed and sought to facilitate that until deciding in 2011-2012 that the project was going nowhere and sending the Letters of Renunciation.
The Joint Venture Agreement, as amended.
17. On 14 December 2003, the First Defendant entered into the JVA with Nexus Capital SA (“Nexus”), a stock corporation incorporated in Switzerland. The recitals to the JVA, which were by clause 1.5 to form part of the agreement, referred to the former as the Master Developer of land at the DIFC which was to be developed variously and homogenously by it and other public and private investors into a mixed-use commercial, residential and retail real estate community subject to the Master Community Declaration (the“Master Plan”).
18. Recital C stated that the securing of inward international investment for the development of Precincts on the land was a primary objective of the Master developer and that the Parties had agreed to incorporate and establish a limited liability company in the DIFC in joint venture between them and one or more international investors, as a vehicle through which to undertake the Project as defined in clause 1.1. Recital D stated that “the Parties desire by this Agreement to provide the basis upon which a joint venture company shall be established and the Project shall be undertaken”. The Recitals and the Schedules to the JVA (as might be amended pursuant to clause 2.1.2) were to form part of the agreement and to take effect as if set out in full in the body of it.
19. Clause 1 contained various definitions.
19.1. The Estimated Project Capital was to be “the estimated amount of capital required by the Joint Venture Company to undertake the development of the Project (exclusive of the Purchase Price for the Project Land) in the amount indicated calculated in accordance with Schedule E.
19.2. The “Investor” was defined as “the one or more investors identified by Nexus and approved by the Master Developer who shall invest the Total Project Capital into the Joint Venture Company by way of liquid finance.
19.3. The “Joint Venture Company” was defined as “the limited liability company to be incorporated by the Parties and the Investor in the Centre pursuant to clause 3.1.2 to be called Hexagon or similar name, which company shall serve as the holding company for the Project”.
19.4. “Project” was to mean “the development, ownership management and exploitation for profit by the Joint Venture Company of a Single Investor Precinct with a minimum total built-up area (“BUA”) as indicated in Schedule E to be called “the Hexagon” or similar name in the location of the Project Land…”.
19.5. The “Project Computations” were “the calculations and specifications for the Project attached hereto as Schedule E”.
19.6. The “purchase Price” was to mean the price to be paid by the Joint Venture Company to the Master Developer for the Project Land, which price shall be calculated in accordance with the provisions of Schedule E.”
19.7. “Shareholders Agreement” was defined as “an agreement to be entered into between the Parties and the Investor as shareholders in the Joint Venture Company”.
20. The key provisions were contained in clause 3:
3.1 As soon as is reasonably possible after the Effective Date, the following steps and procedures shall be undertaken:
3.1.1 The Parties shall execute, and Nexus shall procure that the Investor executes a Deed of Adherence in a form approved between them pursuant to which the Investor John agreed to be bound by this Agreement as a Party thereto, and to perform and observe the provisions of this Agreement in so far as they are required to be performed and observed by the Investor;
3.1.2 the Parties shall take all steps & all documents, and Nexus shall procure that the Investor signs all documents required on its part, is unnecessary to incorporate the Joint Venture Company in the Centre.… The costs and expenses in respect of the incorporation and registration of the Joint Venture Company shall be borne by the Investor and reimbursed to the Investor by the Joint Venture Company following its incorporation;
3.1.3 the Parties and the Investor shall execute the Shareholders Agreement in a form prepared by Nexus in accordance with the provisions of Schedule Deed and approved by the Master Developer and the Investor. The provisions of the Shareholders Agreement shall ensure that it is applicable to the Joint Venture Company, irrespective of its base incorporation from time to time;
3.1.4 the Master Developer shall execute and the Parties and the Investor shall procure the execution by the Joint Venture Company of, the Sale & Purchase Agreement prepared by the Master Developer in accordance with the provisions of Schedule C and approved by Nexus. The Purchase Price shall be paid by the Joint Venture Company to the Master Developer in the form of shares in the Joint Venture Company in the proportion specified in paragraph 2 of Schedule Deed attached hereto and to be issued to the Master Developer on execution of the Sale & Purchase Agreement.
3.1.5 the Parties and the Investor shall procure that as soon as possible after the Joint Venture Company has been incorporated, the Joint Venture Company shall result of (as a meeting of its shareholders and/or its directors, as appropriate) to adopt the following:
(i) the provisions of the Shareholders Agreement; and
(ii) the plans proposals and computations attached hereto as Schedules E and F as they may have been appropriately amended prior to such adoption.
21. There was in fact, no content to Schedule F to the JVA, which was headed “Business Plan Overview”, but following the Project Computations in Schedule E, under the heading “Document: the Hexagon Financial Summary – V07g-031103 “and the subheading “Project: The Hexagon; Model version V07g-031103; Date November 03, 2003”, the contents were listed under three headings: “All scenarios assumptions; Scenarios description & scenario specific inputs; and Scenario outputs & financials”. Hexagon submitted that these represented the Business Plan Overview and was intended to be Schedule F, but whether that was the case or not, the only relevance to the dispute appeared to be the Use Mix which appeared in the “All scenarios assumptions” which provided for a total built-up area of 97,650 m² over four hexagonal footprints with approximately 12.5% of each as vertical campus, 40% office space, 14% boutique hotel, 9% furnished apartments and 14% residential, and 6% for a spa and investment club and 6% for four services floors.
22. The JVA included at clause 7 an Entire Agreement clause and at clause 8 a provision that no amendments should be effective unless made in writing and executed by each Party’s authorised representative. Clause 9 provided that the Master Developer could, at any time, if it transferred the Land, assign its rights and obligations under the JVA to the new owner of the Land, by giving notice to Nexus and the Investor, without the need for any consent.
23. Schedule C set out a summary of the Main Proposed Provisions of the Sale & Purchase Agreement:
“1. The Purchase Price for the Project Land shall be calculated in accordance with the provisions of Schedule E and shall be payable by the Joint Venture Company to the Master Developer in the form of shares in the Joint Venture Company in the proportion specified in paragraph 2 of Schedule D attached hereto.
4. The Joint Venture Company will be required to construct the Project on the Project Land in accordance with the Project Computations as adopted by the Joint Venture Company pursuant to clause 3.1.5 (ii). The Joint Venture Company’s plans for the Project (including architectural and engineering designs and specifications) will be subject to the Master Developer’s prior approval. The Joint Venture Company shall be required to complete construction of the projects within three years of the execution of the Sale & Purchase Agreement…”
9.The Project Land shall be sold subject to the provisions of the Master Community Declaration
24. Schedule D set out the Essential Principles for the Corporate and Management Structure of the Joint Venture Company. At paragraph 2, the shareholdings were set out as percentages of the total authorised and paid-up share capital of the Joint Venture company with 15% allocated to the Defendant as Master Developer and 85% to be allocated between Nexus and the Investor in a proportion to be agreed between them. Paragraph 2 continued in the following manner:
“… the above percentages are calculated based upon the current Project Computations set out in Schedule E and reflect the ratio (to the nearest whole number) between the Purchase Price and the Estimated Project Capital. Whilst the Parties and the Investor may mutually agree to a variation to any one or more elements of the Project Computations, thereby necessitating a consequential adjustment to the above shareholding percentages based upon a revised Purchase Price relative to the Total Project Capital, in no event shall the Master Developer’s percentage of authorised and paid-up share capital in the Joint Venture Company be less than 15%.”
25. Schedule D paragraph 6 set out the Capital Requirements of the Joint Venture Company in the following way:
“The Master Developer shall not be required to invest either project capital or working capital in the Joint Venture Company, the contribution of the Project Land in return for the Master Developer’s shares in the Joint Venture Company being its maximum required investment. Except to the extent that the Joint Venture Company receives a cash benefit from the sale of any part of the Project to third parties, and only to such extent from time to time, the Investor shall be required to invest the Total Project Capital into the Joint Venture Company by way of liquid finance (whether or not the Total Project Capital ultimately exceeds the Estimated Project Capital) in return for its proportion of the shares in the Joint Venture Company. The Shareholders Agreement shall more fully enunciate the arrangements for the investment of the liquid finance by the Investor so as to ensure the timely availability of funds to undertake the construction and completion of the Project within the deadline referred to in paragraph 4 of Schedule C attached hereto. No part of the Total Project Capital shall be borrowed by the Joint Venture Company, whether from the Investor or otherwise. Save as aforesaid, additional capital requirements of the Joint Venture Company from time to time shall be met in the manner as resolved by the shareholders.”
26. Schedule E, which contained details of the total built-up area all and costings with various inputs, was headed “Project Computations” and commenced with the following:
“Estimated Project Capital: ……… AED 606, 421,000, 125.
Purchase Price: the Purchase Price for the Project Land shall be calculated at the rate of AED 100 per square foot of the total built-up area of the Project (excluding parking), i.e. He stopped shall not be less than AED 105,113,025 based upon the minimum total built-up area of the Project Land indicated below.
Minimum total built-up area of Project land: 1, 051, 130 square feet.”
27. On 5 May 2004, the AJVA was concluded, being an Amendment Agreement some five months after the JVA, between the First Defendant, Nexus and Hexagon. The AJVA in its recitals, referred to the JVA, to the receipt by Nexus of a letter from the Master Developer requiring that its share be increased to 17.5% (with a corresponding reduction in Nexus share to 2.5%), to the increase of the built up area to 1,453,175 ft.², to the identification by Nexus of Hexagon as the Investor and to the latter as currently incorporating a wholly-owned subsidiary in either Dubai Internet City or DIFC which would be an 80% shareholder in the Joint Venture Company. As the Master Developer had agreed that the JVA should be amended to reflect these features, the Investor was also to sign the AJVA. In due course, it emerged that Mr Rodpay, a member of the Board of the First Defendant owned Nexus and it appears that his involvement in this matter raised a clear conflict of interest, particularly as it also appears that he held some shares in Hexagon, either directly or indirectly, prior to their purchase by the current UBOs. His interests had however apparently been disclosed to the Board at the time of the original transaction.
28. Clause 2.1 of the AJVA set out the new shareholdings as 17.5%, 2.5% and 80% respectively for the Master Developer, Nexus and the Investor. Clause 2.1.1 began by saying “Point 2 in Schedule D shall be amended to read as follows” and went on to set out these shareholdings. No reference was made to the wording in the ensuing paragraph in paragraph 2 of Schedule D of the JVA relating to the percentages as calculate which were based upon the current Project Computations set out in Schedule E. However, clause 2.2 of the AJVA, entitled “Increase in the size of the Project Land” included the following:
“The Purchase Price provision in Schedule E shall be deleted and replaced with the following provision:
“The Purchase Price for the Project Land shall be based upon the total built-up area of the Project (excluding parking) and shall be AED 145, 315, 000 based upon the minimum total built-up area of the Project Land indicated below.
The estimated Project Capital set out in Schedule E shall be amended from AED 606, 421, 125 to AED 778,500,000.
The minimum total built-up area of Project Land set out in Schedule E be amended from 1,051,130 square feet to 1, 453, 175 square feet.
29. Clause 2.4 replaced the first two sentences of clause 3.1.2 of the JVA with the following provision:
“The Parties shall proceed immediately to incorporate a limited liability company in either Dubai Internet City or the Centre with the minimal capitalisation required, to serve as the Joint Venture Company.”…..
30. Clause 2.5 deleted clause 3.2 of the JVA, replacing it with the following best endeavours provision:
“The parties shall use their best endeavours in good faith to complete the steps and procedure set out in clause 3.1 as soon as in [sic] reasonably practicable after the date of this Amendment Agreement.”
It also requires the Joint Venture Company to complete construction of the Project within four years and six months of the execution of the Sale & Purchase Agreement whilst clause 2.6.1 inserted a new clause 3.3 requiring the Master Developer to “do all it can to promote the Project”, including making references to “The Hexagon” in its own marketing initiatives, providing Nexus with its own marketing materials and allowing Nexus to place hoardings around the Project Land at the time the project.
31. The AJVA also included an entire agreement clause and it was common ground between the parties that both the JVA and the AJVA were governed by the law of the DIFC and conferred jurisdiction upon this Court.
The 2008 SHA
32. Whilst neither party contended that the 2008 SHA was binding, it plays an important part in the narrative of events and it is therefore convenient to set it out at this point. Contrary to Hexagon’s submissions, it represented a clear departure from the terms of the AJVA. Mr Elfadil said that the AJVA was merely a framework agreement with many other documents to be negotiated and agreed and the Defendants referred to it in their submissions as a “high level” agreement, with gaps to be filled, but nonetheless the essential features of it were intended by the parties, at the time of its conclusion, to be carried through into the subsequent contractual documents which were to implement its terms. On the evidence, it became clear that further agreement between the Parties above and beyond the AJVA was necessary before the Project could proceed and its unfeasibility from an economic perspective for Hexagon meant that Hexagon looked for changes in the terms that had been agreed in order to make it viable. As time went by, the Defendants made their view plain that they took the view it was not viable either, without some changes.
33. As already mentioned, the signatories to the 2008 SHA were CHL, DIFC and [New Company] Ltd, although the latter, being described in the agreement itself as “a company under formation”, not being yet in existence, could not conclude any contract at all. The 2008 SHA provided for an additional two parties in the list of parties set out at the beginning of the document, those parties being the First Defendant and Hexagon. At the end of the document, however, no provision was made for execution by those two additional parties in the form of signature lines, signature blocks, or locations for signature. Mr Abdullah Al Majed initialled each page as did Mr Barazi, the signatory for DIFCI.
34. The Recitals to the 2008 SHA referred to the JVA and the AJVA and to the establishment of DIFCI for the purpose of overseeing and managing all the affairs of the First Defendant which were not “public administration” operations. Recitals D and E read as follows:
“(D) DIFC Investments and Hexagon have mutually agreed to terminate the Joint Venture Agreement (as amended by the Amendment Agreement) and or any other agreements, understandings and arrangements previously entered into between any of DIFCA, Nexcap, and Hexagon and DIFCA and Hexagon irrevocably release each other from any obligations towards the other as provided under the Joint Venture Agreement (as amended by the Amendment Agreement) and or any other Agreements, understandings and arrangements previously entered between any of DIFCA, Nexcap and Hexagon and further irrevocably waive all their rights against the other and DIFC Investments (being the owner of the Land), CHL, and the Company have agreed to enter into this Agreement which sets out the basis on which the Project is to be undertaken by the Company and the relationship between DIFC Investments and CHL as its shareholders.
(E) the Company is a limited liability company, which in the process of being incorporated in the Dubai International Financial Centre, a free zone established by the Government of Dubai pursuant to Law No (9) of 2004 and administered by DIFCA and is expected to be incorporated in the DIFC on or about 15 March 2008 pursuant to the DIFC’s standard form of Articles of Association, and at the date hereof having the share capital required under the laws of DIFC, being an authorised share capital of $340,228,633 divided into 340,228,633 Shares of 1$ each, all of which will be held by CHL and DIFC Investments in proportion to their respective interests as provided for in clause 3 of this Agreement.”
35. In the definitions clause:
35.1. “The Project” was said to mean “the development, ownership, management and exploitation for profit by the Company of a Single Investor Precinct with a minimum total built-up area of 1,750,000 ft.² to be called “The Project” in the location of the land as further described…” [This represented an increase from the figure of 1,453,175 square feet in the AJVA, which itself was an increase from the JVA with its figure of 1,051,130 ft.².]
35.2. “The Sale and Purchase Agreement” was said to mean “the agreement pursuant to which DIFC Investments shall agree to sell and the Company shall agree to purchase the Land at a value of AED 437,500,000 (subject to any increase in such purchase price as may be made in accordance with the terms of the Sale and Purchase Agreement), such agreement being based on the standard form of sale and purchase agreement used by DIFC Investments.”
36. Clause 2 set out conditions precedent for the operation of most of the provisions of the 2008 SHA. The first was “execution of the Sale and Purchase Agreement on terms acceptable to CHL and DIFC Investments”. The second was “receipt by the Company of the title deeds to the land from DIFC Investments, within seven days from the date of incorporation of the Company.” Clause 2.2 went on to provide that if those conditions were not fulfilled (or waived in writing by CHL) “within fourteen days from the incorporation of the Company (or such later date as the parties may agree)”, the relevant provisions of the Agreement, to which the conditions precedent applied, should forthwith terminate and cease to be of effect with the consequence that no party should have any claim against the others save in respect to any breach of the 2008 SHA occurring prior to such termination. It was accepted by the Defendants that there had been no compliance with these conditions precedent, with the result that the operative provisions of the 2008 SHA never came into effect. It was Hexagon’s case that the 2008 SHA was ineffective because of the absence of signature by Hexagon, Nexus and the First Defendant.
37. Clause 3 of the 2008 SHA provided for CHL to subscribe $221,148,611 for that number of shares, but also provided that, as CHL had already paid an amount of AED 450 million, said to be equivalent to $122,616,000 towards its shares in the capital of the Company, there was a balance of $98,532,611 which was to be paid “as when required by the Company”. DIFCI was to subscribe for 119,080,022 shares, “being the land contribution valued at nominal value $119,080,022 under the Sale and Purchase Agreement. The ratio of the larger figure treated as the CHL subscription ($221,148,611) to the subscription by DIFCI in respect of the value of the Project Land was 65%/35%.
38. Clause 7 was entitled “Shareholders’ Duties; Consideration and Working capital”. It provided, so far as material, as follows:
“7.1.1 In consideration for entering into this Agreement and receiving 65% of the distributable profits of the Company, CHL and any of its subsidiaries shall execute the development and construction of the Project and use its best efforts to arrange in a timely manner all liquid finance necessary to meet the Company’s project capital and working capital needs from time to time, by (i) mortgaging the Land to any potential Lender(s); and (ii) use the proceeds received from the sales of the Project for working capital requirements of the company, to develop and construct the Project and complete the Project in accordance with the milestones set out in Schedule 4 and, in any event, within thirty-six months from the date the Company receives the permit to commence construction from the relevant authority. For the avoidance of doubt,(i) the Shareholders agree to mortgage the Land in order to raise liquid finance to meet project capital and working capital requirements of the Company to develop and complete the Project and authorise CHL and any of its subsidiaries to negotiate and finalise the terms of raising such capital requirements with any potential Lender(s); (ii) CHL shall utilise the proceeds received by the Company from the sales of the Project for working capital and other requirements to develop and complete the Project; and (iii) the Company’s project capital and working capital needs shall include any amounts necessary to ensure payment by the Company in a timely manner of any and all amounts payable by the Company under the terms of the Sale and Purchase Agreement together with any other amounts payable by the Company under any contract, agreement or other arrangement binding upon it and applicable law.
7.1.2 CHL reserves the right to obtain, in the name of the Company and at the cost of CHL, such funding as it shall require to ensure that it meets its obligations to provide the Company with project capital and working capital pursuant to clause 7.1.1 by any means it sees fit, including but not limited to obtaining a secured loan, the security for which shall include the mortgage on the land.
Provided that no part of the project capital shall be borrowed by the Company whether from CHL or otherwise.
7.1.3 Any funding provided directly by CHL to the Company pursuant to clause 7.1.1 shall be provided by way of an unsecured, interest-free shareholder loan, such loan to be repayable only in the event of the winding up of the Company and provided that all other liabilities of the Company are paid in priority to such shareholder loan….For avoidance of doubt, DIFC Investments share of the profit shall not at any time be reduced by the funding referred to in 7.1.1 up to 7.1.3.
7.1.6 CHL may at its sole discretion (subject to maximum permitted by DIFC) increase the initial total built-up area of 1,750,000 ft.².
7.1.7 The shares owned by DIFC Investment in the capital of the Company not be diluted even though the minimum total built-up area is increased and DIFC Investments, in its capacity as the shareholder in the capital of the Company, shall not be obliged to make any financial contributions to the Company, save the initial subscription of shares in the capital of the Company.”
39. Clause 26 was entitled “Termination” and provided as follows:
“Each of DIFCA and Hexagon irrevocably acknowledge and agree that the Joint Venture Agreement (as amended by the Amendment Agreement) and/or any other Agreements, understandings and arrangements previously entered between any of DIFCA Nexcap and Hexagon are hereby terminated and of no further force or effect and each of DIFCA and Hexagon confirm that they have no claim of any nature against any of the others arising out of or in connection with the Joint Venture Agreement (as amended by the Amendment Agreement) or any other Agreements, understandings and arrangements previously entered between any of DIFCA, Nexcap and Hexagon.”
40. The circumstances in which the 2008 SHA came into existence are explained later in this judgment but any comparison between it and the AJVA reveals significant and substantial differences between the two. On the face of the 2008 SHA, whatever its effect in law, it purported to terminate the AJVA between Hexagon and DIFCA and replace it with a joint venture between CHL on the one hand and DIFCI on the other. Without execution by all the parties to the AJVA, namely DIFCA, Hexagon and Nexus, it could not be effective as a matter of law to achieve that result. Nonetheless, Hexagon’s case has always been that there is no material difference between Hexagon and CHL and that the 2008 SHA was intended to implement the AJVA. It is self-evident that Mr Abdullah Al Majed, who had previously represented Hexagon, was authorised to execute the 2008 SHA which was intended to bring an end to the AJVA and to replace it.
41. Apart from the change in the parties to the Joint Venture, where CHL replaced Hexagon, the commercial terms of the 2008 SHA differed from the AJVA in at least the following respects:
41.1. Whereas the AJVA required DIFCA to provide the Project Land with a minimum total built up area of 1,453,175 ft.², the 2008 SHA required DIFCI to provide Project land with a minimum total built-up area of 1,750,000 ft.².
41.2. Whereas the Joint Venture Company was to purchase the Project Land from DIFCA for AED 145,315,000 by means of the issue of shares under the AJVA, under the 2008 SHA, DIFCI would obtain its shares by providing the Project Land valued at $119,080,022.
41.3. Whereas the DIFCA shareholding in the AJVA Joint Venture Company was to be 17.5%, with 80% owned by Hexagon and 2.5% by Nexus, the DIFCI shareholding in the Joint Venture Company under the 2008 SHA was be 35% and that of CHL 65%, without any shareholding for Nexus.
41.4. Whereas the AJVA required Hexagon to provide the Total Project Capital for the Joint Venture Company by way of liquid finance, including all construction costs whatever that figure turned out to be (the estimated Project Capital being AED 778,500,000), in return for its shares in the Joint Venture Company, the 2008 SHA provided that CHL was to subscribe for 65% of the shares for $221,148,611, but the sum paid by the UBOs for their shares in Hexagon, amounting to $122,616,000 was set off against that sum, leaving only a requirement of liquid financing of $98,532,611. The Defendants were to provide the Project Land valued at $119,080,222 for their 35% share.
41.5. Whereas the AJVA provided that no part of the Total Project Capital could be borrowed by the Joint Venture Company, whether from Hexagon or otherwise and no part of the Project Land could be used as security for any loan made to Hexagon, the 2008 SHA changed that position.
41.5.1. The 2008 SHA provided for CHL to “arrange” for the liquid finance necessary to meet the Joint Venture Company’s project capital and working capital needs from time to time.
41.5.2. Although the Joint Venture Company was not permitted to borrow the Project Capital under the 2008 SHA, CHL was permitted to borrow such sums against the security of a mortgage on the Joint Venture Company’s Project Land.
41.5.3. CHL was also entitled to provide the Joint Venture Company with working capital by any means it saw fit, including loans to the Joint Venture Company and a mortgage on the Project Land, although any funding provided directly by CHL could only be by way of an unsecured interest-free shareholder loan, repayable only in the event of a winding- up.
41.5.4. CHL was also entitled, under the 2008 SHA, to use the proceeds received from sales of the Project for the working capital requirements of the Joint Venture Company, whereas although the provision was unclear in the AJVA, its effect was that, although such sales could aid the cash flow of the Joint Venture Company, the funds ultimately had to be accounted for and provided by Hexagon.
41.6. In addition, TPM, an associate company of Tanmiyat, owned by the Al Majed brothers, was to be the Project Manager
41.7. CHL was given the right to elect to purchase additional BUA beyond 1,750,000 square feet subject to the maximum permitted by DIFC.
41.8. CHL was entitled to appoint Great Real Estate Brokers or another company as the exclusive marketing agent for the Project and sales.
42. Contrary to Hexagon’s submission, the 2008 SHA could not be said to be the Shareholders Agreement contemplated by the AJVA because it departed from the terms of the AJA in the respects outlined above and specifically provided for the termination of the AJVA which would have been unnecessary if it was the SHA executed in compliance with its terms. It was inconsistent with the AJVA and the two could not co- exist as they each purported to give development rights to different companies, namely Hexagon and CHL. As appears below, in 2010, 2012, and subsequently, the UBOs, via other individuals sought further to reduce Hexagon’s AJVA commitment to provide the Project Capital itself and to negotiate an agreement with DIFCI under which the Joint Venture Company could borrow the funds it needed to complete the development at its own expense, with, if necessary, loans from Hexagon repayable by the Joint Venture Company with interest and for all sales of Project Land to be available for the Joint Venture Company’s capital requirements. Each such putative agreement departed from the original fundamental principle of the AJVA that DIFCA should not be required to invest any Project capital or working capital and would contribute the Project Land only, whilst Hexagon was required to pay all the costs of construction and development of the Project Land by the provision of liquid finance to the Joint Venture Company, without any loan or security provided by the Joint Venture Company itself.
