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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> DNO OMAN LTD AGAINST GRANT CLOUSTON [2019] ScotCS CSIH_1 (10 January 2019)
URL: http://www.bailii.org/scot/cases/ScotCS/2019/[2019]_CSIH_1.html
Cite as: [2019] CSIH 1, 2019 SLT 395, 2019 GWD 3-35, [2019] ScotCS CSIH_1
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FIRST DIVISION, INNER HOUSE, COURT OF SESSION
Lord President
Lord Menzies
Lord Malcolm
OPINION OF THE COURT
[2019] CSIH 1
CA12/17
delivered by LORD CARLOWAY, the LORD PRESIDENT
in the Reclaiming Motion
in the cause
DNO OMAN LTD
Pursuers and Reclaimers
against
GRANT CLOUSTON
Defender and Respondent
Pursuers and Reclaimers: Lord Davidson of Glenclova QC; CMS Cameron McKenna Nabarro
Olswang LLP
Defender and Respondent: Currie QC, Ower; DAC Beachcroft Scotland LLP
10 January 2019
Introduction
[1] This is a reclaiming motion against an interlocutor of the commercial judge dated
16 January 2018. The parties had agreed that the law of the United Arab Emirates applied to
their dealings. Having heard two experts in UAE law at a preliminary proof, the judge
found that the pursuers’ averments of fact were insufficient to ground a valid claim under
UAE law. In so doing, he held that the defender did not owe any duty to the pursuers in
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terms of his contract of employment, which was not with the pursuers. Therefore, the
pursuers had no title to sue, the defender had not breached any obligation owed to the
pursuers and fell to be assoilzied. The questions are whether the judge correctly understood
the nature of the pursuers’ claim, whether he erred in his interpretation of the experts’
evidence and whether he was justified in preferring what he understood to be the opinion of
the defender’s expert.
The averments on fact
[2] The pursuers sue the defender for three separate sums: $491,900; $123,548 and
$570,212 in respect of his alleged actings whilst he was employed by the pursuers’
associated companies, namely RAK Petroleum Technical Services Ltd (“RAK Petroleum”),
later called DNO Technical Services Ltd (“DNO Technical”), and DNO Middle East, from
2008 to 2012. They aver that the defender, whilst employed by these companies, was
engaged to source sub-contractors on the pursuers’ behalf and to procure and manage for
them drilling equipment and supplies.
[3] The pursuers aver (article 3) that, along with a co-employee, namely Anwar
Hamdani, the defender incorporated Land & Sea Energy Services Ltd (“LSES”). He did not
advise the pursuers or their associated companies that they had done this. He used LSES as
a “front company” to conceal his “initiation of and participation in transactions on behalf of
the pursuer[s]”. The defender contracted with SFM Corporate Services SA (“SFM”) to
conceal his involvement with LSES. LSES used SFM, “to further conceal his initiation and
participation”. One of SFM’s employees was held out to be the finance director of LSES,
which was falsely said to be unconnected with the defender. The defender:
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3
“caused the pursuer to enter into arrangements for the provision of contractors to the
pursuer by LSES. LSES invoiced the pursuer for the provision of said contractors
and consequently was paid by the pursuer. LSES applied substantial mark-ups,
between 50% and 150% to the rates said contractors charged. Thereby the defender
through the use of LSES, made secret profits to the pursuer’s loss”.
A specific example is given. The total loss as a result