43. At paragraph 19 of the Re-Amended Particulars of Claim, Hexagon alleged that the Defendants over time failed to comply with their obligations under the AJVA which required steps to be taken as soon as “reasonably practicable” and imposed a time limit on completion of the Project. Specifically:
“(a) the Defendants did not (i) proceed immediately or at all to incorporate the Joint Venture Company as required by the terms of the [AJVA]; and (ii) nor did they do so as soon as reasonably practicable….
(b) the Defendants did not: (i) execute the Shareholders’ Agreement as required by the terms of the [AJVA]; (ii) nor did they do so as soon as reasonably practicable…
(c) the Defendants did not; (i) execute the Sale and Purchase Agreement in accordance with the [AJVA]; and (ii) nor did they do so as soon as reasonably practicable….
(d) the Defendants did not: (i) use their best endeavours in good faith to complete the aforesaid steps and procedures; and (ii) nor did they do so as soon as reasonably practicable after 5 May 2004.
(e) the Defendants failed to promote the Project (clause 3.3), given the aforementioned breaches in this paragraph 19.
The breaches were referred to as the “Clause 3 Breaches” and there was cross reference, in the case of each, to specific sub paragraphs in paragraph 18 of the pleading.
44. Because of the nature of the case being pursued, it is necessary to set out the terms of paragraph 18 of the Re-Amended Particulars of Claim in full:
“18. The Claimant spent substantial time, effort and money in progressing the Joint Venture, including undertaking market and feasibility studies, developing a design concept, appointing designers, project managers and construction consultants. The Claimant also extensively engaged with the Defendants with respect to the Project, including engaging with respect to the preparation of the Shareholders’ Agreement, making presentations with respect to the Project and pressing for the Project to progress. The best particulars that can be given pending disclosure and/or witness statements are:
(a) between January 2006 and March 2007, as set out in an email dated 26 March 2007 from Mr Moukaddem, Director of the Claimant, to Mr Abdullah Al Majed (shareholder in Ruby) and Mr Papadopoulos (shareholder in Gate), enclosing correspondence and recording forty-six communications between the parties, the Claimant repeatedly called on the Defendants informed the Joint Venture Company. At a meeting held on 11 December 2006, Mr Moukaddem followed up with the Defendants about previous discussions concerning the formation of the Joint Venture Company. On sixteen December 2006, a draft Shareholder’s’ Agreement was sent by the Claimant to the Defendants.
(b) In a communication dated ten March 2007, Mr Moukaddem reminded Mr Ferris, then Chief Legal Officer of the Defendants, of the need for the Defendants to comply with their obligations and incorporate the Joint Venture Company top as a practical matter, the Defendants were the only parties who could authorise and complete the incorporation of this entity; their special authorisation was needed to incorporate the Joint Venture Company in the DIFC.
(c) On 7 May 2007, Mr Mehta, at the time a legal adviser to the Claimant, met with the Defendants’ Mr Ferris to discuss the draft Shareholders’ Agreement. Following this meeting, on 8 May 2007, Mr Mehta sent by email to Mr Ferris a “draft of the shareholders agreement which was prepared long time ago”. On 4 June 2007, a further meeting between the Claimant and the Defendants was held, attended by Mr Mehta on behalf of the Claimant, to discuss the draft Shareholders’ Agreement. A further meeting was planned for 6 June 2007, at which incorporation of the Joint Venture Company was to be discussed, so that the draft Shareholders’ Agreement would be finalised. In an email dated 22 June 2007, Mr Abdullah Al Majed wrote to Mr Barazi, Managing Director of the Second Defendant, expressed frustration at the lack of progress made to finalise a draft Shareholders’ Agreement and say previous meeting in mid-April 2007 and requested a meeting the following week to finalise “pending matters”.
(d) Following meetings held onto and 8 July 2007 between the Defendants and TPM, the then project construction managers, agreeing on various completion matters in relation to the Project, Mr Abdullah Al Majed telephoned Mr Al Khayyat of the Defendants on 10 July 2007 to request documents Mr Khayyat had promised to send to the Claimant for the purposes of completing the Shareholders’ Agreement. This request was repeated again by the Claimant in an email from Mr Abdullah Al Majed to the Defendants dated 11 July 2007, reporting that there is “strong pressure from the partners to finish” the draft Shareholders’ Agreement.
(e) By emails dated six and 9 December 2007, the Claimant’s Mr Abdullah Al Majed and the defendants stripping Mr Khayyat exchange comments on the draft Shareholders’ Agreement. A draft of the Shareholders, Agreement was circulated by the Claimant to the Defendants in track changes on 23 December 2007, following which there were email exchanges on twenty-seven and 29 December 2007 between Mr Sulyman Al Majed (shareholder in Ruby and brother of Mr Abdullah Al Majed) and Mr Barazi, where Mr Barazi was seeking to change the rates because of a delay in signing the Shareholders’ Agreement, even though the reasons for the delay had been caused by the Defendants are set out above.
(f) On 16 January 2008, Mr Mehta and Mr Khayyat met to discuss the draft Shareholders Agreement circulated on 23 December 2007. Mr Mehta followed up by email the next day in which he set out the discussions and noted “once the Shareholders Agreements is finalised then we could promptly finalise the S PA”. Mr Mehta followed up by email on 21 January 2008, making clear that the Claimant was chasing to get these documents finalised; “please send us the revised agreement ASAP”.
(g) A draft Shareholders’ Agreement dated 19 February 2008 was signed by the Second Defendant and CHL. This was not an executed agreement because it was not signed by all the necessary parties, including the Joint Venture Company, which was unable to sign or ratify it because the Defendants never incorporated the Joint Venture Company in breach of their obligations under the JVA as amended.
(h) In an email to Mr Fairooz, of the Defendants on 31 December 2009, referring to a meeting on 8 September 2009, Mr Elfadil, Tanmiyat’s then Deputy CEO, set out his concerns regarding the Defendants’ failure to engage fully with its obligations under the JVA as amended and reflected in the draft Shareholders’ Agreement and noted that “the NewCo was expected to be incorporated in the DIFC en/about 15 March 2008. Today we are entering 2010 and this NewCo has not been incorporated yet. This situation is not healthy for all parties.” The Claimant’s legal representatives, King & Spalding, produced two memoranda dated 21 March 2010 and 26 April 2012. Both documents called for the Defendants to comply with the Project Structure as set out in the JVA as amended, including the incorporation of the Joint Venture Company, completion of the Shareholders’ Agreement and the S PA. The transfer of the Project Land pursuant to the S PA was completely in the defendants’ hands, given that only the Defendants owned or had control over that land.”
45. A number of unpleaded allegations were pursued by Hexagon in the evidence adduced by it in the shape of witness statements from Mr Abdullah Al Majed, Mr Elfadil, and Dr Abdel Karem Jemah (Dr Jemah). These centred on delays to the Project allegedly caused by the Defendants in relation to determination of the GFA (Ground Floor Area), the Affection Plan relating to a road on the north-east border of the Project Land and the “Use- Mix” of the development (meaning the mix of use between office, residential, retail and hotel space). It was unclear how such matters were intended to fit within the case pleaded, particularly as these points were pursued in Hexagon’s skeleton argument under a section entitled “DIFC Defendants thwarted the Project by stealth”. At best it appeared to me to be an attempt to rely on unpleaded matters to establish a lack of good faith on the part of the Defendants taking the form of deliberate or contumelious action designed to delay the Project because the Defendants had no intention of complying with their contractual obligations under clause 3.
The Case which Hexagon must establish
46. The effect of the JVA, as amended by the AJVA is that the clause 3 obligations which are alleged to have been breached by the Defendants in such a way as to entitle Hexagon to terminate the Joint Venture on 19 November 2018, are good faith best endeavours obligations only. Clause 3.2 of the JVA, by reason of the amendment in clause 2.5.1 of the AJVA, required the Parties to use their best endeavours in good faith to complete the steps and procedures set out in clause 3.1 as soon as reasonably practicable after 5 May 2004.
47. Article 59(2) of the DIFC Contract Law defines an obligation to use best efforts as a duty “to make such efforts as would be made by a reasonable person of the same kind in the same circumstances”. if “best endeavours” is given the same meaning as “best efforts” (and I can see no material difference between the two forms of words) each of the Parties was bound to make such efforts as a reasonable entity in its position would do in the same circumstances. The circumstances in question plainly include the existence of the AJVA and the terms agreed between the Parties as set out therein, which governed their relationship. The question which arises is how that duty relates to any issue of negotiation of terms for which the AJVA makes no provision or re- negotiation of the very terms of it. Each had to use its best endeavours in good faith to:
47.1. Proceed immediately to incorporate the Joint Venture Company in either Dubai Internet City or DIFC with the costs and expenses be borne by Hexagon (clause 3.1.2 of the JVA as amended).
47.2. Execute a Shareholders Agreement in a form prepared by Nexus in accordance with the provisions of Schedule D and approved by the Defendants and Hexagon (clause 3.1.3 of the JVA as amended).
47.3. Execute and procure the execution by the Joint Venture company of the Sale & Purchase Agreement prepared by the Defendants in accordance with the provisions of Schedule C and approved by Nexus with the issue of shares in the Joint Venture Company as the consideration for the sale of the Project Land (clause 3.1.4 of the JVA as amended).
48. Both of the obligations set out in subparagraphs 2 and 3 of the preceding paragraph, involved reaching an agreement to be executed, within the confines of what appears in Schedule D and Schedule C to the AJVA. In so far as the AJVA left Nexus’ JVA obligations intact, after Nexus had procured Hexagon to adhere to the JVA in its amended form when the latter executed the AJVA (as provided by clause 3.1.1 of the JVA), Nexus still remained bound to comply with the provisions of clause 3.1.2, 3.1.3, 3.1.4 and 3.1.5, as a 2.5% shareholder in the putative Joint Venture Company, as did Hexagon, in addition to the Defendants. The obligations in each of the subclauses rested on all the “Parties”, which included Nexus and Hexagon as well as the Defendants. Since the obligations were mutual obligations, in order to make good its case, Hexagon has to establish that the failures to incorporate the Joint Venture Company, to execute the prescribed Shareholders Agreement, to execute the Sale & Purchase Agreement and to transfer the Project Land to the Joint Venture Company, all in accordance with the provisions of the AJVA, were caused by the Defendants’ failures to use their best endeavours in good faith to achieve those ends and not for any other reason.
49. As originally envisaged in the JVA, the clause 3.1 obligations were all to be fulfilled within a period of twelve weeks from the Effective Date (which was the date by which Nexus was to have identified (and the Master Developer was to have approved) an Investor who was willing and able to invest the Total Project Capital, by way of liquid finance, into the Joint Venture Company in return for paid-up shares in the Joint Venture Company. The Effective Date was not to be more than twelve months from the date of the JVA, although that provision was capable of extension by agreement between the Parties. It was a condition precedent that this provision be fulfilled before the clause 3.1 obligations were come into effect. This was changed by the Amendment Agreement, some five months later, which provided that the condition precedent was satisfied and the date of the Amendment Agreement itself was to be the Effective Date.
50. The amended terms provided for the Parties to use their best endeavours in good faith to complete the clause 3.1 steps “as soon as is reasonably practicable”, save that they were to use their best endeavours to “proceed immediately to incorporate a limited liability company with the minimal capitalisation required to serve as the Joint Venture Company”. Plainly an off-the-shelf company was envisaged, whilst the form of any Shareholders Agreement and Sale and Purchase Agreement was prescribed by reference to the Schedules to the AJVA. Since the essential commercial terms were agreed in the AJVA, with various current assumptions set out in Schedules E/F, it may be that no difficulty was foreseen at that time in executing such agreements, with the Shareholders Agreement to be prepared by Nexus and approved by DIFCA and Hexagon and the Sale & Purchase Agreement to be approved by Nexus, each in accordance with Schedules D and C respectively, since this was expected to occur within a very short timescale. By the time the UBOs had come onto the scene in late 2006 however, more than 2 ½ years had passed and life had moved on. Mr Radpay had died in 2005 and the Parties appear quickly to have informally agreed that Nexus should play no further role in the Project and should be bought out if possible. The role of Nexus therefore, acting as a control mechanism in relation to these contemplated agreements, would thus be left unfulfilled.
51. That meant that from December 2006 onwards, the terms of any Shareholders Agreement and Sale & Purchase Agreement had to conform to Schedules D and C respectively and be approved by the Parties, with the need for negotiation of any terms for which the AJVA did not provide but which were seen as necessary for the Project to proceed and any variation of the terms of the AJVA that one party or the other desired. As appears later in this judgment, the UBOs of Hexagon wanted, from the outset of their involvement, to obtain better terms than those in the AJVA. In reality, the setting up of a Joint Venture Company, simply as an “off-the-shelf” company would be a straightforward matter but would serve little or no purpose in the absence of an agreed and executed form of Shareholders Agreement and agreed Articles of Association, governing its operation, whilst the Sale & Purchase Agreement and transfer of title to the Project Land could not be brought to fruition until that had been finalised. Any incorporation of a Joint Venture Company without agreement on the form of its Memorandum and Articles of Association and a Shareholders Agreement which set out the terms of the shareholdings and the capital to be provided, as well as the governance of the company by its members and Board of Directors would not be very useful in the context of making progress on the Project of developing the Project Land and particularly when financing was considered. As was recognised in evidence by Mr Elfadil, and in exchanges between the parties from some date in 2007 onwards, the priority had to be negotiation of the terms of the Shareholders’ Agreement which would provide the basis of the operation of the Joint Venture Company, the sale and purchase of the Project Land and the progress of the Project itself.
52. It will be noted that clause 3.1.3 required Nexus to prepare a Shareholders Agreement in accordance with the provisions of Schedule D and that this be approved by both the Defendants and Hexagon. Nexus, in the absence of Mr Radpay, never took any initiative to fulfil this obligation and was never approached by either of the Parties to do so. The AJVA required a draft Shareholder’s Agreement in a form which complied with Schedule D for execution by the Defendants. It is not said that any such agreement complying with Schedule D was ever produced at any time, let alone one drafted by Nexus and approved by both Hexagon and the Defendants.
53. There had, however, to be agreement between the Defendants and Hexagon on the terms of such a Shareholders Agreement and it is trite law that a bare agreement to agree is unenforceable. The AJVA required the Shareholders’ Agreement to conform to Schedule D, but what if Schedule D did not provide for all that the Parties considered necessary for the Project to go ahead? What obligations then lay on the Parties? What if the provisions of the AJVA did not reflect current economic conditions because life had moved on since the AJVA was concluded? In the ordinary way, a claimant cannot succeed on the basis that a defendant has failed to negotiate reasonably or to agree on the form of an agreement, whether or not it is in a form that the claimant considers reasonable or desirable, on the basis of an agreement to agree or negotiate. Where there is an obligation to use best endeavours, as set out above, in good faith to execute a Shareholders Agreement, how does that operate as a matter of law and what does any such obligation entail?
54. Hexagon relied on authorities to the effect that “best endeavours” equated to “leaving no stone unturned” and the need for a party to “do his best, not his second-best”. It was said, in reliance upon various dicta, that the obligation involved doing “all that a party reasonably could” which “might involve some commercial sacrifice”. The obligation required a party “to take all the reasonable courses he can”, or “to take all those steps in its power which are capable of producing the desired result”.
55. Hexagon also relied upon the requirement of “good faith” in the exercise of those “best endeavours”. The concept of “good faith” appears in a number of contexts and it is always said that its content must depend upon the context. Whilst Bingham LJ (as he then was), in Interfoto Picture Library Ltd v Stiletto Visual Programs Ltd  1 QB 433, observed that the concept of good faith in a contractual situation was conveyed by colloquialisms such as “playing fair”, “coming clean” or “putting one’s cards face upwards on the table”, it was in essence, he said, “a principle of fair and open dealing”. In such circumstances a party must act honestly and be faithful to the parties’ agreed common purpose as derived from their agreement. In the context of the exercise of a contractual discretionary power, particular elements of this duty may be applicable, but the real issue which this dispute raises is how an obligation “to use best endeavours in good faith” can take effect where the obligation rests equally on two parties to reach an agreement. There is an obvious difference between the position where one party may be under an obligation to use best endeavours in good faith to seek to reach agreement with a third party and the situation where both parties to an agreement are placed under a similar obligation to reach agreement with one another where their commercial interests are almost inevitably going to be adverse. Such matters have been the subject of judicial comment in recent years.
56. Before considering the authorities, it seemed clear to me that, whatever else the obligation might entail, it could not involve an obligation to renegotiate the fundamental terms of the commercial agreement already reached between the parties. As indicated earlier, if each of the Parties is bound to make such efforts as a reasonable entity in its position would do in the same circumstances, the most important circumstance must be the agreement already reached between them by which they are already bound and on which they are entitled to rely and to enforce. Of course, it is always open to parties to agree to vary a contract, but an obligation to use best endeavours in good faith to execute a subsidiary agreement such as the Shareholders Agreement cannot, on any sensible view, require a party to renegotiate the terms of the governing agreement of the AJVA which provides for such a good faith best endeavours obligation. The whole commercial basis of the AJVA required Hexagon to provide the project capital and working capital by way of liquid finance for the Project and for DIFCA to provide nothing more than the Project Land. The Joint Venture Company was not to borrow and the shareholdings of the Parties were fixed by reference to the Estimated Project Capital and the agreed Purchase Price for the Project Land.
57. A shareholders agreement could make provision for any number of obligations, including terms relating to the extent of the Parties’ shareholdings, their financial obligations to the Joint Venture Company and to each other as well as to the governance of the Joint Venture Company. The starting point however would always be the AJVA by which the Parties were bound and the terms of Schedule D which set out the essential principles for its Corporate and Management Structure. The terms of clause 3.1.3 specifically required the Shareholders Agreement to be in a form which accorded with the provisions of Schedule D. There could therefore be no requirement, under a “good faith/best endeavours” obligation to execute a Shareholders Agreement which was in conflict with Schedule D.
58. What provisions in the AJVA existed which required or envisaged further agreement between the Parties, apart from the Shareholders’ Agreement and Sale & Purchase Agreement? As set out above, paragraph 6 of Schedule D did set out the capital requirements of the Joint Venture Company and the contributions of the parties. There was also provision in paragraph 6 of Schedule D of the JVA for the Shareholder Agreement to “more fully enunciate the arrangements for the investment of liquid finance by the Investor to ensure the timely availability of the funds to undertake the construction and completion of the Project” but that point went only to the timing of such investment and the need for such finance could be readily ascertained as construction proceeded, so that there was no uncertainty problem inherent in that provision. The liquid finance was expressly to cover the Total Project cost (project capital and working capital), with only the Project Land being provided by the Defendants. There was to be no borrowing by the Joint Venture Company at all and it was accepted that this meant that the Project Land could not be used, under the AJVA, as security by Hexagon in respect of any loans it obtained in order to put liquid funds into it. There was a further provision at the end of paragraph 6 that “additional capital requirements” above and beyond those covered by paragraph 6 of Schedule D should be met in a manner as resolved by the shareholders, but that did not suggest any variation of the rest of the provisions of the paragraph and it is indeed hard to see what additional capital requirements could arise in addition to the “project capital” and “working capital” for which express provision was made.
59. The only other provision within Schedule D which suggested the possibility of any agreement to vary its provisions is contained in paragraph 2. That paragraph provided that the percentage shareholdings were based on the current Project Computations set out in Schedule E, reflecting the ratio between the Purchase Price of the Project Land and the Estimated Project Capital set out in that Schedule. Changes to either the Purchase Price or the Estimated Project Capital were envisaged as possible which could necessitate adjustment of the percentage shareholdings of the Parties, but there was no obligation on the Parties to agree to any variation of the Project Computations in the shape of the Estimated Project Capital or the Purchase Price of the Project Land. In the case of delay leading to increased costs of construction or the value of the Project Land, one Party or the other, or possibly both might want such a variation, but it was not envisaged that there would be much delay in putting the AJVA into effect in executing the documentation required by it.
60. That subparagraph of paragraph 2 of Schedule 6 merely provided that “the Parties and the Investor may mutually agree to a variation to any one or more elements of the Project computations, thereby necessitating a consequential adjustment to the above shareholding percentages based upon a revised Purchase Price relative to the Total Project Capital”, without imposing any obligation to reach such an agreement. If the provision remained extant, as the Defendants submitted it did, it did not impose an obligation to vary the Estimated Project Capital or Purchase Price in the event of changes in the construction costs or market value of the Project Land, but only provided that the Parties might do so. It was, however, part of Hexagon’s case on damages, that the second subparagraph in Schedule D to the JVA was deleted by clause 2.1.1 of the Amendment Agreement, so that Hexagon’s share was fixed at 80% by the Amendment Agreement and not subject to any possibility of variation within the framework of the AJVA. On either view, however, the Parties were not obliged to renegotiate under this provision and since the “best endeavours” obligation in clause 3.2 related only to completion of the steps and procedure set out in clause 3.1 of the AJVA, it could not bite on it, in any event.
61. Hexagon was never clear as to the precise content of this obligation to use best endeavours to complete the steps set out in clause 3.1 and merely pleaded breaches on the part of the Defendants in paragraphs 18 and 19 of the Re- Amended Particulars of Claim, without alleging how the Defendants were alleged to have breached the obligation, save by failing to respond to its requests and demands in relation to its proposals of terms for the Shareholders Agreement. It was not said expressly that it was a breach by the Defendants not to agree to Hexagon’s proposals for a shareholders’ agreement in the circumstances prevailing at the time of each proposal or even alleged that the Defendants were unreasonable not to have done so. The refrain was of “a failure to engage”
62. I do not see how a party can be obliged under a best endeavours clause of this kind to accept a proposal which departs from the terms of the specified provisions that have been agreed, nor to respond to a proposal of that kind, whatever the change in circumstances. In this case the specified provisions were those set out in Schedule D to the JVA. It may very well be that economic circumstances change over a period of time so that the Project Computations no longer reflect the economic realities of the current situation. In such circumstances the Parties might well agree to a variation of the AJVA (as they did when amending the JVA) but I cannot see that they would be bound to do so. Furthermore, the fundamentals of the AJVA, involving the provision of the Total Project Cost by Hexagon and the limitation of the contribution of the Defendants to the provision of the Project Land, are not matters which a party could reasonably be expected to agree to change. They fall outside any “gap” in the AJVA which needs filling or any provision in the AJVA which envisaged modification. No Court could decide on what was a reasonable contribution by each party to the Project Costs, whether directly or indirectly through the joint Venture Company, or what level of borrowing should be permitted the Joint Venture Company, which would affect the profit of both parties, diminish the price paid by Hexagon for its shares and increase the contribution of the Defendants towards the construction costs, when the AJVA provided that they should only contribute the Project Land. This was the fundamental source of disagreement between the Parties from the moment that the current UBOs started negotiations in relation to the AJVA which they had inherited when they bought into Hexagon.
63. As a matter of construction of the AJVA, the good faith/best endeavours duty cannot require a Party to vary the terms of the AJVA, whether or not it is effective in relation to efforts to seek agreement on ancillary matters in the Shareholders Agreement which are not catered for in the AJVA. The obligation, as framed, however is an obligation which can only oblige the Parties to achieve the result provided for in clause 3.1.3 in relation to the Shareholders Agreement, namely to execute such an agreement “in a form prepared by Nexus in accordance with the provisions of Schedule D”. Moreover, if any duty of the kind suggested could arise, untrammelled by the AJVA, it could only be an obligation to negotiate, amounting to an agreement to agree, without content.
64. I cannot see therefore that there is any basis for saying that there is an obligation of any kind to negotiate new Project computations, let alone any relevant aspect of funding project or working capital or financing. What was clearly envisaged by the terms of the amended clause 3.2 was the exercise of best endeavours to execute a shareholders’ agreement which was perceived to be a largely mechanical exercise in transposing the terms of Schedule D into the Shareholders’ Agreement. If there was scope for disagreement about any other terms to be included in that agreement, then Nexus would effectively be the arbiter with the parties obliged to use their best endeavours in good faith to approve and execute a document which complied with Schedule D but contained ancillary and subsidiary terms which Nexus had drafted.
65. There is a real oddity in the situation where clause 3.1.3 requires Nexus to prepare the Shareholders Agreement, since the Parties wished to exclude Nexus from the Joint Venture Company and the Project entirely. Nonetheless, clause 3.1.3 gave Nexus a role which was never altered and the question must arise as to whether or not the Parties were bound to execute a shareholders’ agreement which was prepared by someone else, although in practice if agreement could otherwise be reached on its terms, this would not be seen as a problem.
66. When regard is had to the authorities, I am fortified in my conclusions. An obligation to negotiate is unenforceable as a matter of DIFC contract Law. Certainty of terms is a requirement for a valid binding contract. Whilst there are exceptions to the principle that an obligation to negotiate in good faith, as a matter of English law, is unenforceable, the exceptions fall within narrow confines. Longmore LJ, in Petromec Inc v Petroleo Brasileiro SA Petrobras and others  EWCA Civ 891, identified three traditional objections to such clauses, finding that an express obligation to negotiate in good faith might be enforceable. The first objection was that an agreement to agree was too uncertain to be enforceable. The second objection was that it would be difficult if not impossible to say, if negotiations had come to an end, whether that was the result of a good faith or bad faith termination of one party or the other. The third objection was that it could never be known whether such good faith negotiations would have produced an agreement or not, or what the terms of any such agreement might have been, so that it would be impossible to assess the loss caused by a breach. In the case before him, he did not consider those difficulties insurmountable essentially because the costs which were to be negotiated related to the upgrade of an oil rig in accordance with a specification and which were relatively easy to ascertain.
67. Subsequent decisions of the Courts have pointed to two other major difficulties. The first is that there is no objective criteria by which a court can decide whether a party has acted unreasonably in the context of a negotiation of a contract where the object can only be seen as the reaching of an agreement, and whether it has therefore exercised good faith best endeavours to reach an agreement. The second is that a duty to negotiate in good faith is inherently inconsistent with the position of a negotiating party which seeks to advance its own interests, which inevitably must, to a greater or lesser extent, conflict with the interests of the other party. See the judgment of Teare J in Charles Shaker v Vistajet Group Holdings SA  2 All ER (Comm) 1010 at  and . It is obvious that a party which is in negotiation with another will act in its own interest, however much it may also take into account the interest of the other party. Where there is an existing contract which gives it a financial advantage, it cannot be required to give that up (seeGold Group Properties Ltd v BDW Trading Limited  EWHC 1632 at  and what yardstick would have a court have to determine the basis upon which any agreement should be concluded between the parties in those circumstances?
68. The point is made clearly by Andrews J (as she then was) in Dany Lions Ltd v Bristol Cars Ltd  EWHC 817 (QB) at :
“These two essential requirements of certainty of object and a yardstick by which to measure the endeavours are applicable across the board, whatever the object may be. They will not be satisfied in a case in which the object is a future agreement with the other contracting party, because even if the first requirement is satisfied (e.g. there is a draft contract on the table) the second will not be… They may be satisfied if the object is a future agreement with third party, but such cases are likely to be exceptional because of the difficulty of satisfying both requirements. If the essential terms of the prospective agreement with the third property are identified in advance, there may be both the requisite certainty of object and sufficient criteria by which to judge the endeavours. If those terms are left open the negotiation, satisfying the second requirement is just as problematic as it would be in a case where the prospective agreement is with the other contracting party, and for precisely the same reasons”.
69. Whilst Leggatt J (as he then was) disagreed with this dictum in the context of best endeavours to secure third party contracts inAstor Management A G v Atlalya Mining plc and others  1 All ER 547, it seems clear to me that there is a significant difference between the two situations because the court has only to decide, in the context of an obligation to use best endeavours to reach an agreement with a third party, whether the obligor has done all it reasonably good, whatever the stance taken by the third party. Where the obligation rests on two parties to a contract however, the adverse interests of each makes it impossible for the court to find a yardstick by which to assess whether each has acted reasonably or exercised best endeavours to reach an agreement with the other.
70. The fundamental difficulty is that agreements to agree and agreements to negotiate between parties are not generally enforceable and the addition of a best endeavours obligation cannot change that, as a number of judges have pointed out. As Potter LJ said inPhilips Petroleum Company United Kingdom Ltd v Enron Europe Limitedat page 14 of the transcript dated 10 October 1996:
“ the unwillingness of the Court to give binding force to an obligation to use “reasonable endeavours” to agree seems to me to be sensibly based on the difficulty of policing such an obligation, in the sense of drawing the line between what is to be regarded as reasonable or unreasonable in an area where the parties may legitimately have differing views or interests, but have not provided any criteria on the basis of which a third party can assess or adjudicate the matter in the event of dispute. In the face of such difficulty, the Court does not give a remedy to a party who may with justification assert, “well, whatever the criteria are, there must have been a breach in this case”. It denies the remedy altogether on the basis of the unenforceability in principle of an obligation which may fall to be applied across a wide spectrum of arguable circumstances. This case seems to me to afford a good example of the wisdom of that approach.”
71. In order to justify its termination of the AJVA on 19 November 2018, Hexagon must bring itself within the terms of Part 8 of the Contract Law, DIFC Law No. 6 of 2004 and establish a fundamental non-performance of the contract by the Defendants.
71.1. Article 77 defines non-performance as a “failure by a party to perform any one or more of its obligations under the contract, including defective performance or late performance.
71.2. Article 78 provides that “a party may not rely on the non-performance of the other party to the extent that such non-performance was caused by the first party’s act or omission or by another event as to which the first party bears the risk. Article 79 provides that where the parties are to perform simultaneously, either party may withhold performance until the other party tenders performance and where the parties are to perform consecutively, a party that is to perform later may withhold its performance until the first party has performed.
71.3. Article 86 (1) provides that “a party may terminate the contract where the failure of the other party to perform an obligation under the contract amounts to a fundamental non-performance.”
71.4. Article 86 (2) provides that, in determining whether a failure to perform an obligation amounts to a fundamental non-performance, regard shall be had, in particular, to whether the non-performance substantially deprives the aggrieved party of what it was entitled to expect under the contract; whether strict compliance with the obligation which has not been performed is of essence under the contract; whether the non—performances intentional or reckless; and whether the non-performance gives the aggrieved party reason to believe that it cannot rely on the other party’s future performance.
71.5. Article 86 (3) provides that in the case of delay, an aggrieved party may terminate the contract if the other party fails to perform before the time allowed under Article 81 has expired. Article 81 provides that where there is non-performance, an aggrieved party may give notice to the other party requiring performance in a specified period of time and may terminate if there is refusal within that time or a failure to perform within that time, provided that the time in question is of reasonable length. (It is not suggested that any such notice was given here.)
71.6. Article 87 (1) provides that the right to terminate is exercisable by notice to the other party and Article 87 (2) provides that if performance has been offered late or is otherwise nonconforming, the aggrieved party will lose its right to terminate the contract unless it gives notice of termination to the other party within a reasonable time after it has, or ought to have become, aware of the nonconforming performance.
71.7. Article 88 (anticipatory non-performance) provides that where, prior to the date for performance by one of the parties, it is clear that there will be a fundamental non-performance by that party, the other party may terminate the contract.
72. It is therefore necessary to identify the particular breaches of contract on which Hexagon relies and to determine how they are to be characterised, namely whether there is non-performance by reason of failure to perform, defective performance or late performance, whether there is a fundamental non-performance within the meaning of Article 86 which would entitle termination or whether there has been anticipatory non-performance where, prior to the date for performance, it is clear that there will be non-performance. Those breaches pleaded by Hexagon have been set out above.
73. The first point to note is that each of the obligations in clause 3 which were allegedly breached required actions to be taken within a specified time, in the sense that best endeavours in good faith had to be made to complete the specified steps “as soon as was reasonably practicable”. Whereas clause 3.1 of the JVA required the steps to be taken “as soon as is reasonably possible after the Effective Date”, clause 3.2 of the AJVA required the parties to use their best endeavours in good faith to complete those steps “as soon as in (sic) reasonably practicable after the date of this Amendment Agreement”, being 5 May 2004. As to when such a breach allegedly first occurred, reference must be made to the Re-Amended Particulars of Claim.
74. When each of the mutual obligations is considered, how long a period could be covered by the words “as soon as reasonably practicable”? Bearing in mind the date of the AJVA, which itself was 5 months after the AJA and the provision in the AJVA that the construction would take 4 and a half years after execution of the Sale & Purchase Agreement, it might well be thought that the period to effect the steps required by clause 3 would long since have expired before any steps were taken by the UBOs in relation to them, said to be in 2006-7. The Parties did not specifically address me on this, but on any view that period would, in my view, have expired before the 2008 SHA was signed. In practice, though no allegation of waiver was pleaded or debated and because there were mutual obligations which depended on agreement between the Parties on a number of issues, the Parties must be taken to have disregarded if not formally waived the requirement for such steps to be taken “as soon as reasonably practicable”, when entering into the negotiations that they did, both in respect of the 2008 SHA and in all the subsequent negotiations prior to June 2012, when the Defendants took the view that the AJVA had come to an end by effluxion of time and the failure of the Parties to take the steps required by it. The Parties continued to act on the basis of the AJVA until the execution of the 2008 SHA, and thereafter, as appears from the evidence, acted on the basis of that latter agreement, notwithstanding that it was ineffective to bring the AJVA to an end. This treatment of the 2008 SHA as binding did not come to an end until 2012 when Hexagon sought to renegotiate the terms of the AJVA and the 2008 SHA to achieve a deal better suited, as it saw it, to the circumstances then prevailing, following its earlier attempt in 2010 when it proceeded on the basis that the 2008 SHA was effective.
75. Hexagon, in its Re-Amended Particulars of Claim sought a declaration that the AJVA was lawfully terminated by it and claimed damages consisting both of reliance loss and loss of profits but put forward those heads of loss as alternatives in its skeleton argument. It also pursued an alternative claim for restitution either as a remedy for breach of contract or for unjust enrichment in relation to both of those heads of damage. At paragraph 19 of the Re-Amended Particulars of Claim, it is alleged that the Defendants, over time, failed to comply with their obligations under the AJVA which required steps to be taken as soon as reasonably practicable and imposed a time limit on completion of the project. As set out above, breaches of Clause 3.1.2, 3.1.3 and 3.1.4 were alleged by reference to failures: to proceed to incorporate the Joint Venture Company immediately, as soon as reasonably practicable or at all; to execute the Shareholders’ Agreement or to do so as soon as reasonably practicable; and to execute the Sale and Purchase Agreement or to do so as soon as reasonably practicable. At subparagraph (d) of paragraph 19, Hexagon alleged that the Defendants did not use their best endeavours in good faith to complete the aforesaid steps and procedures or do so as soon as reasonably practicable after 5 May 2004, in breach of Clause 3.2. A further breach of clause 3.3 in failing to promote the Project was also pleaded which was not pursued at the trial. Each of those breaches was pleaded by reference to the sub- paragraphs of paragraph 18 of the Re-Amended Particulars of Claim.
76. Each of the events relied on as giving rise to and/or providing the context in which the breaches alleged in paragraph 18 (a)-(h) took place, occurred at a time more than six years before the Claim form was filed with the Court, even allowing for the period of the Standstill Agreement (as extended). Most of those sub- paragraphs referred to communications allegedly made on behalf of Hexagon requiring the Defendants to take action in relation to the clause 3 obligations. As pleaded, those occurred between January 2006 and 31 December 2009. The first event referred to in paragraph 18 (i) is the production of a memorandum dated 21 March 2010 (the“2010 Memorandum”) to which it is said there was no adequate response. Any failure to respond to these communications, whether by reference to reasonable practicability or a reasonable time must first have occurred at a time well before the six-year limitation period prescribed by statute, even allowing for the standstill agreements concluded between the Parties.
77. There are only two/ three relevant events which could potentially fall within the limitation period, being the failures of the Defendants to respond to the 26 April 2012 Memorandum pleaded in paragraph 18 (i) (the“2012 Memorandum”) and the repeated renunciation in the letters of 12 June and 27 September 2012 (the“Renunciation Letters”). As the 2012 Memorandum repeated almost word for word the 2010 Memorandum, the failure to respond positively to the proposals contained in the former, could be said merely to be a failure to cure the alleged breach in failing to respond positively to the latter and the cause of action in respect of that earlier breach was clearly time- barred.
78. It is noteworthy that Hexagon’s case in its Amended Reply is that Hexagon is not time barred in relation to the clause 3 breaches and Renunciation because the cause of action in relation to them, “whether they were one-time breaches or continuing breaches accrued on 27 September 2012, by which time the Defendants had failed to incorporate the Joint Venture company, failed to enter into a Shareholders Agreement, failed to conclude an SPA and represented that they did not regard themselves as contractually obliged to do so and would not do so”. The earlier version of this pleading alleged that such breaches “crystallised” on 27 September 2012.
79. Hexagon in its skeleton argument submitted that the breaches were continuing breaches from 27 September 2012 (the date of the second Renunciation Letter and the “crystallisation” of the Clause 3 breaches) through to 19 November 2018, but this does not assist its case. A cause of action arises at the earliest point in time at which a claimant can sue for the alleged breach. Moreover, it was made plain in argument that it was Hexagon’s case that from 27 September 2012 onwards, the Parties were seeking to negotiate a settlement of the dispute which had arisen as a result of the Defendants’ breaches. Hexagon maintained that it had reserved its rights to terminate for all those breaches throughout the period until it did actually terminate on 19 November 2018. In those circumstances, it is hard to see how it could rely upon any failure by the Defendants in that period when it rights to sue for those breaches had already accrued, on its own case. This judgment will discuss the limitation defence as a later stage.
80. Hexagon adduced evidence from four witnesses of fact in the form of witness statements. The individuals concerned were: Mr Abdullah Al Majed (“Mr Al Majed”), the current CEO of Tanmiyat Investment Company (“Tanmiyat”), one of the UBOs of Hexagon; Dr Adel Jemah, the CEO of TPM Construction Management (“TPM”) a property development company affiliated to Tanmiyat, which acted as its representative in relation to the Joint Venture Project between June 2008 and January 2013 and which was set up set up by Mr Sulyman Al Majed, the brother of the Mr Al Majed already referred to; Mr Elfadil who was the Deputy CEO of Tanmiyat between March 2009 and 2013; and Mr Hosn a consultant engaged by another of Hexagon’s UBO’s, Mr Abdullah Al Romaizan (“Mr Al Romaizan“) and who was engaged to negotiate a settlement agreement with the Defendants from May 2014 onwards, after Tanmiyat and TPM faded from the picture.
81. The Defendants adduced evidence from Mr Barazi, the Managing Director of DIFCA from 2006 – 2009; Ms Roberta Calarese (“Ms Calarese”), the Chief Legal Officer of DIFCA between February 2011 and November 2014; and her successor, following a gap of nearly a year, Mr Visser, who took up that position on 1 September 2015, where he remains to this day.
82. All the witnesses of fact were cross examined. Each professed varying degrees of actual recollection of events which took place between 3 and fifteen years ago, but Mr Barazi and Mr Calarese originally drafted their witness statements, asking only for documents that they thought they needed, including in particular, the contractual documents recited earlier in this judgment. Their statements did therefore record their recollection of major events and the overall picture as they recalled it before referring to the documents. They were frank as to their absence of recollection on some matters. Where they had recall, it proved remarkably accurate when tested against other documents. The other witnesses all used the documents to refresh their memory and drafted their witness statements accordingly and, in reality, particularly when regaling events which took place more than five years ago were essentially reliant on those documents, subject only to any recollection of the broad picture.
83. Both Parties agreed that the contemporaneous documents were likely to represent the most accurate picture of what occurred but I also have to bear in mind that letters and emails may have been written in the hope of creating a record of agreement, or a record on which to base a claim, where the hope may have exceeded the actuality. Attempts were made by Hexagon’s representatives, to turn informal discussions into agreements, as it seemed to me, where it was obvious that, for the Defendants to be bound, there was a need for them to issue something in writing. There were also, undoubtedly, missing documents, whether as a result of their loss over the course of time or because they were not relied on, not requested or their relevance was not appreciated in the disclosure process because of unpleaded points which were later pursued.
84. In relation to what turned out to be the most crucial period, from 2007-2009, I found Mr Barazi to be a reliable witness who was involved in the legal/ management side, as opposed to the technical side. Whilst the technical teams of each party were meeting to seek agreement on the practical matters relating to the future development, there were important commercial matters which Hexagon and its UBOs wished to renegotiate with the Defendants, which in practice meant that there was limited value in moving ahead with the Project on the ground. Mr Al Majed and Mr Barazi agreed that this renegotiation took place from April 2007 onwards, following earlier negotiation and agreement on an increase in the built up area for the Project land and a change in the shareholdings of the Joint Venture Company.
85. I found Mr Al Majed’s evidence to be, in some places, inconsistent with the documentary record and in such cases I preferred the documentary record. He moved into advocacy from time to time, in failing to acknowledge Hexagon’s desire, from the outset of the UBOs’ involvement to improve on the deal in the AJVA; in failing to acknowledge that there were delays on the part of Hexagon (although he did accept that both Parties were behind schedule in April 2007); in failing to acknowledge the concerns of the Defendants about the ability of Hexagon to carry out the Project; and in failing to accept what the documents showed. He took the view that the Parties’ technical teams engaged with each other but that the Defendants’ management and legal teams were slow, ignoring the fact that it was Hexagon and its UBOs who were seeking to change the basis of the AJVA. In such circumstance there was limited relevance in focussing, as he and Hexagon’s case did, on the failure to incorporate the Joint Venture Company when commercial negotiations were continuing about its capitalisation and financing, whilst accepting that incorporation required mutual co-operation in agreeing Articles of Association, if not a Shareholder’s Agreement. He, nonetheless, wanted the Joint Venture Company incorporated and the land transferred to it as a sign of good faith on the part of the Defendants, even whilst pursuing changes in the commercial arrangements which reflected the requirements for its capitalisation.
86. He accepted that, as a result of the global crisis, having agreed on the 2008 SHA, the UBOs wanted to change its terms, particularly in 2010 and, whilst he professed no recall, accepted that one of the reasons for that might have been to reduce the amount of the upfront investment to be provided by Hexagon (as it plainly was). He effectively accepted that “the deal that was struck in 2008 had to change because of the financial crisis” but, despite the fact that the 2008 SHA was more favourable to CHL than the AJVA, because of the freedom given to CHL to borrow against the security of the Project Land, as opposed to the provision of liquid finance, the freedom given for the Joint Venture Company to borrow working capital and the ability to use any sale proceeds for working capital, so that CHL’s upfront investment was lessened, he maintained that the AJVA did not need to be changed in the light of the global crisis because of its effect on Hexagon’s ability to obtain loans and finance the Project. As, on his own evidence, he ceased to be involved much after February 2009, I did not consider his evidence about possible financing, whether by CSI or others, to be reliable, and, as appears below in relation to the evidence of Mr Elfadil, the documents showed that any potential involvement with CSI came to an end because no financing structure materialised.
87. Dr Jemah gave evidence in relation to the period from June 2008-June 2009 as to the progress made or not made on the technical side in that period. He advanced evidence on the issues relating to the Design Concept, the Affection Plan, the Use Mix and the BUA/ GFA. In his witness statement he said that the Defendants were unresponsive in relation to the Use Mix and the Affection Plan, but the Defendants did not have control over either element as other authorities had to agree to the changes sought. As appears hereafter, there was an air of unreality about his evidence as to delay because the primary cause of delay on the technical side was undoubtedly the failure by PW to produce a concept design with an efficiency in use of space which was acceptable to Hexagon/CHL and which resulted in the termination of their engagement in June 2009. Thereafter no concept design was produced at any stage to the Defendants.
88. In relation to the later periods, Mr Elfadil gave evidence relating to 2009-2012. He argued Hexagons’ case and refused to accept the obvious, which was that Hexagon wished to renegotiate the commercial basis of the deal in 2010 and 2012 or that the 2010 and 2012 Memoranda set out proposals which differed from the 2008 SHA, let alone the AJVA. He refused to accept that the Parties had proceeded on the basis of the 2008 SHA as effective, whilst saying that they treated Hexagon and CHL as being the same. He was not prepared to say when he or Hexagon first considered the 2008 SHA as invalid. He asserted, contrary to the documents which showed that no funding structure ever materialised with CSI, that the Defendants rejected such a structure which meant that Hexagon could not proceed with it. I did not find him a reliable witness. He provided no accurate or reliable evidence of real significance beyond what appeared in the documents.
89. Mr Ghaith Aboul Hosn’s (“Mr Hosn”) evidence on behalf of Hexagon related solely to the negotiations he conducted between May 2014 and 2018 which were all said by Hexagon to be negotiations to resolve the dispute created by the Letters of Renunciation which had not been accepted by Hexagon as bringing the AJVA to an end, but in respect of which, its rights were reserved. He acted as a consultant to one of the UBOs, Mr Al Romaizan, and embarked on negotiations in an attempt to agree a new joint venture agreement in the light of the prevailing circumstances as a settlement, with the alternative of litigation. In his first witness statement, he had said that in 2012, by reference to the AJVA and the 2008 SHA, “it was clear that, given the passage of time and changes in the Dubai real estate market, a new structure would have to be negotiated between the parties for the Project to be economically feasible.” He also stated that, in 2018, the economic circumstances and conditions in the real estate market had irrevocably changed which meant that the original AJVA was unviable, as Mr Visser’s letter of 6 August 2017 had said. Mr Hosn’s evidence was that, going into 2014, Hexagon’s UBOs’ belief was that a new strategy and approach was required.
90. It might be thought that he would, therefore, accept that the proposals advanced for settlement by him were not proposals which were consistent with the AJVA, but he maintained that they merely filled in the gaps in the AJVA, a proposition which was untenable. Later however he accepted that a new structure had to be put in place dealing with the HBU and other commercial/legal matters but declined to say which components needed to change.
91. Whereas in his witness statement he had maintained that Mr Jacques Visser (“Mr Visser”), on two occasions, had denied that the AJVA was valid, in oral evidence he stated that Mr Visser had been careful to negotiate on the assumption that it was, and had never accepted or denied its effectiveness. He denied however that he knew that the Defendants accepted that the AJVA was vaIid, which I did not believe in the light of the King & Spalding request to Deloitte in August 2018 and the email from Mr Alkindi to Mr Hosn himself, which are referred to elsewhere in this judgment. He would not accept that the ICD Brookfield offer of AED 120 million for the Joint Venture rights which reflected the Deloitte valuation obtained by Hexagon itself was a reasonable price, nor that it was independent of the Defendants, nor that the Defendants’ letter of 10 October 2018 was a request to revert to the terms of the AJVA. He acted as an advocate in these respects, and I could not accept his answers, particularly where the documents largely spoke for themselves and showed clearly that what Hexagon was after involved a very different commercial deal from that set out in the AJVA, and that a dominant consideration, from Hexagon’s point of view, was the need for recognition in any deal of the price paid by the UBOs for their shares in Hexagon.
92. Mr Barazi was, I found an honest and reliable witness, not pretending to recall details of events of long before, nor the exact sequence in which events occurred. But his recollection of the general approach adopted by the Parties and the delays on both sides fitted in with the picture given by the documents. He was an astute businessman and I believed him when he said he felt somewhat sorry for the Hexagon UBOs who had paid over $120 million for their shares in Hexagon and were now in difficulty in seeking to make the Project profitable for them in the light of that expenditure. He explained that he extracted benefit for the Defendants as a quid pro quo for the increased BUA in the shape of an increase in the Defendants’ shareholding in the Joint Venture Company in 2007 but that he had made concessions in the 2008 Shareholders Agreement and in the increase in GFA without corresponding benefit for the Defendants, in an attempt to make the Project workable for Hexagon from an economic perspective. These concessions and his overall approach did not support Hexagon’s case that the Defendants failed to act in good faith to implement the AJVA and he was the key individual whose decisions mattered in this respect, apart from the Governor of DIFC. Attacks were made on Mr Barazi’s credit without any foundation in the evidence, which he rebutted and where I had no difficulty in believing his evidence. It was never clearly put to him that the Defendants were never serious in their negotiations, or that they “filibustered” or that there was bad faith on their part- merely that there was delay and some inconsistency in the Defendants’ responses on requested changes and that Hexagon might feel aggrieved about that.
93. Ms Calarese and Mr Visser gave evidence on behalf of the Defendants in relation to the periods from February 2011- November 2014 and September 2015 onwards, respectively. They were hardly challenged in their evidence of fact and despite an attempt to undermine Mr Visser’s credibility, I regarded their evidence as reliable, the former candidly saying she had limited recollection of events and explaining the view she took in 2012 that the AJVA was, by then no longer binding. Whether she was right or wrong about that is neither here nor there in the overall context of the history of this matter, since the Defendants did not maintain that position as a matter of law. The reality is however, that neither it nor the 2008 SHA, were workable from Hexagon’s point of view in the circumstances which unfolded, which is why they sought to renegotiate terms in 2010 and 2012.
94. Hexagon in its closing, focussed on the absence of evidence from Mr Al Najjar, the Director of Projects at the Defendants, and on missing documents which were referred to by Mr Barazi as existing which would show internal discussions on some of the matters put to him in cross examination.
94.1. RDC 28.61 sets out the circumstances in which the Court can draw adverse inferences from the absence of documents. It has no application here. It was not said that the Defendants were in breach of any Court order for disclosure and they were not because the orders of the Court took account of the time bar. Hexagon’s case, as pleaded, was that the cause of action accrued on 27 September 2012, based on the Renunciation Letters and the absence of the executed documents and the Joint Venture Company to which clause 3.1 referred, as at that date. The focus was then, therefore, not on events prior to that year, which it was recognised were time barred. Paragraph 18 of the Reamended Particulars of Claim pleaded calls on the Defendants to incorporate the Joint Venture Company and to execute the Shareholders’ Agreement and Sale and Purchase Agreement envisaged by the AJVA but no pleas were advanced as to what else should have been done and exactly when other than by reference to the date of accrual or crystallisation of the breaches.
94.2. Further, since the key areas of complaint in relation to matters on the ground, rather than commercial renegotiation, which are made now, which are said to contribute to the delay in 2007-2009 in taking these steps were unpleaded, no disclosure would be expected in relation to them, and none was ordered.
94.3. Since Mr Barazi gave evidence in relation to 2009 and all Hexagon’s own evidence showed that nothing much happened in the period from 2010- 2012 after the rejection of the 2010 Memorandum, the invitation extended to the Court to draw adverse inferences against the Defendants, on the basis of evidence which Mr Al Najjar could give, but which Mr Barazi could not, was, in my view, misplaced. Mr Barazi was the senior of the two and gave evidence in relation to the period until he left which was the end of December 2009, although his involvement diminished in the later part of the year. Apart from one email where Mr Al Najjar had maintained adherence to an outdated BUA which was not corrected for two and a half months, I could not see that there was much evidence he could give which would affect the position beyond what Mr Barazi could cover and none which would affect the pleaded position.
94.4. Moreover, Dr Jemah had virtually nothing to say in relation to the 2010-2012 period and neither did Mr Elfadil. As Cockerill J made plain in FM Capital Partners Ltd v Marino  EWHC 1768 (Comm) and in Magdee v Tsvetkov  is EWHC 887 (Comm), for an adverse inference to be drawn there has to be a case to answer on an issue and a case that the missing evidence would be relevant to that issue. Furthermore, reasons must be advanced as to why the missing witness would have material evidence to give on the issue and what evidence the party seeking the adverse inference has actually adduced itself on the matter in issue. The documents relied on by Hexagon did not show any involvement of Mr Al Najjar in events between July 2009 and 4 March 2014, so it is hard to see what evidence he could give above and beyond what Mr Barazi and Miss Calabrese could give and the documents showed. Since his evidence would, in any event, be given some seven – twelve years after the event and he was junior to Mr Barazi, I can see no basis for any adverse inference at all.
94.5. Whereas it was suggested that DIFC put the project on hold in 2010 – 2011, it is clear, as appears below, that Hexagon wished to renegotiate the terms of the AJVA and the 2008 SHA in the light of the global financial crisis and its impact on Tanmiyat’s finances, despite Mr Al Majed’s evidence seeking to downplay the effect. The evidence is explored subsequently but does not show Hexagon pressing throughout that period or any case to answer, based on its own evidence, in respect of that period.
95. In relation to the issue of Use Mix, and a supposed agreement with Mr Barazi, the missing witness for Hexagon was Mr Suliman Al Majed who also could have given evidence about the finances of Hexagon and its ability to fund the Project at different stages in the history. Despite the Court’s order to produce all documents relating to its ability and willingness to invest the Total Project Capital by way of liquid finance, as required by the AJVA, no documents were produced by Hexagon in support of its case that it could and would have done so, other than a cheque made payable to a company said to be owned by the same UBOs. Mr Al Majed and Mr Hosn stated in evidence that the UBOs had hundreds of millions of dollars at their disposal, but no evidence of assets, bank accounts, loan agreements or anything else was produced to support that. I refer to this aspect later in the judgment, but the absence of evidence from Mr Suliman Al Majed was, in the context of the allegations made, more significant than the absence of evidence from Mr Al Najjar.
96. The Parties adduced evidence from two Chartered surveyors, Mr Robin Williamson (“Mr Williamson”) for Hexagon and Mr Brand for the Defendants in relation to Hexagon’s claim for loss of profits on the development envisaged by the AJVA. Mr Williamson had also been involved, when employed by Deloitte, in the production of a Highest and Best Use (“HBU”) Report in 2017 – 2018 in relation to the Project Land. The details of their evidence are explored later in this judgment, but Mr Williamson could give no valid reasons for his approach to assessment of loss of profits and Mr Brand was not cross examined on large areas of his evidence at all.
The Chronology of Relevant Events
97. Little purpose is served in setting out, in full, a detailed narrative by reference to the exchanges between the parties but the essential story must be related which I will do as shortly as possible, although it may be necessary to descend into greater detail in the context of some of the issues which arose.
98. The Register of Members of Hexagon shows that in 2004, Nexus was a 25% shareholder with Shaikh Juma holding the other 75% and that Nexus sold its shareholding to Secure Investments Ltd, a company owned by Mr Al Huquani, in August 2005. According to Mr Al Majed, Nexus was an investment vehicle set up by a former member of the DIFCA Board of directors, Mr Majed Radpay to invest in property developments in the DIFC. The Amendment Agreement dated 5 May 2004 was signed by Mr Radpay on behalf of both Nexus and Hexagon. In June 2005 Mr Majed and his brother were contacted by Mr Al Romaizan who said that Mr Al Huqani was in negotiations to buy the shares in Hexagon from Shaikh Juma. Mr Al Huqani purchased 25% of the shares through his company Secure Investment Ltd and Mr Papadopoulos bought a further 25% through his Jebel Ali Fee Zone company, The Gate Ltd, whilst the remaining 50% were purchased by Ruby Ltd, another Jebel Ali Free Zone company, which was owned 50% by Mr Al Romaizan and 50% by the Al Majed brothers. The purchase price was paid over the course of the ensuing period between July 2005 and in November 2006, Ruby Ltd bought Mr Al Huqani’s shares, all payments being made in cash. In 2003 – 2005, according to Mr Al Majed, the property market in Dubai was booming.
99. Mr Papadopoulos had commissioned Continental Real Estate to carry out a feasibility study shortly before he bought his Hexagon shares. That study was dated 2 July 2005. According to Mr Al Majed, Tanmiyat, the Al Majed’s property development company in Saudi Arabia, which had a turnover of more than Saudi Rial 1 billion per annum in 2005 and a good track record of major development, took the lead in dealing with the Defendants through Mr Moukaddem, who was a business associate of Mr Al Huqani. The Defendants were unaware of the change of ownership of Hexagon until informed of it some time after the event. Between July 2005 and the end of the year, discussions were held with Dewan Architects and Engineers in relation to the provision of architectural and engineering consultancy services and in particular the preparation of technical drawings based on a concept design to be prepared by another entity. By the end of 2005 talks had begun with Gensler on a concept design with Engineering Consultants Group(“ECG”) to be involved in the preparation of detailed technical drawings. On 1 October 2005 ECG sent a quotation for the joint work by themselves and Gensler.
100. There is a letter under the heading “Ruby Ltd” dated Dubai, 12 December 2005, sent via hand delivery and fax transmission to Sheikh Juma. The title refers to the Agreement of 16 July 2005 for the sale and purchase of 6 million shares in the share capital of Hexagon. The letter contains the following wording:
“Pursuant to a meeting of 11 December 2005, I write to confirm that Ruby Ltd will purchase the shares of Dubai International Financial Centre in the Hexagon Project.
Now you are requested to kindly assistance by using your good offices to discuss the purchase of said shares from DIFC”.
101. In handwriting at the bottom of the letter appear the following words:
“Sulyman Al Majed has signed this letter based on the request and pressure from Machour and Fayez to solve the issue of the DIFC plot. “Sulyman Al Majed has confirmed that he will keep on working on a better agreement with DIFC”.
Signatures appear below that note for Mr Makhour Moukaddem (“Mr Moukaddem”) and, Mr Faiz Papadopoulos. From handwriting, it would appear that the note was penned by Mr Moukaddem. Mr Al Majed professed to have no knowledge of this letter, although it was disclosed by Hexagon.
102. In January 2006, according to Mr Al Majed, the Defendant sent Mr Moukaddem a set of documents requested by him including DIFC’s parcel regulations, its procedural flowchart and an environmental impact report. Meetings took place with Gensler in relation to the concept design and requests for proposals were made regarding project management services from six firms in Dubai. From mid-2006 to mid- 2007, Mr Al Majed’s evidence was that there were meetings with Mr Barazi and the then DIFC Governor, Doctor Omar, in relation to the design concept of the project.
103. There is an issue between the parties as to approval given by the Defendants of designs. Mr Al Majed’s evidence was that by June 2006 a decision had been taken to purchase Gensler’s design and on 27 June a meeting was held to present the concept to the Defendants and update them on the results of the responses to the request for proposals for management project services. In his witness statement, Mr Al Majed said that “the DIFC liked Gensler’s design, which was the confirmation needed and we proceeded to purchase the design at the end of June.” As Mr Barazi made plain in his evidence, if the Defendants were to give any formal approvals, they would be given in writing in response to a formal request in writing. Oral discussions would not amount to consent or approval where such was required, nor to an agreement unless put in writing. An email dated 10 June 2006 from AD Engineering Co to Mr Al Majed states that there is a need to arrange a “non- official meeting with DIFC to make sure they approved the design, then we pay $175,000 when we take the design and ECG can develop it to what we need”. There is a Receipt Voucher from Engineering Consultants Group for the sum of $175,000, as received from Tanmiyat against the Concept Design documents prepared by Gensler. It goes on to say that there remains an outstanding amount of $50,000 which is to be paid by Tanmiyat to ECG on obtaining DIFC/TECOM approval on the architectural preliminary submittal. I consider that this is clear evidence that no formal approval of any kind had been given to the preliminary concept design and there is no document showing that a formal application for such approval was ever sought by Hexagon.
104. On Mr Al Majed’s evidence, in this period, the process of appointing consultants, the project manager, the architect and the quantity surveyor was also progressed. The plan apparently was to submit a concept design in mid July 2006 and the end of the design stage to be reached by January 2007.
105. An email from Mr Moukaddem on 12 December 2006 refers to a meeting with the Defendants the previous day at which, he records that the Defendants were to form the Joint Venture Company with Hexagon majority, meaning that it would have a majority on the board. The email records DIFC requesting three things before proceeding to form the Joint Venture Company. They expressed a concern on the ability of Hexagon to fund the project and requested a Project Plan and project delivery dates, a funding plan and evidence of funds. It also records that the Defendants were not very impressed with the Gensler design because it looked similar to that for an existing building in DIFC which was under construction. They required Hexagon to present a different concept design.
106. Mr Moukaddem set out in an accompanying memo to the UBOs a history of the DIFC project from January 2006 to the end of the year, which included reference to a number of reminders sent to the Defendants in relation to the formation of the Joint Venture Company and meetings which had taken place to discuss it, along with details of the owners of Hexagon, where “final shareholders were declared” on 6 December. On 21 December 2006, Mr Ferris, the Chief Legal Officer of the Defendants wrote to Mr Moukaddem with enquiries as to the details of each of the Hexagon shareholders, their financial status and the source of funds to be used to invest in the Joint Venture Company. There was nothing sinister about this, it being the normal form of enquiries for compliance/and team money laundering purposes.
107. An email from Mr Moukaddem to the UBOs on 11 January 2007 records the Defendants pressing for information about the now identified shareholders of Hexagon, the source from which funds were to be used to invest in the Joint Venture Company and financial information regarding the shareholders for compliance purposes. He also referred to the pressure being put on Hexagon to appoint quantity surveyors and project management consultants, and the need for them so that he could finalise a project report, a cash flow and S Curve for the project. He required an urgent meeting in order to proceed. A couple of days later he responded to the Defendants stating that information would be provided as soon as possible, in addition to what had already been given and referring to consultants and quantity surveyors as already appointed, even though that was not the case.
108. The decision had been taken not to hire Engineering Consultants Group and by the autumn of 2006 discussions were taking place with Dewan and in March 2007, DG Jones & Partners were engaged as quantity surveyors. It was in early 2007 that Tanmiyat retained TPM as its owner representative and investigations were made into marketing. On 26 February 2007, Mr Moukaddem emailed the UBOs to say that a lot of delay had occurred “for reasons beyond our control” and that there was the “need to shape up and response quickly” to the pressure being exerted by the Defendants for some progress. The email proceeds:
“We gave them all what they want in a very broad way and we took our time as we agreed we will not commit to show and prove the financial aspect of the letter. Also we did not have a consultant who was ready to give us a project programme nor the QS to put his name on the feasibility study. I have mentioned the urgent need to have them in my letter to you of 18 December 2006. DIFC got all the papers from us and now they are feeling we are not serious about moving forward in the project. They complained about the delay in the overall response to them. They complained about the delay in getting all the papers signed on time. They complained about not having introduced our full team who will run the project from architects, QS and Project Management. They were not convinced that no one of the shareholder is not a director in any other company…… In summary they are not happy because no availability of a team to run the project and they think we are not serious and we are waiting to sell the land and book profit like others.”
Mr Moukaddem continued with his recommendations
“1. open a company to finance the project immediately and inject at least 100,000,000 to prove to DIFC we are ready to move forward;
2. assign an immediate consultant with a good name and who have worked before with DIFC. Definitely not Dewan as in my opinion they are not capable to handle this project. After our several meeting, we believe they will be a big problem especially as they have no idea about DIFC rules and regulations.
3. Assign immediately a PM company and QS with good name to handle such a project.
4. Give us or anyone in Dubai the ability to take decisions and act quickly on behalf of the owners as we cannot keep on getting things done the way it is moving now. Someone have to be dedicated to the project with quick response to daily issues. One person.
I am sure if we do not move, we will lose the project or get into a fight with DIFC and the result will definitely them as a government.
Let’s meet immediately to create the team and get the project moving, or let’s sell it”.
109. On 25 February 2007, there is a letter to the UBOs stating that their representative had received “a very serious call” from the Defendants pressing for an agreement with Gensler and Dewan in relation to the design and for an agreement with the quantity surveyors. Mr Barazi’s evidence was that Hexagon was simply disorganised and incapable of proceeding quickly on a project of this kind which is borne out by Mr Moukaddem’s email to the UBOs and the history as it appears from these documents. Mr Al Majed did not attempt to blame the Defendants for any delay prior to the end of April 2007.
110. In fact, in response to the Defendants enquiries for compliance purposes, only limited information was provided by the Hexagon UBOs in January 2007 and March 2007. No details of source of funds appear to be provided and little or nothing beyond details of the identity of the UBOs and the directorships of three of the four UBO’s. No details of their financial status appear all ever to have been given. In fact, as appears from Mr Moukaddem’s email of 26 February 2007, referred to above, financial details appear to have been deliberately withheld. The Defendants, as Mr Barazi explained, found it difficult to believe that the UBOs could possibly have paid such a large sum for their shares in Hexagon in order to obtain the rights granted to it under the AJVA but, on provision of cheques and bank statements in relation to payment, were, in due course, persuaded that this was the reality. What this did not do however was to create any assurance that, having paid that sum, funds would be available for the development of the Project and the fact of that payment obviously had implications for the profitability of any development, so far as the UBOs were concerned.
111. The documents reveal that, at the end of March 2007, Mr Moukaddem was emailing the UBOs and discussing a review which had taken place of “all the options and the pending points in the DIFC project”. The email said that “we have all the possible options to move forward in the DIFC project ready to present to you” and requested a meeting to discuss the pros and cons of each.
112. It is evident that such discussion took place and that this led to negotiation of an agreement with Mr Barazi which is recorded in his email of 25 April 2007 to the Al Majed brothers and copied to the Governor. This set out agreement to an increase in the total built-up area of the plot to 1,750,000 ft.² and for DIFC I’s shareholding to increase from 17.5% to 32.5%, based on the original terms of the agreement with Hexagon. It is apparent that negotiations had taken place to achieve this variation of the AJVA. It is also apparent that from this point on there were further negotiations which ultimately led to the conclusion of the 2008 SHA.
113. On Mr Al Majed’s evidence, it was not until 30 April 2007 that the meeting occurred with the Defendants at which it was agreed that Tanmiyat would ask Gensler to present their project design and the Defendants would invite their proposed architect Busby, Perkins & Wills (“PW”) to do likewise, whilst the engineering teams would liaise in relation to highest and best use of the Project Land (“HBU”). It was said that the Defendants wanted Hexagon to use PW and it was even suggested in cross examination of Mr Barazi that PW was imposed on Hexagon. The responsibility for execution of the Project lay, under the AJVA, with the Joint Venture Company, of which Hexagon was to be the majority shareholder with plans to be approved by the Defendants. An email from Mr Al Majed dated 10 June 2007 to the other UBOs specifically stated that, following a presentation by Gensler and PW, Hexagon would select the conceptual designer. As appears later, PW were unable to produce a conceptual design which was both sufficiently “iconic” and “efficient” to the satisfaction of the UBO’s.
114. In his second witness statement, Mr Al Majed said that progress slowed significantly after that meeting because the Defendants did not properly engage, which he explained orally as meaning that the Defendants were pressing for Hexagon to use PW and had failed to incorporate the Joint Venture Company. He also said that the Defendants “essentially selected” the PW design, strongly favouring Hexagon’s use of their design as the concept design for the project. He said that Hexagon accepted this to appease the Defendants and progress the project as quickly as possible. He also testified that, on 2 July 2007, at a meeting with the Defendants, the Use Mix was agreed as 55% commercial, 36% hotel or residential and 7% retail, but the Minutes of that meeting record those percentages as the “utilisation basis” but for “the mix to be tested out in different scenario to come up with the most feasible option”. Mr Al Majed’s evidence was that this was discussed again on 8 July, with the Defendants suggesting that furnished apartments would be more efficient than having a hotel, and the minutes record that. Any suggestion that there was a formal agreement as to the Use Mix, is wide of the mark.
115. In an email of 8 May 2007, Mr Mehta, the lawyer then acting for Hexagon sent a draft shareholders agreement which he had prepared in December 2006. The email stated that “this draft will require to be amended extensively in view of the new arrangements agreed between DIFC and Hexagon. For instance, all references to Nexus Capital to be deleted as they will no longer be a party in this project. Some of the points to be incorporated – new shareholding pattern to be 65% for Hexagon and 35% the DIFC. Hexagon to be replaced by another Jafza Off-shore company, DIFX operating in one of the building”. It is therefore clear that, following the agreement to increase the BUA and change the shareholdings, Hexagon was pressing for other changes to the AJVA and in a following email of 10 May 2007 which referred to a meeting some days earlier and a telephone conversation that day, Mr Mehta sought an urgent response because “my clients really want to expedite the finalisation of the shareholders agreement and incorporation of the company in DIFC, the finalisation of the building designs and related details and the progress and development of the project”.
116. As became increasingly apparent however and as shown by the 2008 SHA, significant changes to the commercial arrangements were being sought by Hexagon which meant that incorporation of the Joint Venture Company and transfer of the land would be premature until those matters were finalised. Furthermore, finalisation of even a conceptual design never occurred because of the inability of PW to produce a design which satisfied the UBOs. Whilst there is no doubt that the Defendants had input into the design questions, as the AJVA required their prior approval to architectural and engineering designs and specifications in Schedule C, the responsibility for construction of the Project did not lie with them. There is no scope for Hexagon to blame the Defendants for the problems encountered in producing a satisfactory concept design which led to the termination of PW in June 2009.
117. On 10 May 2007, Mr Ferris, the Defendants’ Chief Legal Officer, responded to say that the equity splits were fine but it could not be assumed that Nexus was out of the picture although the Defendants would undertake to resolve the Nexus issue. In June 2007, Mr Ferris is pressing the Defendants’ legal department in relation to the Shareholders Agreement and Mr Al Majed is similarly pressing Mr Barazi on that and the issue of the conceptual design upon which no progress had been made. On 2 July 2007, the Defendants’ legal department returned a draft shareholders agreement in which CHL was named as a party and on 7 July that was returned with tracking in relation to issues that require discussion. It is true that Hexagon in the persons of its lawyer and Mr Al Majed were pressing for matters to be finalised, but the drafts of the shareholders’ agreement that were being exchanged provided for changes from the AJVA which finally made their way into the 2008 SHA. For the reasons given earlier in this judgment, Hexagon had no entitlement to such changes in the basic terms of the AJVA and was seeking concessions which would allow the Project Land to be used as security for loans which CHL, as a shareholder in the Joint Venture Company might wish to obtain, as well as allowing the Joint Venture Company to borrow working capital and use the proceeds of sale for that purpose as well.
118. Negotiations continued through October and December 2007 on the specific terms of the shareholders agreement which was concluded on 19 February 2008. Whilst there is no doubt that this process took time, there is no basis for saying that the Defendants were not negotiating in good faith or that they were bound to make any of the concessions or amendments to the AJVA which were ultimately agreed, so that I am unable to see that there is any question of a breach of clause 3.1 in relation to any delay in finalising the 2008 SHA. It was common ground between the Parties that there was no purpose served in incorporating the Joint Venture company prior to agreement on the terms of the shareholders agreement, because of the various changes made in the 2008 SHA, as compared with the AJVA and self-evidently, no Sale & Purchase Agreement or transfer of land could take place until the Joint Venture Company had been incorporated.
119. On 20 February 2008, the lawyer acting for Hexagon/CHL asked the Defendants’ Legal department to send him all forms and other statutory documents, with advice as to how to incorporate a limited liability company in the DIFC which would own operate and manage the project. A reply was sent the same day stating that all the forms required could be found at the DIFC website and official DIFCI documents would be sent to him.
120. Hexagon’s witnesses of fact accepted that there was no legal relationship between CHL and Hexagon and it is abundantly clear that the intention which underlay the 2008 SHA was that CHL would replace Hexagon in the structure and would hold shares in the Joint Venture Company along with the Defendants. No question of any nominee shareholding arose and the express terms of the 2008 SHA terminated the AJVA which would have been replaced by it, had the 2008 SHA been valid and effective.
121. Contrary to various allegations made at one time or another by Hexagon, it was always open to Hexagon to incorporate the Joint Venture Company or to buy one off-the-shelf, although consent forms would have been needed from the Defendants in relation to shareholdings and directorships and agreement on the form of the Memorandum and Articles of Association would be required. Hexagon’s case moved from its pleadings in saying that only the Defendants could incorporate the Joint Venture Company as their special authorisation was required to Mr Al Majed’s witness statement, where he said that only the Registrar of Companies could incorporate (a separate authority from the Defendants), to his oral evidence that both parties needed to be involved in the incorporation and to a suggestion in cross examination of the Defendants witnesses that either a business plan was required or something that would explain to the Registrar that it was proper for the Project land to be transferred to the Joint Venture Company. All of this is contrived in circumstances where the formalities could readily be observed for incorporation, once agreement was reached on the critical points of shareholdings, financing and governance which required a shareholders’ agreement.
122. The fact remains that clause 3.1.2 of the JVA created a mutual obligation on the Parties and Nexus to sign all documents that were needed to incorporate the Joint Venture Company. Clause 2.4 of the Amendment Agreement provided, once again for a mutual obligation on the Parties to proceed to incorporate the company. Whilst there is no direct evidence as to why matters never proceeded in this respect and why the Articles of Association, whilst the subject of negotiation, were never finally agreed, it is a fair inference that the Parties saw little point in this until the technical issues have been sorted out relating to the Concept Design and the matters covered by the unpleaded allegations, discussed below, even after the essential commercial arrangements had been renegotiated and agreed in the 2008 SHA.
123. There were sporadic discussions between the parties from time to time after the 2008 SHA was concluded. It was not until 24 February 2009 that the lawyer for CHL sent the Defendant’s lawyer the documents “in order to incorporate the proposed company in the DIFC for your perusal and feedback”. The assumption was, as revealed by a draft board resolution in that bundle of documents, that CHL would make the application for incorporation. Meetings took place in April 2009 to discuss the form which the Articles might take but the “deadlock” provisions, which are often the most controversial in joint venture arrangements remains to be discussed thereafter. Nothing emerges from the documents as to what occurred until September 2009 when another meeting took place between the Defendants’ lawyer and Mr Elfadil “from CHL” where it appears that agreement was reached on various matters in the Articles which would reflect the 2008 agreement. The latter’s email records that issues relating to escrow accounts to comply with the DIFC regulations relating to off plan sales were to be resolved and that it was agreed that CHL would present, within six weeks, a new detailed financial model for the project based on the latest project design. There was also the further discussion in relation to the grant to DIFCI of a right to “step in” to the project in the event of a default by the Joint Venture Company. On 31 December 2009, Mr Elfadil sent an email which pointed out that the Joint Venture Company had not yet been incorporated but, as appears hereafter, on 26 January 2010, King & Spalding, by then instructed by Hexagon/CHL, initiated a process seeking re-negotiation of the 2008 SHA, stating that it “needs significant revision”.
124. It is, therefore, convenient at this point to deal with the unpleaded allegations relating to delay which cover the period prior to the 2008 SHA and thereafter. Documents referred to in this section also show that the 2008 SHA was being treated by the Parties as the governing contract after its conclusion.
The Affection Plan
125. Hexagon’s complaint here, as set out in its closing submissions, is that it tried to obtain a revised affection plan for almost a year. It was said that Hexagon wanted to be ready to start construction as soon as the concept design was finalised, but of course this never happened. The Affection Plan was needed for various construction permits but not, on the evidence of Mr Barazi, necessary for the concept design which could be later be adjusted for the exact boundaries of the site as affected by the road that the Road Traffic Authority (the“RTA”) desired to build.
126. It was on 13 July 2008 that the Defendants’ project managers, Turner, informed Dr Jemah that the RTA was intending to build a road on the north-east side of the plot which would result in the loss of part of the Project Land. Drawings were to be sent showing the proposed road and Dr Jemah chased for the provision of the drawings because an Letter of Intent had been issued to Dewan and PW on 16 July 2008. On 12 August 2008, Mr Al Najjar attached to his letter a new road layout that showed the road on 18.5 m of the plot, stating that a revised affection plan should be sent to Tanmiyat within two weeks. He said that the Defendants would revert with regard to the road width by the middle of August which might mean a further revision of the Affection Plan. He told them that the standard requirement for the road was 18.5 m and advised them to work on that basis. On 16 September 2008 a chaser was sent in relation to the revised Affection Plan which was supposed, according to the letter, to be provided by Turner by 27 August 2008, with confirmation of the road width. Accompanying this was a letter from Dewan, stating that an updated Affection Plan was needed to apply for all NOCs excavation and shoring. A further chaser was sent on 28 October 2008 and on 29 October 2008 Mr Al Najjar wrote to say that the issue of the Affection Plan was being delayed because the Defendants were seeking to reduce the width of the proposed road from 18.5 m to approximately 12 m.
127. At a meeting on 4 November 2008, it was explained that the Affection Plan was still being finalised but should be received within two days, duly signed by the Governor, but on the following day at a further meeting it was explained that it would not be available within that time as the RTA suggestions were still under review and final decisions had not been made. By the time of another meeting on 25 February 2009, the Affection Plan was said to be ready but that the Defendants had not yet given their consent to the RTA to build the road pending CHL’s approval that it had no objection to the loss of part of the plot to a 12 m wide road, with the possibility of losing parking spaces below ground level. The minutes record that CHL raised a concern about the parking spaces that they would lose and stated that it would be better not to have this road unless the RTA imposed it on the Defendants. On 11 March 2009, following a meeting, TPM confirmed that they had no technical issues should the RTA decide to construct a road with a width of 11.5 m and wished to receive the Affection Plan at the earliest possible opportunity. On 30 April 2009 the draft Affection Plan was received from TECOM, which showed the road as 18.1 m in width, but on 2 July 2009 Mr Al Najjar sent the Affection Plan which showed the road width as 11.5 m.
128. As is apparent from the above summary, the Affection Plan fell within the province of the RTA and TECOM, the planning authority for the Dubai Municipality. Both had a far wider ambit of responsibility and range of considerations than merely considering the DIFC. Roads intersecting with the DIFC had to be harmonised with existing or proposed RTA/TECOM plans and this road could not be considered on an isolated basis. The defendants could object to propose roads and negotiate with the RTA but they did not have control over such matters and were not responsible for delays caused while issues relating to such plan roads were worked through.
129. Mr Barazi’s evidence was that in the early years of the Project, the RTA wanted Road 312 (now Al Mustaqbal Street) which bordered the Project Land to be a tripledecker road (a highway with a tunnel and two layers of road on top) and wanted to reclaim land from the Project Land and other DIFC plots on which to build it. The defendant strongly objected to this with the RTA and eventually Road 312 took the form which it currently takes. Without the Defendants’ objections, the footprint of the Project Land would have been reduced much more, which would inevitably have had an effect on the revenues from any project built on the land. It was therefore in both Parties’ interests that the RTA proposals were the subject of objection.
130. In mid-2008 however the RTA decided to introduce a smaller road to the northeast of the Project Land which was proposed to be 18.5 m wide. The Defendants sought to have this reduced to a width of 12 m in order to minimise reduction to the footprint of the Project Land. In this, the Defendants succeeded but there was inevitable delay whilst the RTA and TECOM considered the position and came to a conclusion. The exact reasons for the delay are not known but any delay cannot simply be placed at the door of the Defendants and the efforts made by the Defendants are evidence of good faith in seeking the best for the Project, rather than indicating any desire to hold up the project or prevent it coming to fruition.
131. To make the obvious point, it was in the Defendants’ interest as well as that of Hexagon/CHL that the area of the plot should be as large as possible and not be restricted by the building of the road. The Defendants had no reason to delay the Affection Plan and sought to restrict the road for the benefit of the Project. Moreover, it is clear that any delay on this aspect could not and did not hold up progress in developing the Project Land because it was unnecessary for the matter to be settled before a concept design was in place and because any concept design could be adjusted for the exact dimensions of the land, as affected by the contemplated road.
132. There is no evidence of bad faith or lack of best endeavours on the part of the Defendants in relation to the Affection Plan, which does not fall within the ambit of clause 3.1 of the AJVA.
133. It is undisputed that, whatever definitions are used for BUA and GFA (Built Up Area and Gross Floor Area) the GFA will always be less than the BUA for obvious reasons since it represents the total useful floor area. The BUA is the total area being developed whilst the GFA is focused on the usable/sellable area and excludes areas such as car parking, loading bays and lift lobbies. Hexagon/CHL recognised that the BUA would be more than the GFA.
134. As recorded earlier, the BUA in the JVA was increased in the Amendment Agreement and was subject to further uplift when Mr Barazi agreed on 25 April 2007 to a figure of 1,750,000 ft.² in consideration of an increase in DIFCI’s share in the Joint Venture Project to 32.5%. This BUA figure was enshrined in the 2008 SHA upon which the parties were proceeding from the date of its conclusion. The 2008 SHA provided that CHL could, at its sole discretion, (subject to maximum permitted by DIFC) increase the initial total built-up area of 1,750,000 ft.² which, as Mr Sulyman Al Majed’s email of 13 May 2008 shows, meant a purchase of such additional land at market price. The GFA was therefore inevitably a lesser figure.
135. The problem which arose was that PW worked on the basis of a GFA of 1,750,000 ft.² and not a BUA of that figure. It is true that there was some confusion in the terminology used by both parties and there is an email of 1 June 2007 from a DIFC representative which referred to a “target of 1,750,000 ft.² as GFA” whilst attaching a schematic drawing which broke down the Mix Use into figures in square metres which totalled 174,800 m² but the terms of the agreement between the parties as to the BUA figure as 1,750,000 ft.² were clear and the GFA figure would therefore inevitably be a lesser figure which would be a matter of calculation and design, whatever its exact definition. If designers worked to a GFA figure of 1,750,000 ft.², the BUA figure would inevitably be larger and any designer would know that.
136. In PW’s letter of 11 June 2007 to the Defendants, the designers set out their “Project Understanding” that the BUA would be 175,000 m², as referred to in the schematic drawing, which was of course correct. A team member of Hexagon, on 3 July 2007, nonetheless set out the Terms of Reference for Project & Construction Management Services, using the same schematic diagram but referring to the total figure as GFA.
137. In December 2007 in an exchange between Mr Barazi and Mr Sulyman Al Majed, reference is made to any additional GFA that Hexagon/CHL might wish to purchase at market rates.
138. On 13 May 2008, a member of the Defendants’ real estate finance team emailed Mr Sulyman Al Majed to set out the Use-mix, which gave rise to a total GFA of 1,550,002 ft.² PW asked Tanmiyat on 13 July 2008 for the definition of the GFA in addition to the site plan and Tanmiyat’s Consultancy Services Proposal for Architectural & Engineering Consultancy services of 15 July 2008 wrongly referred to a GFA of 1,750,000 ft.² On 22 July 2008, Tanmiyat stated that the consultants needed the DIFC plot guidelines for height and allowed GFA, as well as the basis for calculating the GFA, if they were different to those outlined in the DIFC guidelines. This led to an email from Mr Al Najjar on 12 August 2008 saying that the GFA allocated for the plot in the DIFC Master plan was 1,550,016 ft.² (self-evidently a lesser figure than 1,750,000 ft.²) which TPM should utilise unless there was proof of another agreed figure.
139. This led to an internal enquiry within CHL/Tanmiyat. Dr Jemah wrote to Mr Sulyman Al Majed referring to the letter of 12 August 2008 which mentioned the allocated GFA of 1,550,016 ft.², as opposed to the BUA. The letter continued that it was normal for the BUA to be more than the GFA. He sought permission to ascertain whether PW were working to meet a GFA of 1,750,000 ft.² or a BUA of that figure, where they would end up with a smaller GFA. He also wanted to know whether, when the agreement was made with the Defendants, the intention was to have the GFA as 1,750,000 ft.² or, as stated in the agreement, the BUA as 1,750,000 ft.². It is self-evident that reference had then been made to the 2008 SHA. The response received was that there was no side agreement and that the 2008 SHA was the only agreement made.
140. This in turn led Dr Jemah to write on 27 August 2008 to the Defendants saying that the consultants were working on the basis of a GFA of 1,750,000 ft.² and asked Mr Al Najjar to confirm the figures with Mr Barazi. On 16 September 2008, Tanmiyat wrote to the Defendants referring to clause 7.1.6 of the 2008 SHA as giving CHL the liberty to increase the BUA subject to the maximum permitted by DIFC and requesting an increase in the GFA figure. The view was expressed that a GFA of 1,750,000 ft.² would be of mutual benefit to CHL and the defendants. The request was repeated in an email of 24 September 2008, also seeking approval of the height of 380 m for the tower upon which the current concept design was based. This led to a letter from Mr Al Najjar of 28 October 2008 agreeing that the GFA could be 1,750,000 ft.², without any requirement for a price increase for the additional BUA thus conceded. Dr Jemah wrote to Mr Sulyman Al Majed, enclosing this letter which approved the increase GFA, stating that this was a big relief as the DIFC letter of 12 August 2008 had only allowed GFA of 1,550,000 ft.².
141. The complaint raised by Hexagon/CHL has no validity of all. The responsibility for design did not lie with the Defendants and the terms of the agreement as to BUA was clear. Hexagon/CHL/Tanmiyat knew that the 2008 SHA provided for a BUA of 1,750,000 ft.², became confused about the figure in the context of GFA and had then to write to request an increase because the appointed designers had been working to a larger figure. Any accusation of bad faith on the part of the Defendants in agreeing, some six weeks after stating the true contractual position, to a request to increase the figure, without any quid pro quo can have no foundation whatsoever. Any issues which arose in relation to the BUA were the responsibility of Hexagon/CHL in working to a figure which had not been agreed with their appointed designers PW. In the end they had to seek, and were given, a change to the agreed BUA in the 2008 SHA.
142. There is no evidence of bad faith or a failure to exercise best endeavours on the part of the Defendants in maintaining the contractually agreed BUA and then making a concession to allow more GFA which was approved by the Governor on 24 June 2009.
143. The issue of Use Mix is tied in with the Master Plan for the DIFC and the need for a change in it with its consequent impact upon existing and other developments in the DIFC. It will be recalled that the JVA, in the “all scenarios assumptions” in Schedule E, by reference to a total BUA of 97,650 m², broke down the Use Mix into areas for offices, residential, furnished apartments and hotel as well as various other singular uses. The AJVA, following the Amendment Agreement, contained nothing specific on the point but adherence to the Master Declaration was required which meant adherence to the Master Plan. The 2008 SHA equally had no express provision dealing with the Use Mix. The 2005 Master plan however provided for 34% offices, 52% residential, 7% retail and 7% hotel. Any change in the Use Mix desired by Hexagon had therefore not only to be negotiated with Mr Barazi but squared with those responsible for the Master Plan and approved by the Governor (as did the increase in GFA). Because this was an overall plan, any change in the use mix for any one development would impact on other developments, as well as affecting the use of utilities, chilling water, car parking and traffic generally. A balance had to be achieved between one development and another and a change of the Master Pan use mix could involve renegotiation with others because of the impact on these amenities. It was the Defendants’ technical team which was responsible for such alterations and the commercial aspects of a change to the Use Mix at PA01, negotiated with the Defendants management were subject to discussion and agreement with that team which was reluctant, having settled on an overall Master Plan to have it disrupted by one development which meant a rewriting of other parts of it, as Mr Barazi explained.
144. Between 2007 and 2009, the issue of Use Mix was the subject of discussion between the Parties. Hexagon/CHL wished to depart from the Master Plan and wanted 88% offices, 7% residential and 5% retail. According to Mr Barazi, the Defendants were willing to accommodate some additional office space but that meant increasing the parking requirements which could only be accommodated by an additional basement floor (since above ground parking was prohibited in the DIFC save in exceptional cases) or an Automated Parking System. CHL did not want to add additional basement floors because the deeper the building, the more expensive the additional floors become. There was also no proven concept of automated parking in the UAE at the time and neither Party wanted to adopt this option. Ultimately a Use Mix was approved by the Governor in June 2009, with the Master Plan reissued on that basis providing for 66% offices, 29% residential and 5% retail, which represented a significant increase in office space from the 2005 Master Plan. Once again, this is a case where Hexagon/CHL sought to depart from the terms of the AJVA and to secure the Defendants’ agreement to that. Concessions were made and the compromise agreed, but this took time.
145. In its closing submissions, Hexagon stated that parties exercising best endeavours in good faith ought to reach agreement with regard to the Use Mix, again ignoring the fact that it was seeking a change from the AJVA. It is true that there was a measure of flexibility in the Master Plan, as was shown by the eventual compromise reached. It is also true that the Master Plan of 2005 was very different from the Master Plan of 2016 because of changed conditions between those dates. Thus in 2007 – 2009, the prevailing circumstances would inevitably be somewhat different from those in 2005. It was said in oral submissions in closing that the Defendants were either incompetent or disingenuous, but it is clear to me that the Defendants were, as in the other areas where they agreed variations to the AJVA, attempting to reach agreement with Hexagon/CHL for the benefit of the development of the Project. I reject any suggestion of bad faith of any kind, or failure on their part to use best endeavours, although processes were protracted over the course of around a year, during which the global financial crisis struck.
146. Whilst PW in June 2007 proposed a Use Mix which reduced the residential requirement of the Master Plan and increased all the other three other elements and there was discussion in July 2007, as recorded in minutes of 2 July 2007 referred to earlier, without any agreement and subject to further consideration of the most feasible options, there was no real attempt to negotiate a Use Mix until the spring of 2008. Hexagon’s case is that Mr Sulyman Al Majed and Mr Barazi agreed to a revised mix of 88% offices, 7% residential and 5% retail in April 2008. No evidence was adduced from Mr Sulyman Al Majed to this effect and Mr Barazi was clear that he could never have agreed to such a huge percentage for offices, given the Master Plan then in existence but had no recall of the percentages then under discussion. He had no authority to bind the authorities to change the Master Plan and, as he said more than once, would not have reached agreement without, a formal request and a response in writing. There is nothing in the documentation which details any such agreement.
147. There is an email of 20 April 2008 sent by Mr Ali Rakban of TPM to individuals at the Defendants and copied to Mr Barazi and Mr Sulyman Al Majed which expresses an understanding gained by the author from the latter that he had discussed the issue of the project mix and required car parking levels with Mr Barazi the previous week. It was said that “he advised me that they agreed together to go ahead with our suggestion for the mix and five basement levels”. This falls very far short of evidencing a binding agreement to figures which are not mentioned and “agreeing to go ahead” could mean no more than proceeding on a given basis to ascertain feasibility as discussed and recorded in the minutes in July 2007. The idea that any binding agreement was concluded is negated by an email from the same author in what appears to be CHL’s technical team on 4 May 2008 to Mr Sulyman Al Majed in which it was said that Mr Al Najjar, who, though junior to Mr Barazi, appears to have been in the team responsible for the Master Plan, had informed him that the possibility of approval of “our request” was not high, unless there was an instruction from “high-level authority”. The email continued: “I appreciate contacting Bisher [Mr Barazi] or provide us with other mix as you suggest”. On 13 May 2008, Mr Almoosa, a Manager in Property Finance at the DIFC stated in an email to Mr Sulyman Al Majed that the Use Mix designated for plot PA01 was commercial 34%, residential 52%, retail 7% and hotel 7% and that “we are therefore allowing Tanmiyat a special case of a 10% change of mix use from the noted above”. That is much more likely to be the percentages discussed by Mr Barazi with Mr Sulyman Al Majed. He went on to say that the Use Mix now requested by CHL extended beyond the 10% change. The Master plan had to be adhered to in order to ensure that each project was feasible in the DIFC in terms of space, traffic impact, zoning and community plan adherence and was set at an early stage which meant that changing the Master Plan would prove very difficult at the then current stage of DIFC’s development. Mr Barazi’s evidence was that it was always difficult to persuade those involved in setting up the Master Plan to change it for one development because of the need then to change it for others. Having settled on a Master Plan, there was great reluctance to allow it to be altered.
148. I have no reason to disbelieve the evidence of Mr Barazi though he could not recall what figures had been discussed by him with Mr Sulyman Al Majed or what he might have said by way of assent in informal discussions. Is clear that no agreement could have been reached that was in any way binding without a formal record and the approval of those responsible for the Master Plan. The subsequent emails referred to above show that Hexagon/CHL and Mr Sulyman Al Majed could have been under no illusion about that. Mr Barazi was clear that, if there had been figures referred to in the email that was copied to him setting out those which were subsequently said to be agree, he would have responded, but he saw no reason to pick a fight in relation to the informal discussions which had taken place.
149. Dr Jemah asserted in his witness statement that the alleged agreement took place in the summer of 2008. In an email of 13 May 2008, Mr Sulyman Al Majed said that he had met with Mr Barazi many times just to finalise a mixed-use percentage. In a presentation made in December 2009, Hexagon/CHL even went so far as to assert that there was a verbal promise that CHL was free to decide upon the Use Mix. The inconsistencies and vagueness in these assertions militate against the existence of any binding agreement of the kind suggested. Moreover, the idea that the Defendants would agree to a Use Mix in April 2008 and then renege on it in May 2008 makes no sense. What the documents appear to show however is a willingness on the part of the Defendants to seek to agree some changes to the Use Mix in the Master Plan with reluctance on the part of those responsible or that Plan to make any changes at all.
150. Notwithstanding this, on 11 August 2008, Mr Al Ghathbar at TPM wrote to the Defendants in connection with the Affection Plan and stated that “the revised mix of 88% offices, 7% residential and 5% retail was agreed between the chairman of Tanmiyat, Mr Sulyman Al Majed and Mr Bisher”. This is an example of wishful thinking on the part of Hexagon/CHL and seeking to turn discussions into an agreement. The reply received the following day from Mr Al Najjar asked TPM to show that some agreement of that kind had been made, failing which the Use-Mix in the Master plan would apply. Dr Jemah persisted in the same approach in sending, on 27 August 2008, an email to Mr Al Najjar, stating that the consultants were working on the Use Mix desired by CHL, and asking him to seek confirmation of these figures from Mr Barazi.
151. It is clear from the documents that an issue arose as to 5 basement levels for parking or an automated parking system which PW were proposing. Neither Mr Sulyman Al Majed nor Mr Barazi wanted an automated parking system and PW were instructed in September 2008 to come up with a Use Mix which would work without such a system. The suggestion of 52% offices, 43% residential and 5% retail was said to have that effect which caused CHL to repeat its original request for the 88%/ 7%/5% split, which would only have been possible with the automated parking system. On 24 September 2008, TPM asked whether the defendants preferred conventional parking with a 66% office, 29% residential and 5% retail use or 88% offices, 7% residential, 5% retail and 700 stalls with the automated parking system. On 28 October 2008, Mr Al Najjar, when confirming agreement to the increased GFA, stated that the mixed-use for PA 01 “is as per the master plan guideline”.
152. There followed a meeting on 5 November 2008 where Dr Jemah explained that TPM was requesting a variation from the current product mix in the DIFC guidelines to a 29% residential, 66% office and 5% retail mix. It was agreed that automated parking was not desired and Mr Al Najjar stated that any change in the Use Mix would have to be agreed with DIFC management. It was explained that the requested mix would make for a more functionally and financially feasible project and that exceptions to the Master Plan for this project should be allowed because of its iconic location. Mr Al Najjar said that not only would the matter have to be escalated to the DIFC management but it needed support from his own technical evaluation together with a report on the building’s architectural feasibility to be submitted by Tanmiyat. He could not commit to any timeframe or review nor guarantee any approval by DIFC management. In a letter of 10 November 2008, TPM repeated its position but stated that its desired Use Mix was 66% offices, 29% residential and 5% retail.
153. On 24 December 2008, Mr Al Najjar responded to the request in the letter of 10 November 2008 saying that the DIFC had a clear policy of keeping the Use Mix to the Master Plan Guidelines in order to be efficient and rejecting the application for a change for PA 01. A meeting then took place on 25 February 2009 which was attended by (inter-alia) Mr Sulyman Al Majed, Mr Al Majed, his brother, Mr George Mushahwar, the Secretary General of the DIFC Governor’s Office and Mr Barazi, at which a number of issues were discussed. High authority was thus present. CHL were on the point of terminating PW’s engagement, subject to a last chance to rectify the design and DIFC gave CHL the freedom to take whatever decision they saw as necessary to move the Project forward.
154. The Affection Plan was also discussed, as referred to earlier, and Mr Sulyman Al Majed stated that the consultants had been instructed to design with a Use Mix of 88% offices, 7% residential and 5% retail on the understanding that the DIFC were in agreement with this mix, without ever stating that any binding agreement had been made. He referred to the desire to avoid the Automated Parking System or a sixth basement which would be required to achieve this mix and said that the consultants had come up with the 66%/29%/5% mix which would require neither. He said that CHL were surprised when this mix was rejected and adherence to the Master Plan was requested. Because there was an email on 13 May 2008 stating that the mix could be changed by 10%, he said that CHL would like to cancel the hotel component and add the 7% to the office use in order to make it 41%, but better still CHL would prefer approval of the 66%/29%/5% mix. CHL was requested to come up with a commercial proposal for this mix, at which CHL said that it had already paid for this but would accept the 12 m wide road at the edge of the plot. An internal note of Mr Elfadil’s to Mr Sulyman Al Majed of 28 February 2009 reveals discussion of the possibility of increasing the Defendants’ shareholding in exchange for this change and other commitments. There is no evidence of any negotiations on such matters however.
155. On 25 March 2009 a further meeting apparently took place between (inter-alia) Mr Sulyman Al Majed, Mr Mushahwar and Mr Barazi at which, according to a letter from Dr Jemah of 29 March 2009, agreement was reached on the Use Mix and that the Defendants would provide CHL and TPM with the necessary support to obtain the required approvals from the relevant authorities. On 24 June 2009, the Governor of the DIFC gave his approval to the revised GFA and the proposed mix use of 66%/29%/5%.
156. None of this, to my mind exhibits any bad faith on the part of the Defendants. Once again, as the documents show, Hexagon initially and then CHL subsequently were seeking a variation of the terms of the AJVA, to which they were not entitled, however much sense it might make from their financial perspective and whether or not it also served to benefit of the Defendants in relation to this Project, whatever the impact on other developments in the DIFC. There was no failure to use best endeavours to complete any steps required by clause 3.1 either.
Conclusion on the unpleaded complaints
157. If these complaints were advanced by Hexagon, as appeared to be the case, in order to demonstrate that the Defendants deliberately tried to stall the Project, they do not achieve that objective. To the contrary they show a willingness on the part of the Defendants to accommodate Hexagon/CHL, to advance the Project and to agree to variations of the AJVA which they were not bound to accept. These were matters which Hexagon/CHL desired to resolve because of the obvious commercial impact on the Project and which would almost inevitably involve delay, both because of the need for such matters to be fully considered and because of the need to involve other authorities in the DIFC before any agreement could be effective. Although complaints were made as to the lack of urgency shown by the Defendants, the reality is that none of this made any difference to the progress of the Project because of the difficulties encountered by PW in coming up with a concept design which met with the favour of Hexagon/CHL.
The Impact of the Global Financial Crisis
158. It was on 11 June 2009 that TPM terminated the services of PW. It was around this time that the effect of the global financial crisis was being felt in Dubai. Shortly thereafter, Tanmiyat, from the limited disclosure given, was plainly reconsidering its developments in the UAE. There is a draft memorandum for discussions dated 3 July 2009 which speaks of the need to raise cash and specifically to an arrangement of funding for the DIFC tower to be organised with CSI. The drafter of the note, who cannot be either of the Al Majed brothers and may well be Dr Wan, states his intention to deal with all creditors and purchasers to restructure all the financial commitments to reduce Tanmiyat’s overall financial obligations and to organise an exit strategy for the UAE projects by reverse takeovers or semi-IPOs of a listed company, preferably in Singapore or Malaysia. The exit strategy was to be targeted to achieve recovery of all the cash investments that Tanmiyat had made in the UAE and convert the assets and value into public company shares.
159. The difficulties encountered by Tanmiyat are shown further in a “Tanmiyat International Business Plan & Strategies” document dated September 2009. In the Key Parameters, Assumptions & Findings section, the key findings record that contractors’ funding is a key element and that project timing of construction and delivery would determine profitability. The focus was to reduce/eliminate total Project liabilities of AED 1.5 billion, to return all projects to be viable and profitable, to reduce/eliminate cash injection by the Group and to establish sound cash flow management. All liabilities were to be eliminated except for legal cases and cash requirements were to be eliminated. Although Mr Al Majed sought to say that this was inapplicable to the DIFC, the document makes it plain that one matter to be dealt with was the finalisation of a business plan for the DIFC and in a section dealing specifically with the “DIFC Tower” the fundamentals were said to be to establish a core strategy to ensure viability, to structure the shareholding and participation in DIFC and put up a Financial Plan and Fundraising approach for the Project. As part of the strategic actions in relation to project viability, there was a need to re-study the Use-Mix; as part of the strategic actions in relation to project structure, the object was to “solve legal and structural issues with DIFC; shareholders agreement etc”; and as part of the strategic actions in relation to project finance, it was said that a combination of constructor finance with a capital market solution, such as Sukuk was needed on a structured finance basis with clear off take agreements for at least 60% of the building.
160. In a section headed “Formation of Tanmiyat International – the Action Plans”, a number of actions were set out. The first was the phasing out of the Development Companies and their eventual closing down, including CHL. Item 3 involve the creation of an SPV for DIFC projects and any future projects by Tanmiyat International. It was said that Tanmiyat International should rely mainly on Project Financing rather than cash injection by shareholders and it should operate projects in the UAE totally separate from the rest of the Tanmiyat group in Saudi Arabia. Liabilities should be at Project Level and none at Holding or Corporate level.
161. It is also clear from the documents that Tanmiyat were in discussions with CSI, a China State construction company, since the minutes of a meeting in September 2009 with representatives of that company refer to the DIFC project and the formation of a consortium with CSI within a month. The minutes record Tanmiyat asking CSI fully to fund the DIFC project, to provide “all the details involved” for negotiation, without involving the Defendants. CSI suggested converting the 39% DIFC share into floors so that CHL would be free to deal with the remaining 61%. That issue was to be discussed further to see whether it might be agreeable to the Defendants. CSI agreed that the cost of design would be borne by it and that it would proceed with design in coordination with Tanmiyat and TPM. Any such arrangement would obviously require substantial restructuring of the AJVA and/or the 2008 SHA. The suggestion in the minutes was not only of a consortium with CSI, but an arrangement whereby CSI would acquire some ownership interest in a number of floors of the building to be constructed. In the light of Tanmiyat’s strategy document set out above and these minutes, it appears clear that the hope was that a constructor would be found who would finance the development costs in exchange for some interest in the Project itself.
162. It was said by Hexagon that a concept design was produced but the only document in existence is a single picture of a single tower which appears in two of the slide presentations put before the Court, one which appears to have been for internal use and the other which was shown to the Defendants.
163. Mr Al Majed’s evidence was that arrangements with CSI did not proceed because the Defendants did not incorporate the Joint Venture Company and pronounced the AJVA in 2012. That cannot be right because, in the internal slide presentation dated 15 February 2012, a slide appears which includes the following wording: “CSI proposed to fund the project and in return be given some units. The funding structure did not materialise and CSI were terminated”. From the documents before the court, it appears that CSI waited for a feasibility study, including a cash flow before they would come forward with a funding structure but whether they were dissatisfied with such a feasibility study or not, they never did come forward with such a structure and were terminated well before any Letters of Renunciation. It is interesting to note that when this internal presentation was reproduced for the benefit of the Defendants, that particular slide was omitted.
164. What is revealed by these documents is that the Tanmiyat group did not consider itself in any position to make upfront cash investments into the Project. A prior financing possibility with Bear Sterns with some preliminary documentation in 2007, based on the false premise that the borrower owned the land and could mortgage the plot, had disappeared with the demise of Bear Stearns in the global financial crisis. There was no evidence of other financing options available to the Tanmiyat group in 2009, save for CSI.
165. This background may explain the involvement of King & Spalding on behalf of Hexagon/CHL at this point and the letters sent to the Defendants at the end of 2009. On 31 December 2009 Mr Elfadil wrote to the Defendants’ in house legal department, drawing their attention to clause 2.2 of the 2008 SHA and the condition precedent within it, stating that the Joint Venture Company should have been incorporated so that the Project Land could be transferred. He said that under Recital E, the Joint Venture company was expected to be incorporated by about 15 March 2008. He said that the situation was great not healthy for all parties”. The last paragraph of the letter stated that “during our last meeting in Ramadan, we have discussed all the concerns raised by DIFC in relation to the implementation of the Project and we have proposed jointly a solution for that.… I believe a meeting has to be held as soon as possible to finalise the incorporation of the Company since the Draft Article of Association is already been discussed long time ago”.
166. On 24/25 January 2010 the Defendants’ legal department was in touch with the Mr Mehta who had thus far been acting for Hexagon/CHL and a meeting was arranged for 31 January 2010 to review the Hexagon and CHL documents, including the Sale and Purchase Agreement and the proof of ownership documents. On 26 January 2010, Mr Ali of King & Spalding asked to rearrange the meeting for February 1 and asked for confirmation that in addition to the lawyer, Mr Mushahwar, of the DIFC would attend. It was said that the agenda for the meeting would be wider than discussion of the legal documents since “the investors would like to discuss the structure of the investment in general, the capitalisation of the Newco, the transfer of the property and other related matters regarding the joint venture and the development of the project”. Dr Wan, Dr Jemah and Mr Elfadil would attend as well as Mr Ali. The Defendants legal department’s response was to say that the meeting was to complete the required legal documentation and there was no room for any commercial or business discussions. Mr Ali’s response was to say that the meeting should focus on the structure of the investment and legal documentation. “However, there are a number of business and commercial issues which will affect the structure, documentation and process of completing the same. Therefore, just as our client is sending their business representatives as well as their legal team, we would appreciate the attendance of the DIFC’s business representatives.” The meeting was held but no real details of what was said appear in the evidence. There was a change of management at the defendants and a degree of ignorance about what had gone before and, in March 2017, Mr Elfadil was asked to send a letter explaining the history and background of the matter, to provide copies of signed agreements and a new business plan showing the shareholders’ intentions for the Project.
167. Following the discussions and on Hexagon’s instructions, in respect of which legal privilege was maintained, King & Spalding sent the 2010 Memorandum on 21 March 2010 which set out an outline of a new proposed structure for the project. Despite attempts to present this as some form of implementation of the AJVA, the reality is that it was a further attempt by Hexagon to change the terms on which the Project was to be financed and to minimise any upfront cash investment to be made by it.
168. The 2010 Memorandum set out some past history, including reference to the 2008 SHA, without any suggestion that it was not a fully valid and binding agreement. As I have already said, any perusal of the exchanges between the parties since its conclusion reveals that both parties had treated it as binding and that CHL was being advanced as the shareholder in the proposed Joint Venture Company. However, under the heading “Proposed Legal Structure”, the following appears:
“Although the Shareholders Agreement attempts to introduce a revised structure, different to the one proposed under the Amended JV Agreement, we believe the structure set out in the Amended JV Agreement… Is the better structure to proceed with.…
[A diagram then set out the shareholders it in the proposed Joint Venture Company as Hexagon with 65%, DIFCI with 32.5% and Nexus with 2.5%.]
“The 2.5% shareholding allocated to Nexcap [Nexus] shall be held either by DIFCI for the benefit of Nexcap or by a trust to be established for this purpose.
Although both the Amended Joint Venture Agreement and the Shareholders’ Agreement both contemplated the formation of the project company, this has not yet happened. We would suggest that the Shareholders’ Agreement needs significant revision in order to reflect the correct structure for the Project and to that end it would be preferable to prepare a new shareholders’ agreement incorporating elements of the Shareholders’ Agreement and the requirement stipulated for any such agreement as set out in the Amended JV Agreement. Our opinion is that Hexagon and not CHL is the appropriate company to be involved as a shareholder of the project as it is Hexagon which was the party to the Amended JV Agreement which we believe to be the base document for the Project.
The starting point for a new shareholders’ agreement would be that DIFCI contributes the land on which the Project will be developed to the project company and that Hexagon contributes the agreed working capital requirements of the project company. Hexagon will also be responsible for contributing the equity portion of the total cost of the Project (and procuring financing on the half of the project company). Hexagon may contribute such equity portion by way of additional equity into the project company, shareholder loan(s) or a combination of both as Hexagon deems appropriate. Nexcap would receive the 2.5% of the project company’s shares it agreed to receive under the Amended JV Agreement in consideration for its procurement of the investor (i.e. Hexagon) for the project.
we believe that the next steps necessary in order to move the Project along are to (i) finalise a new shareholders’ agreement amongst the parties (within thirty days), (ii) transfer the land to the project company at the DIFC (within thirty days of executing the new shareholders’ agreement) (iii) transfer the land to the project company (within sixty days from incorporating the project company) and (iv) finalise the feasibility study of the Project (within ninety days from the transfer of the land to the project company).”
169. Whilst dressed up somewhat, the crucial part of the proposal related to the financing of the Joint Venture Company. The proposal gave Hexagon the freedom to arrange borrowing on behalf of the Joint Venture Company for the total costs of the Project, which it had, under the terms of the AJVA, been obliged to produce itself by way of liquid finance. It could lend money to the Joint Venture company or inject equity into it as it deemed appropriate, as well as borrowing from external sources. It would be responsible for procuring financing on behalf of the Joint Venture Company but not bound to pay the construction costs itself. The result of that would, of course, be that not only would the Defendants be providing the Project Land, but they would also be undertaking a proportionate share of the construction costs through the vehicle of the Joint Venture Company. The reversion to using Hexagon as opposed to CHL had limited significance save for the fact that Hexagon was incorporated in the Cayman Islands as opposed to a free zone in Dubai.
170. The purpose which underlay this proposal is obvious in the light of the internal discussions which had taken place at Tanmiyat in the last quarter of 2009. The aim was to obviate the need for any upfront cash investment by Hexagon/CHL and to reduce its liability to pay the total construction costs by imposing that obligation on the Joint Venture Company. Attempts by Hexagon’s witnesses to explain these provisions away were futile and damaged their credibility.
171. Mr Elfadil admitted that Hexagon and CHL would not proceed with the AJVA on the original financing terms. He said this:
“A. In 2009 it was clear that, you know, putting 100% of the total project costs in cash liquid, that’s not foreseeable. So, you know, investor has to come up with other means to fund the project and get it… get it completed. Along with the capital required, we need more. The project cost more than $1 billion… AED 1 billion. So the amount needed is beyond the capital of the project; and we still need to come up with extra means and resources, yes. If you asked me about…about their that, yes.
Q. so when you’re saying it was clear that putting 100% of the total Project cost in cash liquid that is not foreseeable, what you mean is that that wasn’t something that the shareholders were prepared to do or able to do at that stage?
A. I’m not saying they were not able to do it; I’m saying it’s not foreseeable because that doesn’t make sense to put 100% of the total project costs in liquid cash. But that doesn’t mean we … they cannot do it.
Q. Yeah. But they’re not going to do it if it doesn’t make sense, are they?
A. Yeah. If you look at the discussions gone before, from 2008 all the way to 2009, there were the agreement between the parties, including DIFC, that, you know, other ways of getting funding, like other ways of like construction finance from shareholder loans, others, could be considered.”
172. The 2010 Memorandum represented a clear attempt to change the fundamentals of the AJVA, and the 2008 SHA which purported to replace it. It was driven, self-evidently, by Tanmiyat’s financial constraints. It was wholly inconsistent with the AJVA. For the reasons given earlier, the terms of clause 3.1 could not oblige the Defendants to agree to such provisions and to enter into a new Shareholders Agreement which encapsulated them. It is noteworthy that Hexagon appreciated that a new Shareholders Agreement was the first requirement, because of the amendments it was seeking, before there was any point in incorporating a Joint Venture Company and that the 2010 Memorandum expressly provided for a sequence of events to take place commencing with such an agreement.
173. The evidence as to what happened thereafter is limited, Mr Elfadil says that during the course of 2010 he communicated with Mr Mushahwar and that discussions focused on the impact of the financial crisis on the Project. Whilst he stated that he did not recall the details of what occurred between March and September 2010, he said that he had tried to find ways to communicate with the higher authorities in Dubai to find a way forward for the Project. It is evident from the materials already described, that absent some new agreement, which the Defendants were not prepared to conclude at that stage, Hexagon was not going to go forward with the Project and wanted change to the AJVA. It was not prepared to proceed on the terms of the AJVA as it stood, and the Defendants were not pressing them to do so or giving any positive response to Hexagon’s proposed amendments to it.
174. Apparently, Mr Sulyman Al Majed met with the managing director of DIFCI in December 2010 and, whatever discussions then took place, there were no further negotiations and nothing happened in relation to the Project for the better part of two years from March 2010 onwards. It is obvious that, if Hexagon had been interested in pursuing the Project in this period in accordance with the only binding contract in existence, the AJVA, it would have been pressing the Defendants, but it did not do so. By November 2011, the Defendants had come to the view that the joint venture was at an end due to non-fulfilment of the various obligations of the relevant parties over an extended period of time.
175. On 15 February 2012 the internal slide presentation to which I referred earlier was prepared by Tanmiyat, including the reference to CSI failing to produce a funding structure. Reference was also made to a cash flow study which had been presented for consideration in which the authors, JLL highlighted the downward trend in the market, Meetings took place in February 2012 and in March 2012 it seems that the Defendants asked Hexagon to explain the history and background of the Project and provide a new business plan showing what the UBOs’ intentions were for it. A presentation was then prepared on 30 April 2012, utilising the slides used in the internal presentation but omitting the reference to CSI arrangements being terminated because of the absence of any funding structure put forward by it. This was sent to the Defendants on 2 May 2012 with what was described as a memorandum explaining the legal relationship between the various parties involved. Mr Elfadil’s email of that date stated that “we are preparing a new marketing study and best use analysis as well as working with an International Consultant Firm to prepare a revised concept design for the building which will be submitted and discussed with you.” That memorandum appears to be the 2012 Memorandum dated 26 April 2012 and prepared by King & Spalding.
176. The 2012 Memorandum was almost word for word the same as the 2010 Memorandum save that additional wording appeared in relation to the 2008 SHA. It was now maintained for the first time that: “the Shareholders’ Agreement purported to terminate the Amended J V Agreement. However, neither Nexcap nor Hexagon executed the Shareholders’ Agreement”. Reference was then made to the basis of subscription of shares by CHL and DIFCI, as set out in the 2008 SHA. The only other relevant additions were: a sentence saying that no substantive response had been received from the Defendants in relation to the 2010 Memorandum; removal of the timescale for the “next steps” although the sequence in which those steps were to be taken remained the same; the requirement for agreement to a new shareholders’ agreement was now said to include the need for agreement on the value of the Project Land and the Total Cost of the Project and the shareholding percentages for the Project Company; and the reference to a feasibility study was replaced by a reference to an update of the business plan which would also deal with the expected costs of the Project.
177. Once again, this was seeking a wholesale change to the AJVA. Receipt of the 2 May 2012 email was acknowledged on 8 May 2012 and on 12 June 2012, DIFCI sent the Renunciation Letter of that date to Nexus, to Hexagon and Mr Elfadil at the Tanmiyat group, referring to the 2 May 2012 letter and its attachments.
“We have studied the contents of your letter and its attachments. It is clear from the documents provided that we are under no obligation to continue any negotiation with you (or any other party) of any Shareholders’ Agreement for the development of the Plot. Certainly, the Joint Venture Agreement (and its amendment) which DIFCA signed with various parties on 14 December 2003 (and 5 May 2004) no longer binds us in this regard. Accordingly, we do not currently intend to progress any further negotiations with you for the sale and development of the Plot.
If and when we decide to release the Lots on the market for sale and development, we will, at the appropriate time, consider inviting you to tender for the purchase and development of the Plot along with other interested parties.”
178. On 1 July 2012, Tanmiyat wrote to the Defendants requesting a meeting but received no response. King & Spalding replied to the letter on 13 August 2012 in a long letter in which they set out their version of a chronology of events, maintaining that the 2008 SHA was invalid but that the AJVA was binding upon the Parties. It expressed surprise at the statement by the Defendants that they considered they were no longer under any obligation to continue negotiations. The letter concluded by saying that their client was hopeful that the matter could be resolved amicably and looked forward to hearing from the Defendants substantively with their comments in relation to the preceding twenty-six numbered paragraphs of the letter. When no response had been received by 2 September 2012, King & Spalding sent a chaser on that date, stating that, in the event that nothing was heard, their client would have no alternative but to take steps to progress matters and to protect its position. “All of our client’s rights are reserved in this regard.” On 27 September 2012 another email was sent by DIFCA in reply which merely attached the 12 June 2012 letter from the DIFCI.
179. It is Hexagon’s case that, following this exchange, all that took place thereafter from October 2012 onwards, before the exchanges in October and November 2018 was effectively without prejudice negotiations with a view to settling the dispute which had arisen out of the Renunciation Letters and that Hexagon had reserved its rights throughout to terminate the AJVA on the ground of the Defendants’ fundamental non- performance of the AJVA before 2012 and the anticipatory non performance represented by the Renunciation Letters. There are a number of difficulties about this approach because only 4 written communications out of the many exchanged thereafter contained an express reservation of rights, namely those of 28 October 2013, June 2016, 21 August 2017 and 10 September 2017. Of the many communications between the Parties, an even smaller number were headed “without prejudice” which might be taken to imply that the others were not written under that characterisation. Be that as it may, that is Hexagon’s case, the reason for it being apparent from any reading of the proposals which it advanced to the Defendants in relation to the form the Joint Venture Project should thereafter take, which were inconsistent with the terms of the AJVA and involved not just updating its provisions to take account of increases in the cost of construction, the Total Project Capital and the value of the Project Land and the Use Mix but, once again, the reduction of Hexagon’s financial contribution to the Joint Venture Company and an increase in the contribution of the Defendants, over and above the provision of the Project Land.
180. It is unnecessary to descend into any detail in this respect. It is sufficient to refer only to the 8 October 2015 Term Sheet and the 9 September 2018 Term Sheet which were sent to the Defendants by King & Spalding.
181. In the 8 October 2015 email which accompanied the Term Sheet of the same date (not headed “without prejudice”) Mr Ali, who did not give evidence, stated that he was “now instructed by Mr Al Romaizan that he and his partners have decided that they would like to implement the original agreement with the DIFCI and enter into a joint venture to develop the plot. To this end, attached above is a draft term sheet outlining the terms of the proposed joint venture. As you will note… The draft is based on the original joint agreement entered into by the parties on 14 December 2003, as amended on 5 May 2004”. A perusal of the Term Sheet shows that there were significant departures from the AJVA, including the following:
181.1. Item 4 provided for the transfer value of the Project Land to be equal to AED 100 per square foot of the total BUA (excluding parking) which was the value in the JVA in 2003 but was specifically deleted in the Amending Agreement in 2004 and was wholly inapposite in 2015, when its value appears to have been about three times that figure. The potential impact of that on the percentage shareholdings in the Joint Venture Company was not spelled out, though the initial share capital was only to be $50,000 and the Project Land was to be transferred immediately on incorporation under Item 8.
181.2. Item 10 stated that Hexagon was to be solely responsible for the Project Costs, limited to the amount equal to the anticipated Project Costs as agreed in the Detailed Design and Project Costing to be agreed between the parties. Thus, any costs overruns would be payable by the Joint Venture Company with the additional cost thus shared proportionately between the shareholders. The effect was to negate Schedules C and D of the AJVA providing that the Defendants should contribute nothing more than the Project Land.
181.3. Item 11 stated that Hexagon was entitled to raise finance to fund all or any of the Project Costs by using the Project Land as security.
181.4. Item 12 stated that Hexagon would be entitled to utilise any sales revenue from third-party sales for the payment of the Project Costs, thus once again diminishing the return to the Defendants because this would come out of the Joint Venture assets.
182. On 10 September 2018, Mr Ali all sent an email attaching a term sheet “that reflects the terms we discussed and agreed over the past four months”. Mr Visser’s evidence was that this was a further attempt to convey the fact that some agreement had been reached when all that had happened was that there had been high-level discussions. He was not cross examined on this. The Term Sheet dated 9 September 2018 provided that the parties were to enter into a replacement joint venture agreement to supersede the AJVA and Schedule 1 set out the key terms for such an agreement.
182.1. Under Item 4, the Defendants were to provide the Project Land and Hexagon was to provide “an in-kind contribution of construction works”.
182.2. Item 5 provided that Hexagon was to be solely responsible for all costs already incurred by it in respect of the Project, including design costs but these were ultimately to be borne by the Joint Venture Company as part of the overall Project Costs.
182.3. Item 6 provided that the Joint Venture Company was to be solely responsible for the Project Costs with Hexagon making capital contributions as and when needed to fund the Project Costs to the extent that such amounts could not be funded from third-party debt and/or revenue raised from the sale of units within the Project. Thus, once again, Hexagon was negating any obligation to provide liquid funds for the Project Costs and proposing that the Joint Venture Company should borrow them at its expense. Hexagon would only inject cash as a fallback, if third-party borrowing by the Joint Venture Company and sales were insufficient to fund the construction and development.
182.4. Items 9 and 10 provided for Hexagon to have a 70% shareholding and the Defendants to have 30% and for completion to take place as soon as possible after the incorporation of the Joint Venture Company, which would mean that the defendants would have to transfer the Project Land, thus losing control of it on such transfer to the Joint Venture company in which Hexagon was to have a controlling interest.
182.5. Item 18 provided that Hexagon was to be entitled to raise finance to fund all or any of the Project Costs and to use the Project Land as security for financing purposes. The Joint Venture Company was to be permitted to borrow money from the shareholders for the purpose of funding the working capital. The cost of financing would therefore fall on the Joint Venture Company.
183. The differences from the AJVA are stark and represent the continuing desire of Hexagon to avoid any upfront cash investment.
184. Following the exchanges in the autumn of 2012, very little appears to have happened until King & Spalding took up the reins again in October 2013 with a draft Memorandum of Understanding. The contact was sporadic in seeking to resurrect discussions from then on with Mr Hosn’s involvement beginning in September 2014. By 4 October 2015, the Defendants had received external legal advice to the effect that the AJVA was likely still to be valid and operative and its Board, that day, instructed the executives take steps to renegotiate the terms of the AJVA which was understood also to be the intention of Hexagon. From that point on, the Defendants, without any formal admission that the AJVA was binding, negotiated with Hexagon on the basis that it was. Discussions proceeded in relation to the BUA and HBU by reference to the Master Plan, a new version of which emerged in 2016 with the Defendants looking to agree such matters and prepared to make some concessions in relation to financing, provided there was adequate protection for them if Hexagon failed to comply with its obligations.
185. The 8 October 2015 Term Sheet was the subject of discussion on 4 November 2015, where once again Hexagon was informed that the price paid by the UBOs to buy their shares in Hexagon could not be recognised as a contribution to the Joint Venture Project. Discussions continued in February 2016 and in May 2016 Mr Hosn met with the Governor of the DIFC in an attempt to reach some accommodation. In a letter sent thereafter by Mr Al Romaizan to the Governor he stated that it was unacceptable for the purchase price paid by the UBOs not to be taken into account and referred in that letter to the AJVA as ongoing, binding and enforceable and as the mandatory basis for Hexagon’s future relationship with the Defendants. This reflected Hexagon’s position throughout the sporadic negotiations between 2014 and 2018.
186. There was a one-year gap in the negotiation between June 2016 and June 2017, whereupon the Defendants suggested the possibility of Hexagon purchasing the Project Land outright instead of pursuing the Joint Venture Project. On 6 August 2017 there was formal rejection of the 2015 Term Sheet and specific proposals for the future of the Project with the fleshing out of the alternative proposal for a sale and purchase of the property. One of the key issues which was referred to in that letter was the need for the Defendants to be satisfied that had Hexagon could provide the funding to pay for the Project Costs without using the Project Land as collateral. The response to that letter by Mr Ali was to say in a letter of 10 September 2017 that it was his clients “clear position that the Joint Venture Agreement dated 14 December 2013 [sic] as amended, is binding on the parties.” That letter was written “without prejudice save as to costs” and subject to an express reservation of rights. This characterisation constituted the exception rather than the rule.
187. Litigation was undoubtedly in mind because the parties negotiated a Standstill Agreement which was eventually signed on 28 November 2017 and was subsequently extended. On 25 February 2018, Mr Ali emailed a copy of a report from Deloitte on the highest and best use of the Project Land but without any financial feasibility data. This confirmed Mr Visser’s doubts about Hexagon’s real intentions and whether it was serious about developing the Project. He asked for a feasibility study. Mr Ali’s response, both on the following day and again on 1 March 2018 stated the intention to negotiate a joint venture or a land purchase “on the basis of the original agreement (which of course still subsists), ”where “the contractual obligations are clear” and “the DIFC is bound by its contractual obligations” notwithstanding the Renunciation Letters to which he referred. No feasibility study was ever provided.
188. In June 2018 the Defendants’ Board met again and specifically approved pursuing the joint venture with Hexagon (with the exclusion of Nexus) provided that a very disciplined approach was taken in terms of financial requirements and project deadlines, with clear step-in rights and remedies if Hexagon did not perform, whilst seeking to negotiate better terms.
189. In July 2018, a further option emerged which was the possibility of ICD Brookfield buying out Hexagon and taking over its rights under the AJVA. An offer was made by the former in the sum of AED 120 million which was rejected, even though, as it now appears, Deloitte provided a range of NPVs for Hexagon’s AJVA rights, depending on various discount rates and revenue forecasts, on the basis of a 70%/ 30% equity split. The average NPV in the range is just under AED 100 million. Apparently, Hexagon wanted a figure 4 times more than that, which obviously related to the sum paid by the UBOs for their shares in Hexagon. Following the demise of that possibility, in circumstances where the correspondence shows that both parties were proceeding on the basis of the AJVA was binding, Hexagon produced the 9 September 2018 Term Sheet which led to the response of the Defendants in the letter of 10 October 2018, which is set out below and was followed by Hexagon’s termination letter of 19 November 2018.
The Issue of Renunciation or Anticipatory Non- Performance
190. It is convenient, at this point, to deal with what was, essentially a discrete issue, namely that of renunciation or anticipatory non-performance. Although it might appear strange to determine this issue first, it is clear to me that Hexagon’s case as to renunciation by communication by the Defendants of an intention not to abide by the AJVA cannot succeed. Reliance was placed on the emails/letters in June and September 2012 in which the Defendants made it clear that they did not consider themselves bound by the AJVA. It was also alleged that at meetings on 17 May 2016 and 19 September 2017, Mr Visser had said that the AJVA was not binding on the Defendants.
191. It would have been open to Hexagon to terminate the AJVA on the basis of any such renunciation, but, whether or not any reservation of rights by it was effective to preserve an entitlement to terminate, it chose not to do so and by the time it did terminate, the renunciation had been withdrawn. Where a party renounces a contract, if the other party does not terminate, it gives the other party a locus poenitentiae during which that other party can withdraw the renunciation and make it clear that it will proceed with the contract. It is like an anticipatory repudiation and is writ in water unless and until accepted. This is trite law. The right to terminate under Article 88 of the Contract Law arises where “it is clear that there will be a fundamental non-performance”. It cannot properly be said that the letter of 10 October 2018 made it clear that there would be a fundamental non-performance of the AJVA when it expressly sought compliance by Hexagon with its terms.
192. In cross examination, Mr Hosn, whose evidence was adduced by Hexagon and who attended these meetings stated that at the meetings in May 2016 and September 2017, Mr Visser was careful neither to accept nor to deny that the AJVA was binding. This accorded with Mr Visser’s witness statements in which he said that, from March 2015 onwards, after receipt of legal advice that the AJVA was binding, all negotiations with Hexagon for resolution of the issue and for development of the Project Land proceeded on the basis of an assumption that the Parties were so bound. Moreover, on 6 August 2017 and 27 July 2018, Mr Visser had expressly spoken of implementation of the current joint venture, in the absence of agreement to a different solution. Mr Al Kindi had likewise affirmed the validity of “the current contract” on 30 August 2018 and the need to go ahead with it if an alternative solution did not commend itself to Hexagon. The provision in the Standstill Agreements that “nothing in this Agreement shall be construed as a recognition… of the validity of the 2004 JV, or any part thereof, and/or the actions, claims, rights or remedies of the Parties thereunder” merely repeated the same position of non- admission that Mr Visser had adopted from time to time. Other wording relied on in correspondence in the period from September 2012 onwards is not reasonably capable of being interpreted as renunciatory conduct but even if it was, the withdrawal of the renunciation referred to hereafter would render reliance on it as untenable.
193. Hexagon submitted that the 10 October 2018 letter from the Defendants did not revoke the renunciation or anticipatory non- performance constituted by the exchanges in June and September 2012 because it offered performance which did not conform to the AJVA and misconstrued Hexagon’s obligations with regard to Total Project Capital. It was also submitted that it did not constitute notice to Hexagon as opposed to Nexus, because it was addressed to the latter although also received by the former.
194. Mr Visser, the author of the letter, said that it was intended to remind Hexagon of the terms of the AJVA by which the Parties were bound and to bring it back to the negotiating table with more realistic proposals than those which it was currently pursuing which differed significantly from the terms of the AJVA. It was intended to ascertain whether or not Hexagon was serious about pursuing the AJVA and for negotiations to recommence on what was seen by the Defendants to be a more appropriate basis. Had Hexagon indicated any willingness to negotiate on a basis closer to the AJVA, negotiations would have continued. The Defendants would have been delighted if Hexagon had shown a willingness to provide funding for the Joint Venture Company as opposed to requiring the Joint Venture Company to obtain funding itself, at the ultimate expense of the shareholders.
195. The email to which the letter of 10 October 2018 was attached was sent by Mr Visser in response to an email of 24 September 2018 which had sought a response to the term sheet sent by King & Spalding on 10 September 2018. Mr Visser’s email stated: “given that the settlement discussions ongoing in this matter have not produced any mutually agreeable alternative outcome, we have decided to proceed with the original transaction as agreed in the Joint Venture Agreement dated 14 December 2003 (as amended)”.
196. It is necessary to set out most of that letter, which was addressed to Nexus at the address provided in clause 5 (b) of the JVA and copied to Hexagon.
“We write to give you notice pursuant to Clause 9 of the Agreement that DIFCA as assigned the Land to an affiliated entity, DIFCI and that the rights and obligations of DIFCA pursuant to the Agreement of been transferred to DIFCI.
The remainder of this letter relates to the rights and obligations of all parties to the Agreement.
As you are aware, no progress has been made in relation to the development of the Hexagon Project on the plot of land identified at Schedule B of the Agreement.
Without prejudice to its right to challenge the satisfaction of the condition precedent at Article 2 of the Agreement, DIFCI now proposes that the Joint Venture Company should be immediately incorporated as required by Clause 3.1.2 the Agreement [sic].
This, in turn, will require the adoption and execution of a Shareholders’ Agreement to be prepared by Nexus in accordance with clause 3.1.3 of the Agreement and the injection of liquid finance into the Joint Venture Company in accordance with the provisions of Schedule E of the Agreement. Once the Joint Venture Company is incorporated and capitalised, the parties can then move to the execution of the Sale and Purchase Agreement which will be prepared by DIFCI in accordance with the provisions of Schedule C of the Agreement.
Given that Hexagon Holdings (Cayman) Ltd is required under the Agreement to invest by way of liquid finance the Total Project Capital into the Joint Venture Company, DIFCI proposes that such liquid finance be provided within three months from the date of this letter. We look forward to hearing from you. In the meantime, all of DIFCI’s rights under the Agreement are reserved.”
197. It is clear that, in this letter, the Defendants, both of whom were signatories, were giving notice of the assignment of the Land in accordance with clause 9 of the AJVA and thereby recognising its validity. It is also clear, whether or not the letter adequately or comprehensively set out the terms of the AJVA, that it was specifically referring to “the rights and obligations of all the parties” to the AJVA on the basis that it was binding, whilst the email to which it was attached specifically stated that the decision had been taken to proceed with the AJVA. What the letter sought to do was to make proposals which were in accordance with the terms of the AJVA, including the incorporation of the Joint Venture Company and “the adoption and execution of a Shareholders’ Agreement to be prepared by Nexus in accordance with clause 3.1.3” of it. Reference was then made to the injection of liquid finance by Hexagon and the execution of the Sale and Purchase Agreement to which the AJVA referred.
198. The paragraph proposing that liquid finance be provided within three months from the date of the letter was a proposal and not a demand. In fact, the whole letter proceeded on the basis of proposals but proposals which were said to call the AJVA. In my judgment this was not an offer of nonconforming performance but, as Mr Visser said, an attempt to remind Hexagon of the terms of the AJVA with a view to negotiating on the basis of it and to evoke a response which would reveal the willingness of Hexagon to provide “liquid finance” to the Joint Venture Company, as required by the AJVA. It was, in my view, a negotiating ploy to bring Hexagon to the negotiating table with what the Defendants saw as more realistic proposals at a time when the reality was that operating within the parameters of the AJVA was possible, but not economically sensible for either party.
199. It is clear from the various board meetings of the Defendants, that since October 2015, they had resolved to proceed with the Project on the basis of the AJVA and to renegotiate it, if possible, in order to reach a compromise with Hexagon. This letter was part of that process and could only be read as an attempt to bring the parties back to the terms set out in the AJVA. Whilst that letter was sent as part of a negotiating process, it was a bona fide letter and was not disingenuous, nor part of any plot to deprive Hexagon of its rights under the AJVA. I am satisfied that had there been any response by Hexagon to this other than a notice of termination, negotiations would have continued, though whether there was any real prospect of an agreement emerging is another matter.
200. However the letter is read, it cannot be seen as a further refusal to perform the AJVA in accordance with its terms and can only be seen as a recognition of its validity and enforceability, whatever differences there might be in the in the interpretation of its terms. Hexagon’s representatives understood this at the time. Mr Hosn, in an email of 14 October 2018 to Mr Abdullah Al Majed and Mr Sulyman Al Majed attached the letter, stating: “please find attached the letter sent by DIFC in which they clearly acknowledge the 2003 JV agreement as Amended and they are requesting to proceed in accordance to the 2003 JV agreement as amended”. As already stated, the right to terminate under Article 88 of the Contract Law arises where “it is clear that there will be a fundamental non-performance” and it cannot sensibly be said that the letter of 10 October 2018 made it clear that there would be a fundamental non-performance of the AJVA when it expressly sought compliance by Hexagon with its terms.
201. Even before this, Hexagon had appreciated that the Defendants were no longer saying that the AJVA was not binding. In a letter in June 2016 addressed to the Governor, Mr Al Romaizan had referred to a meeting in September 2015 in which he said that it had been agreed that the AJVA was ongoing, binding and enforceable and must form the basis of Hexagon’s ongoing relationship with DIFCI. On 9 August 2018, Mr Ali of King & Spalding had written to Mr Williamson of Deloitte, asking him to advise on a price to be asked on a third party for a buy- out of Hexagon’s AJVA rights. In that letter the following wording appears: “now that DIFC has recognised the Hexagon Development Agreement and agreed on a 70/30 JV”. It is clear from this that the UBOs and the lawyers representing Hexagon understood the Defendants to have accepted the validity of the AJVA, whilst seeking to negotiate a new deal in the circumstances
202. In itself, the letter of 10 October 2018 could not possibly justify termination by Hexagon and it is noteworthy that, in the letter of termination of 19 November 2018, King & Spalding, on the half of Hexagon did not rely on the letter as a basis for termination at all, but sought only to rely on the exchanges between June and September 2012 and breaches of clause 3 of the AJVA. That letter purported to rely on the Renunciation Letters of 12 June 2012 and 27 September 2012 as a renunciation which was accepted as bringing the AJVA to an end which, given the later recognition of the AJVA by the Defendants and the effective withdrawal of such renunciation was no longer open to it.
203. Any renunciation or anticipatory non-performance in 2012 had not led to the termination of the AJVA by Hexagon prior to this and it could not be said that by seeking to revert to its terms, whether accurately reflected in the letter of 10 October 2018 or otherwise, the Defendants were in actual breach, anticipatory breach, renunciatory breach, let alone fundamental breach.
204. In consequence, Hexagon’ case stands or falls on the alleged breaches of clause 3 of the AJVA prior to 27 September 2012 which entitled it to terminate on 19 November 2018, without regard to the Renunciation Letters, save as a matter of history. It must also establish that that it was able to do so, as a matter of law, having reserved its right to do so between those two dates.
Failure to Terminate within a Reasonable time/ Affirmation.
205. I probably do not need to decide whether all the exchanges between 2012 and 2018 were truly “without prejudice” and subject to a reservation of rights. The reason for this is that Article 87(1) of the Contract Law provides that the right to terminate is exercisable by notice to the other party whilst Article 87(2) provides that the aggrieved party will lose its right to terminate unless it gives notice of termination within a reasonable time after it has, or ought to have become, aware of the nonconforming performance.
206. Putting to one side for the moment the dates of actual breaches which were arguably alleged to take place in 2007-2010 and focusing only on the date of “accrual” or “crystallisation” on 27 September 2012 and also putting to one side any question of time-bar, I do not consider that a party can retain a right to terminate over a period in excess of six years from the date when such a right to terminate is said to have accrued. On this basis alone, the right of termination was lost. Similarly, regardless of the “without prejudice” issue and “reservation of rights” issue, the passage of that time between the alleged accrual of the right to terminate and the actual termination, given everything that was said and done by Hexagon, expressly on the basis that the AJVA was valid and binding, would as a matter of English law ordinarily be taken to amount to an affirmation of the AJVA which prevented termination in November 2018, absent some fresh fundamental non-performance. In this respect, the dictum of Lord Goff in The Kanchenjunga  1 Lloyd’s Rep 391 at 398 is apt:
“In all cases, he has in the end to make a selection, not as a matter of obligation, but in the sense that, if he does not do so, the time may come when the law takes the decision out of his hands, either by holding him to have elected not to exercise the right which has become available to him, or sometimes by holding him to have elected to exercise it.
“Even when the underwriter has full knowledge of the facts, he is still entitled to a reasonable time in which to decide whether to affirm the contract… In a situation in which the underwriter has taken no action to affirm or repudiate the contract and a reasonable time for making up his mind has elapsed, he will be deemed to have affirmed the contract if so much time has elapsed that the necessary inference is one of affirmation or the assured has been prejudiced by the delay in making an election or rights of third parties have intervened.”
207. The same point is made by Foxton J in S K Shipping Europe plc v Capital VLCC 3 Corp & another  EWHC 3448 (Comm) at , where he said:
“I have concluded that ….. while a reservation of rights will often have the effect of preventing subsequent conduct [from] constituting an election, this is not an invariable rule. In the final analysis, the issue of whether there has been an election requires the court to have regard to all the material, including any reservations which have been communicated. Where conduct is consistent with the reservation of a right to rescind, but also consistent with the continuation of the contract, then an express reservation will preclude the making of an election. This is likely to be the case where there is a reservation of rights accompanying the exercise of a contractual right to obtain information as to a party’s rights, or where a party is performing its own obligations while assessing its position. However, where a party makes an unconditional demand of substantial contractual performance of a kind which will lead the counterparty and/or third parties to alter their positions in significant respects, such conduct may be wholly incompatible with the reservation of some kind of rights, even if the party demanding performance purports at the same time to reserve them. Determining whether particular conduct gives rise to an election is ultimately a matter of legal characterisation rather than a question of what label a party has attached to its own contact as reflected in Lord Goff’s statement in the Kanchenjunga…”
208. Here, Hexagon, persistently, in the period 2012 – 2018, albeit sporadically, demanded that the Defendants negotiate and agree on joint venture terms on the express basis of the continued existence of the AJVA as a valid, binding and enforceable agreement. This was the constant mantra in seeking to renegotiate its terms. Regardless of an occasional reservation of rights, what Hexagon was seeking to do, throughout this time, was to impel the Defendants to the negotiating table to discuss and agree its proposals on the grounds that the Parties were obliged to do so under the terms of the AJVA. Not only did a reasonable time for termination long since elapse prior to 19 November 2018 but Hexagon must be taken to have affirmed the AJVA notwithstanding any prior breaches by the Defendants.
209. The right to terminate under Article 88 of the Contract Law arises where “it is clear that there will be a fundamental non-performance”. It cannot properly be said that the letter of 10 October 2018 made it clear that there would be a fundamental non-performance of the AJVA when it expressly sought compliance by Hexagon with its terms. Any prior anticipatory non- performance was thereby also cured, and no new breach took place which could give rise to the right to terminate, which had already been lost by the passage of time since the alleged clause 3.1 breaches. Moreover, the constant assertion of the continuing existence of the AJVA is wholly inconsistent with anything other than an affirmation of the AJVA which would also preclude termination on the basis of the prior breaches of which Hexagon complains.
210. This conclusion is fortified by the absence of any reservation of rights or “without prejudice” heading when Hexagon put forward the 2015 Term Sheet and the 2018 Term Sheet on the basis that they were purportedly based on the AJVA.
The Alleged Clause 3 breaches
211. On the basis of the law as I have held it to be in relation to the obligation to use best endeavours in good faith to complete the steps and procedures set out in clause 3.1 of the AJVA and the facts as set out above, there was no breach by the Defendants of their clause 3 obligations.
211.1. The obligations were mutual obligations resting upon both the Defendants and Hexagon. Where the agreement of both parties was required for fulfilment of any such obligations, Hexagon is unable to show that there was any absence of good faith or failure to exercise best endeavours to reach an agreement on the basis of the AJVA.
211.2. The obligation to use best endeavours in good faith immediately to incorporate the Joint Venture Company was in fact, from the moment the UBOs sought to negotiate a better deal than the AJVA in 2007, dependent upon the agreement of the Parties to a shareholders’ agreement. From the outset, the UBOs, Hexagon and CHL sought to vary the terms of the AJVA in relation to the financing obligations in a manner which was not consistent with the terms of the AJVA and would have required different capitalisation of the Joint Venture Company, to be reflected in its Articles of Association.
211.3. The obligation to use best endeavours in good faith to execute a shareholders’ agreement was limited to the execution of an agreement which conformed to the provisions of Schedule D of the AJVA, from which the UBOs, Hexagon and CHL sought departure. The Parties were only bound to use best endeavours in good faith to execute an agreement which complied with the terms of Schedule D, ignoring for the moment the need for such a form to be prepared by Nexus. There is no yardstick by which this Court could assess whether or not there was any breach by either party in failing to reach an agreement on different terms. The absence of approval by both Parties to any valid and binding shareholders agreement or execution thereof cannot therefore be laid at the door of the defendants, as a breach of the AJVA.
211.4. The obligation to use best endeavours in good faith to execute the Sale & Purchase Agreement was limited to the execution of an agreement which conformed to the provisions of Schedule C and was again dependent upon the execution of a shareholders’ agreement because the Project Land was to be the price paid by the Defendants for the shares in the Joint Venture Company in accordance with paragraph 2 of Schedule D. This too ignores the need for approval by Nexus. The transfer of the Project Land could only take place following the incorporation of the Joint Venture Company.
211.5. The evidence establishes that the Defendants did negotiate in good faith and were prepared to make concessions for which there was no provision in the AJVA, even without any obligation to do so. Agreement was reached in the form of the 2008 SHA, but it is common ground that this was not a valid and effective.
211.6. The delays in producing a satisfactory Concept Design with an appropriate feasibility study and business plan meant that no real progress was made in furthering the Project, whilst other matters which required resolution such as the increase in the GFA sought by Hexagon/CHL, the fresh agreement on the Use Mix and the Affection Plan all took time but were not the result of any breach or delaying tactic by the Defendants. There was no lack of good faith failure to exercise best endeavours: to agree on a different Use Mix from the Master Plan to which the Parties were bound under the AJVA; to agree on an increase in the GFA in circumstances where the BUA was set out in the AJVA; or to resolve issues relating to the Affection Plan for which other authorities were responsible. None of these constituted steps to be taken under clause 3.1 in any event.
211.7. The fundamental issue which was never satisfactorily resolved between the Parties was manner in which the Project was to be financed because the AJVA provided for Hexagon to invest the Total Project Capital into the Joint Venture Company by way of liquid finance and Hexagon sought to renegotiate that. It is clear that at least part of the motivation for this was the fact that the UBOs had paid some $120 million for their shares in Hexagon. Although renegotiation resulted in the 2008 SHA, this too became unacceptable as the impact of the global financial crisis was felt by Tanmiyat and Hexagon and led to further attempts by Hexagon to reduce its obligations in that respect. The global financial crisis had the effect of reinforcing Hexagon’s determination to change the terms of the AJVA with regard to financing the Joint Venture Project.
212. The Court law provides in Article 38 that proceedings must be commenced no more than six years after the date of the events that give rise to the proceedings. The Contract Law, Article 123, states that an action for breach of any contract must be commenced within six years after the cause of action has accrued. Article 123 (2) provides that a cause of action occurs when the breach occurs, regardless of the aggrieved party’s lack of knowledge of the breach. This action was commenced on 6 March 2019 and, as referred to above, the Parties entered into a standstill agreement which operated between 28 November 2017 and 31 October 2018, a period, on my reckoning, of 337 or 338 days, if the end date is included. In the result, any cause of action which accrued before 2/3 April 2012 would be time barred.
213. Hexagon’s case on breaches of clause 3 largely turns on events prior to April 2012 and the claim in respect of such matters is therefore prima facie time barred. As stated earlier in this judgment, a cause of action accrues when a breach first occurs and the clause 3 breaches of which complaint is made, as set out in paragraphs 18 and 19 of the Reamended Particulars of Claim, with the exception of an alleged failure to respond to the 2012 Memorandum, sent on 26 April 2012, centre around events in 2006 – 2009. The mutual clause 3 obligations were defined by reference to time, namely “best endeavours to complete the steps and procedures set out in clause 3.1 as soon as reasonably practicable”, of which one such obligation, in the case of clause 3.1.2, was to proceed “immediately” to incorporate the Joint Venture Company. If the parties disregarded the temporal element of these obligations and the failures prior to 2007, and Hexagon, according to its own case, was pressing for the steps to be undertaken thereafter, so that it was not in breach itself, any compliance would be required within a reasonable time, if not as soon as reasonably practicable, following Hexagon’s requirement for the requisite action to be carried out. A reasonable time must long since have expired by 2012 absent extenuating circumstances, which, on Hexagon’ case, did not exist.
214. Arguments as to continuing duty do not overcome this problem. There can be no “crystallisation” of those breaches, or accrual of a cause of action in respect of those breaches on 27 September 2012. The cause of action arose earlier in respect of them and is therefore time barred and any fundamental breach could only therefore be founded on the failure to respond positively to the 2012 Memorandum and the alleged Renunciation.
215. The 2012 Memorandum enshrined proposals which were a repeat of the 2010 Memorandum. A failure to agree to it or respond positively to it, whilst within the limitation period was actually no more than a failure, on Hexagon’s case, to cure an existing breach in failing positively to respond to the 2010 Memorandum. Whilst there might be some scope for argument in this respect, for the reasons already given the 12 June 2012 Memorandum was put forward as a proposal to change the AJVA and there could be no breach by the Defendants in failing to respond positively to it, as equally there was no breach in rejecting the 2010 Memorandum.
216. Whilst a claim based on the Letters of Renunciation was made in time, I have already found that the Letters of Renunciation were withdrawn by communications passing between the Defendants and Hexagon and in particular, at the latest by the communication of 10 October 2018 and that a reasonable time had long since passed before Hexagon terminated and/or that it affirmed the AJVA in any event.
Causation of loss
217. In order to succeed in any claim for damages, in circumstances where the Defendants allege that Hexagon would not have fulfilled the terms of the AJVA, wherever the burden of proof may lie, it would be necessary for the Court to determine whether Hexagon could and would have carried out its obligations under the AJVA.
218. It is unnecessary to me to decide whether or not Hexagon was capable of doing so because it is clear that it had no intention of doing so because it was not prepared to comply with the obligations in Schedule D of the JVA which required it to invest the Total Project Capital by way of liquid finance. That was the whole basis upon which it sought to renegotiate the AJVA over a period of some eleven years. Furthermore, when regard is had to the expert evidence, the development would have proved unprofitable for Hexagon, even without taking into account the purchase price paid by the UBOs for their shares in the company.
219. Whether Hexagon would have gone ahead on a different basis in uncertain, but it is a fair assumption that, if up-front investment could be avoided and agreement could be reached with the Defendants on terms of the kind proposed by it in the 2018 Term Sheet which led to the 10 October letter from the Defendants, Hexagon would have gone ahead, because of the extent of the UBOs’ investment in Hexagon, if such a Project then appeared to be profitable. I am unable to say, however, what terms would have been agreed and what any profit would have been on that basis because, there is, as stated earlier, no yardstick by which the Court can make such an assessment. The provision of any significant up-front cash investment in the Project appears, however, to have been off the table for Hexagon.
220. So far as Hexagon’s ability to provide significant liquid funding is concerned, I have already referred to the failure by Hexagon to comply with this Court’s order to disclose documents showing that it was both willing and able to provide the necessary financing. The say-so of Mr Al Majed and Mr Hosn is simply not enough, particularly when regard is had to such documents as were disclosed in relation to Tanmiyat’s financial position in late 2009 which plainly led to them seeking to renegotiate the deal in the 2010 Memorandum. I am entitled to draw adverse inferences from the failure to disclose relevant documents and to conclude, on the basis of the material before me that, having been challenged as to its ability to do so, Hexagon has not produced the evidence to show that it could comply with the requirements of the AJVA. On its own expert’s evidence, the peak funding requirement for projects beginning in 2018 varied between $240 million and $400 million. Whilst Mr Al Majed maintained that he had $200 – 400 million sitting around in cash in 2012, referred to a cheque received from the Saudi Government for SR 1.156 billion and Mr Hosn said that Mr Al Romaizan had more than $400 million in cash lying around in a bank account, no evidence of assets of any kind, whether in the shape of bank statements or otherwise was ever produced to support this. The failure to produce such documents was never explained although the desire for privacy might be understandable. No Court could conclude that the provision of such large sums was something which Hexagon could do without some hard evidence of this kind.
221. Article 110 of the Contract Law provides that “the aggrieved party is entitled to full compensation for harm sustained as a result of the non-performance. Such harm includes both any loss which it suffered and any gain of which it was deprived.” Article 10 of the Law of Damages and Remedies provides that an injured party has a right to damages measured by the loss in value to it of the other party’s performance caused by its failure, plus any other loss, including consequential loss, caused by the breach, less any costs it has avoided by not having to perform the contract. Under Article 11 (1) compensation is due only for loss, including future loss that is established with a reasonable degree of certainty. It is now accepted that the reliance loss claimed is an alternative to the expectation loss. The latter is to be assessed on the basis of what would have occurred if the Defendants have performed the AJVA as it is alleged they should have done. It is therefore necessary for the Court to investigate and assess what would have happened if the AJVA had gone ahead.
222. On the basis of my earlier findings, Hexagon remained obliged under the AJVA to provide the Total Project Capital for the Joint Venture Company by way of liquid finance, but could make use of Sales Proceeds for cash flow purposes, without impacting on the percentage shareholdings and entitlements of the Parties to share in the profit at the end of the day. Hexagon was bound to pay all the costs of development (even if in excess of the Estimated Project Capital) as the price for its shareholding whilst the Defendants were obliged only to provide the Project Land as the subscription price for their shares. Hexagon’s 85% shareholding in the Joint Venture Company, as prescribed in the JVA, was altered by the AJVA to 80%, but the provision in Schedule D for potential variation of elements in the Project Computations in Schedule E and consequent adjustment to the shareholdings of the Parties on the basis of the ratio of a revised Purchase Price for the Project land to the Total Project Capital remained in place. Clause 2.2.1 of the AJVA effected a change to the price for the Project Land and the Estimated Project Capital, based on the agreed increase of the total built up area. In the event of agreement to further increases in the value of the Project Land and/or the Estimated Project Capital, it would necessarily follow that the percentage shareholdings would change.
223. Schedule E set out assumptions, as at 3 November 2003, which were applicable to “all scenarios” for the Use Mix of the Project, where the approximate percentages of the main components were Offices (40%) Residential (14%), Hotel (14%), Serviced Apartments (9%), but these were only assumptions and the obligation to abide by the Master Community Declaration set out in clause 9 of the JVA governed the position. The Parties were therefore obliged to abide by the Master Plan, although variation of it could be sought. Save insofar as such variation was agreed at any point in time, the Court cannot form a view as to what variations might have been agreed, regardless of perceptions, whether individual or joint, as to the HBU of a development on the Project Land. Whilst a Party will not be taken to have “cut off its nose to spite its face”, as the expression appears in the authorities, any agreement between the Parties as to the Highest and Best Use (“HBU”) was of no effect unless there was a change in the Master Plan and the Defendants are entitled to rely on the principle that damages fall to be assessed on the principle of minimum performance.
224. Given the Court’s earlier findings that it was Hexagon that sought changes to the AJVA because it was no longer viable economically for it, it is unsurprising that, if its expectation loss fell to be assessed on the basis of the AJVA, there are a number of obstacles which stand in the way of Hexagon establishing any such loss with a reasonable degree of certainty. Even if assumptions are made as to the actions of the Defendants on the basis that a party “will not cut off its nose to spite its face” and that agreement would be reached on the Use Mix which would apply to a development proceeding from November 2018 onwards, the evidence of Mr Williamson, Hexagon’s appointed expert Chartered Surveyor, proceeded on untenable assumptions and insupportable methodology and failed to establish to the Court’s satisfaction any recoverable loss.
225. The object for the Court, in the event that the Defendants were found to be in fundamental breach of the AJVA, entitling Hexagon to terminate it, would be to assess the loss suffered by Hexagon as a result of its inability to pursue the AJVA. The breaches were said to be fundamental because they entitled Hexagon to bring the contract to an end and the loss is not said to flow from any delay as such, but from the loss of the benefit of the AJVA which came about in 2018. It is the contractual rights which have been breached which have to be valued and what Hexagon sought to do was to claim for the profits it would have made had the AJVA gone ahead, rather than come to an end by its allegedly justified termination.
226. This means that assessment of the lost must proceed on the basis that, but for such termination, the Joint Venture Project would have continued from 19 November 2018 onwards, instead of being terminated at that point. The fact that the breaches relied on as constituting a fundamental failure to perform accrued or crystallised, on Hexagon’s case, on 27 September 2012 (or possibly 10 October 2018), does not impact on the date when it lost the right to proceed with the Joint Venture Project which was 19 November 2018, the date of termination.
227. Mr Williamson was instructed to prepare an expert report “to calculate the loss of profit, if any, suffered by Hexagon as a result of not being able to undertake development on the Subject Site” as at 27 March 2013 and 28 May 2018, neither of which dates appeared to me to be apposite. The former represented a date six months after the 27 September 2012 Renunciation Letter, allowing for that period before construction work could actually start. The latter allowed the same period of six months from 28 November 2017, on the basis that a period of 6 months should be allowed from the date of the first Standstill Agreement.
228. For each of these two dates, Mr Williamson calculated loss of profit for two different situations, the first of which worked on the basis of the Joint Venture Project as proposed in the AJVA (referred to as the Approved Project), whilst the second assumed the highest and best use on the site ( referred to as “the HBU Project”), based on a study undertaken by Deloitte in November 2017 and contained in a draft report dated 25 February 2018. The proximity of the date of the study undertaken by Deloitte to the 28 November 2017 date referred to in the previous paragraph suggests that the two were connected, which no doubt saved redoing the HBU study for a different date and was used by Mr Williamson in both his 2013 and 2018 calculations, though I could see no logic in its use at the earlier date.
229. In the Joint Statement of experts dated 16 December 2021, to which Mr Williamson and the expert appointed by the Defendants, Mr Brand, contributed, a number of differences in approach were set out, as well as differences in the inputs to the financial model which Mr Williamson had developed as part of his determination of the loss of profit. Mr Brand’s instructions were to make an independent assessment of Hexagon’s loss of profit based upon his opinion of value for each of the four development scenarios identified by Mr Williamson, namely the Approved Project and the HBU Project in 2013 and 2018.
229.1. Mr Williamson prepared cash flows for the Project on the dates in question, adopting market assumptions at those dates and providing an opinion on the movement of rates in the future. Mr Brand adopted market assumptions taking into consideration the actual historical performance of the market up to the date of his report.
229.2. Mr Williamson’s cash flows and capitalisation of an income stream were applied in his assessment of lost profits without any discount for the time value of money, whereas Mr Brand undertook a discounted cash flow methodology (“DCF”), in accordance with his standard practice for a loss of profits analysis for a development of this kind.
229.3. Mr Williamson worked on the basis of an 80% share in the profits for Hexagon, whereas Mr Brand calculated the Parties’ respective shares in the Joint Venture Company based on the ratio between the market value of the Project Land and the amount of liquid finance contributed by Hexagon. The latter’s figures, on this basis were 76.58% (2013 Approved Project), 72.82% (2013 HBU), 76.69% (2018 Approved Project) and 73.34% (2018 HBU).
230. In relation to each of these issues of principle, I considered that Mr Brand’s approach was correct. He was not cross examined on the basis that he was wrong about the application of a discount, which was a significant omission which could only have been the result of a deliberate decision. Whilst the cross examination proceeded on the basis of an attack on his integrity, which I regarded as utterly misplaced, the absence of any cross examination on this point meant that his evidence on it was unchallenged and I am bound to accept it, as indeed I would have in any event, having heard Mr Williamson’s attempts to justify his approach.
231. Where the Court is called upon to assess a loss resulting from a given breach of contract, it is entitled to take account of events which are known to have happened since the date of breach in order to determine what would have happened in the absence of such breach. This is such a well-established principle that I could conceive of no good reason why Mr Williamson was not guided by those instructing him to work on that basis. Whilst saying that he was not undertaking a valuation in accordance with RICS principles, reliance was placed by him on provisions in its Red Book that, when giving a valuation at an historic date, it was not permissible to do anything other than look at the state of the market as at that date. Since he sought to justify departure from the discounting principle on the basis that he was not conducting such a valuation, the inconsistency is apparent. If assessing a loss of profit over a period which precedes and postdates the judgment of the Court, it is trite law that the Court can, and must, take into account events which are known to have occurred since the date of breach which would impact on the damages suffered.
232. In his calculations for the Project at 27 March 2013, Mr Williamson assumed that construction would be completed in a period of four a half years which resulted in a completion date of 27 September 2017. He worked on the basis of a Use Mix of 97% offices and 3% retail, in accordance with the 2016 Master Plan, for the Approved Project and the Use Mix in the Deloitte HBU Report in 2017/2018 for the HBU Project. He then calculated the rent which would have been received, in his opinion, over a period of four years which was the period he considered necessary for stabilisation at 85% occupancy for the Approved Project and seven years for the HBU Project. At that point he assumed that the Joint Venture Company would sell its interest in the Approved Project to a third-party investor with a capitalisation rate (Exit Yield) of 7% giving rise to a 14.3 multiplier. Although the Parties might not have intended to sell the Approved Project, his approach assumed a hypothetical sale in order to demonstrate the value that could have been achieved, had the project been developed. Effectively this was a capitalisation of the future income stream. He adopted the same approach to his calculations for the Project as at 28 May 2018, with completion of construction in November 2022, working with the same Use Mix as he had used for the 2013 Approved Project and HBU Project respectively, but otherwise providing updated figures, with a seven year period for stabilisation of occupancy at 75% in the case of the Approved Project and the same period for the HBU Project before making the same assumptions as before as to hypothetical sale of the AJVA rights.
233. Mr Brand adopted the same approach to valuing development rights of this kind by also estimating cash flows over an assumed investment holding period plus a different exit value at the end of that period, but applied what he regarded as the conventional methodology, which involved adopting a Discounted Cash Flow (“DCF”) that produces a Net Present Value (“NPV”) and Internal Rate of Return (“IRR”). This DCF methodology discounts the cash flow back to the present day at a discount rate (also known as the desired rate of return) which reflects the perceived level of project risk in the investment, thus producing an NPV. The IRR is the discount rate which, when applied to all estimated cash flows, produces an NPV of zero. In order to achieve an acceptable return, the IRR needs to be the same or higher than the discount rate. If it is lower than the discount rate, the project will produce a negative NPV.
234. Mr Williamson did not apply the DCF methodology because he considered that he was making an assessment of loss of profits, not a valuation in accordance with the RICS Practice Standards. The reality is however that where a future income stream is being assessed, as at the date of judgment of this Court, whether in respect of a period prior to the stabilisation date or thereafter, a discount must be appropriate for accelerated receipt, although there might be offsetting interest earned for what should have been received prior to the date of judgment. After the stabilisation date, he produced a capitalisation of a future income stream in which he valued the right to develop PA01 in accordance with the AJVA and I could see no reason why there should not be a discount which took into account the time value of money, where future cash flows are discounted at a market-based target rate of return that takes into account all the risk and return factors specific to the investment or development opportunity. “The discount rate reflects the time value of money and a risk premium, representing compensation for the risk inherent in future cash flows that are uncertain”, as explained in the RICS Practice Standards, UK, in Section 5.
235. Mr Williamson advanced one reason for not adopting the conventional method, which he set out in four places in his report. The reason given was that Schedule E of the JVA provided that no part of the Total Project Capital was to be borrowed by the Joint Venture Company, whether from the Investor or otherwise, but this made no sense as it would be Hexagon that would be borrowing to provide liquid funds to the Joint Venture Company and it is Hexagon’s loss that is being measured, in the shape of its AJVA contract rights. In cross examination, he effectively abandoned that reason and advanced a different reason, which was that the UBOs of Hexagon had paid $120 million approximately and were committed to doing the development regardless of risk. That, too, made no sense as the discount is to take account of actual risks in the Project itself, not the commitment of the claimant to carry it out.
236. Mr Williamson agreed that it was exceptionally unusual for discounting not to be applied but because he was assessing lost profits and not making a formal valuation, he did not consider that he needed to adopt the standard methodology. As appears subsequently, the application of any discount of 10% – 20% of the conventional kind has the effect of producing a negative NPV on all Mr Williamson’s figures save for the situation where a 10% – 17.5% discount is applied to the 2013 HBU Project, which is not a relevant time for assessment of the loss claimed. For the other Projects, at a 20% discount, which Mr Brand considered appropriate, even on Mr Williamson’s 2013 figures, no developer would undertake the risks associated with the development because the returns were too poor. The 2018 projects, on Mr Williamson’s figures, with discounting could only break even with a 5.02% discount rate for the Approved Project and an 8.71% discount rate for the HBU Project.
237. On this basis, proceeding with the AJVA in 2018 would not have been a viable proposition for Hexagon, even if all Mr Williamson’s other figures were accepted in their entirety and were considered applicable to the relevant putative start date on 19 May 2019 which would be 6 months from the 19 November 2018 termination. On Mr Brand’s own figures, the NPV for Hexagon on all four scenarios was negative, even with a 10% discount rate, which he considered too low for a project of this nature to be considered feasible. Mr Brand’s evidence as to the appropriate discount rate was not the subject of challenge. Furthermore, taking a start date for the project in 2018, as opposed to 2019, the effect is to reduce the element of discounting.
238. The issue as to which of the 2018 scenarios would be closest to that which would have obtained had the Project not been terminated on 19 November 2018, presents problems. Mr Williamson’s 2018 Approved Project used the 2016 Master Plan mix of 97% Offices and 3% Retail, whereas his HBU Project adopted the HBU recommended in the Deloitte Report of 25 February 2018, where the approximate percentages of the major components were as follows: Residential 66.1%: Serviced Apartments 18.5%; Hotel 12.3%; Retail 1.9%: Offices 1.2 %. (Additionally, although I consider that the 2013 figures are irrelevant, there could be no basis for adopting the Use Mix in the 2016 Master Plan for his 2013 Approved Project or his HBU figures from 2017-2018 for a the 2013 HBU Project, which, on his hypothesis, was to start in 2013 and be completed in 2017.)
239. The evidence appeared to show that the Parties in 2017 had agreed that the issue of HBU should be referred to an independent surveyor, which turned out to be Mr Williamson of Deloitte who produced these figures. The Report was in fact produced for one of the UBOs only. The Evidence also shows that variation from the Master Plan could only be achieved with difficulty, as occurred in 2008-2009 and I cannot assume that what Deloitte thought was the HBU for this site would have been approved or agreed by the Parties, let alone by other authorities whose approval was required for a change in the Master Plan with its ramifications on traffic, utilities, and impact on other developments. The Court cannot second guess what agreement might have been reached by the parties in 2019, by which time the 2017-2018 study would have been outdated, , which means that the 2016 Master Plan must be taken as the governing Use Mix for any development on this site beginning 6 months after the termination of the AJVA in November 20189 and concluding 4 ½ years later. On Mr Brand’s evidence, on which he was not cross- examined, the effect of applying a discount of even 10% in accordance with DCF methodology on Mr Williamson’s own 2018 Approved Project figures would be a negative NPV for Hexagon of AED 352,691,875 (approximately $95.76 million). If a more appropriate discount of the order of 15-20% was used, the negative NPV was even greater.
240. As to the third major difference, as already set out, the terms of Schedule D to the JVA remain applicable so that the shareholdings would fall to be adjusted by reference to the ratio between the Project Costs and the current value of the Project Land, if there was agreement to different costs of construction or the value of the Project Land. I do consider that it was inevitable, given the movement in construction costs since the AJVA and the 2008 SHA, that not only would Hexagon have insisted that these be taken into account, but that the Defendants would have agreed and the value of the Project Land would, necessarily have also inevitably come into the equation. The AJVA shareholding of 80% held by Hexagon would therefore have changed in consequence of the variation in such costs and land value in accordance with the provision of paragraph 2 of Schedule D.
241. Whilst Hexagon was bound to provide the total costs of construction, the effect of applying the ratio between such cost and the current value of the Project Land, on Mr Brand’s figures, would be to reduce Hexagon’s shareholding to 76.69% for the 2018 Approved Project and 73.34% for the 2018 HBU, which are nearest in time to the May 2019 construction start date following the termination on 19 November 2018. Loss figures resulted for the AJVA Project on each scenario. Mr Williamson made no assessment of loss on this basis but if the principle was applied to his figures, as Mr Brand did, and upon which there was no cross- examination, the effect was, even with a discount of only 10%, to give rise to a negative NPV for Hexagon on the 2018 Approved Project, of AED 393,374,680. With a more appropriate discount, the Negative NPR was greater still.
242. There were some significant differences between the experts on the inputs into the financial model which it is not necessary fully to set out here. Whilst Mr Brand was cross examined on the basis that he had deliberately chosen figures which would minimise any loss claimable by Hexagon, it appeared to me that, although some of the experts’ figures were a long way apart, there was no ground for any attack on his integrity as an expert and criticism could have been levelled at Mr Williamson for his choices of figures within a given range where he could be said to have taken the figures most favourable to Hexagon. I considered Mr Williamson’s answers in cross examination to show a degree of evasiveness and inconsistency, particularly in relation to his use of hindsight, where he appeared to have used it in the context of the 2013 figures but rejected it for such purposes as taking into account the movement in market rates in the period pre-COVID and in the period of COVID. Often, when asked for a reason for his approach, he merely justified it by saying that it was simply a question of professional judgment on his part and that valuation is not a science. I pause only to note that, once a matter gets into court, party appointed experts rarely come out with an overall view against the interests of those appointing them and would not be appearing in Court at the instance of that party if they did.
243. Many of the differences in input were due to the question whether or not actual events which had occurred between the putative start date of the construction and the date of the report should be taken into account (the hindsight issue). The critical difference in their 2018 figures is attributable to the different view of rental rates, where the Approved Project has an office use of 97%. Mr Brand was not cross examined on his rental rates and occupancy levels for this project and Mr Williamson accepted in cross examination that, if he was wrong on the hindsight issue, Mr Brand’s conclusions were essentially reasonable, bearing in mind the market decline prior to COVID and the effect of COVID. Moreover, the Burj Daman, contrary to Mr Williamson’s views, appears to have been the nearest comparable, being on the same side of Mustaqbal Street as PA 01 and unconnected by any bridge to the central area of the DIFC around the Gate Precinct. As to take-up rates, Mr Williamson was unable to say whether Mr Brand’s approach was wrong if hindsight was allowed. Mr Williamson also failed to take into account the competing effect of the ICD Brookfield development.
244. Mr Brand was not challenged on his figure for exit yield of 8% where Mr Williamson had concluded that 7% was appropriate. Mr Brand’s figure was in the middle of the range of comparables, being 6.6% to 10%. Of the comparables referred to by the experts, only two were less than 8% and both were sales of complete towers where, in one case, the rate was driven by the covenant strength. Mr Williamson considered location to be critical but the only DIFC location relied on had a transaction yield of 10%. In so far as sales were concerned where issues of strata title might arise, Mr Williamson’s evidence was inconsistent.
245. Mr Brand was challenged on the question of construction costs where he had relied on internal costings from the JLL Project and Development Team, where Mr Williamson had relied upon figures in the RLB International Report, which provide high-level costings on the basis of a price per square metre. The JL L figures were more detailed but the criticism was made that they were not independent of Mr Brand in the sense that he was a partner in JL L. The reality however was that the source of the figures upon which each of the experts relied could not be put before the Court and JL L was, of course, independent from the Defendants, even though the representatives of the Project and Development Team did not appear to give evidence along with Mr Brand. However, it became plain in cross examination that Mr Williamson’s costs suffered from a number of defects. He had provided for parking floors which were larger than the area of the plot which meant that there was a missing 100,000 ft.² of parking in his calculations. He also failed to take into account the municipal parking requirements for serviced apartments or residential apartments and had allowed only a 5% contingency figure for construction costs. On the 2018 Approved Project, the difference between Mr Williamson and Mr Brand on construction costs was approximately 5%.
246. Mr Brand was cross examined on his assessment of gross to net efficiency but on a false premise. Here, Mr Brand estimated 70% efficiency across the board and Mr Williamson estimated 75% for offices and 60% for retail, where office use was to predominate. Mr Williamson admitted that he was “at the top end of the range” but that this could be achieved by engineering at the design phase. This seemed an unlikely outcome given the iconic nature of the concept design that was required by Hexagon and the failure by PW achieve anything like the efficiency required, albeit with a twin tower design as opposed to a single tower. Nonetheless, efficiency falls as buildings gets taller and the range for high-rise buildings was 60 – 75%.
247. In the light of the above findings, I do not need to explore such matters further, since I cannot accept Mr Williamson’s figures as the basis for any loss suffered by Hexagon and, if Mr Brand was right on any one of the most important points of difference, the project would turn out to be unprofitable for Hexagon. I concluded that Mr Williamson was wrong on nearly the issues that mattered
248. Hexagon would therefore not be entitled to recover any damages in respect of expectation losses, even if it had been able to show that the Defendants were in fundamental breach. Nor is there any basis for any claim for restitution rather than damages, whether on the principles of unjust enrichment or otherwise. Whatever losses may have been suffered by the Hexagon they have not resulted in enrichment of the Defendants, let alone unjustly at the expense of Hexagon. There is no basis for any restitutionary claim. Hexagon has lost the opportunity of developing the Project Land in consequence of its own termination of the AJVA, combined with its inability to reach a different agreement with the Defendants for development on an alternative basis, which it had sought from the moment its UBOs acquired their shares in Hexagon and negotiations began in which a change was sought from the terms of the AJVA.
249. I am, of course, aware that ICD Brookfield placed a value on the AJVA rights which they were willing to purchase for a sum of $120 million. In the August 2018 Deloitte report, drafted by Mr Williamson, and based upon his then current view of HBU, there appeared a range of figures with varying discounts and NPV sensitivities. I am also conscious that the UBOs, back in 2006-2006 considered it worth their while to pay approximately that amount to acquire their shares in Hexagon and the AJVA rights that went with it, whilst the Defendants’ representatives could not understand how the AJVA rights could, at that stage, possibly justify such a price. No claim was ever made in this action on any basis other than Mr Williamson’s expert evidence of lost profits and this aspect of the evidence remained unexplored. It would appear that the payment of this sum by the UBOs back in 2005-2006 represented one of the major stumbling blocks in the way of the Parties reaching agreement on joint venture terms which differed from the AJVA. Alternative bases upon which the AJVA rights might have been valued were not the subject of expert evidence nor argument but, as Hexagon cannot establish liability in any event, this is of no consequence.
250. Hexagon also claimed for “the costs and expenses incurred by Hexagon for the investment opportunity” amounting to approximately AED 501,399,500 (approximately $135 million). It is wholly unclear what the basis is for this claim, which represents the price paid by the UBOs for their shares in Hexagon. The claim in this action is brought by Hexagon, not by the UBOs who, for whatever reason, considered Hexagon’s rights under the AJVA as sufficiently valuable to pay Sheikh Juma and Security Investments Ltd this sum as the purchase price or their shares in Hexagon. Any loss resulting from the payment of that sum is a loss sustained by the UBOs in Hexagon, not Hexagon itself. Although Hexagon seeks to present the figure as representing the loss of the investment opportunity which it should have received, what was paid cannot be said to represent the value of the investment opportunity, of which Hexagon claims to have been denied. Any loss of such an opportunity would fall to be valued, not at the date of purchase of shares in Hexagon, but at the date of termination of the AJVA, for the reasons set out above and it would fall to be assessed on the basis of the objective value of the AJVA rights, which are measured in the conventional manner for assessing damages for breach of contract. If the claim cannot succeed for loss of profits which Hexagon would have made had the AJVA not been terminated, without evidence as to any other objective measure of the value of the AJVA rights held by Hexagon, there is no basis for an award of damages on any other basis. No such evidence was advanced beyond the evidence of payment by the UBOs in the period between July 2005 and November 2006.
251. Hexagon’s alternative case is for “the costs and expenses incurred by Hexagon since May 2004, including but not limited to undertaking market and feasibility studies, developing a design concept, appointing designers and appointing project managers and construction consultants”, amounting to AED 8,795,985 (approximately $2,750,000).
252. The “evidence” of this expenditure is contained in a spreadsheet, which refers to invoices from DG Jones & Partners for services as quantity surveyors, from IIR Holdings, from Mr Moukkadem, from Vizel FZE, and from TPM for Project Management Services. Additionally fees are claimed in respect of architectural services supplied by Busby Perkins and Wills and Dewan Al Emara in respect of mobilisation and concept Design fees. There was very limited support for these figures in the evidence or in other documents. There is in the documents at F/291 a Receipt Voucher from Engineering Consultants Group for the sum of $175,000, as received from Tanmiyat against the Concept Design documents prepared by Gensler.
253. I do not consider that these expenses, with the exception of the $175,000 have been adequately vouched, although there is no doubt that expenditure was incurred, although whether by CHL or Hexagon is unclear. As liability is not established however, I need not consider this further.
254. For all the above reasons, Hexagon’s claims fail. It is not entitled to the declaration it seeks that the AJVA was lawfully terminated and it is not entitled to damages of any kind or restitution for unjust enrichment or wrong. The Defendants were not in breach of clause 3 of the AJVA nor was there any fundamental non-performance. By the time Hexagon chose to terminate the AJVA, any anticipatory non-performance had been remedied and Hexagon had already lost the right to terminate for any earlier breaches that were not time barred.
255. In the ordinary way costs follow the event and, absent any special circumstances of which I am currently unaware, an order that Hexagon must pay the Defendants’ costs must follow as a matter of course. I make no order at this stage, since the Parties have not had the opportunity to address me on the subject. The Parties may be able to agree such matters but if not, I will give any necessary directions and make a ruling on paper or at a hearing if required.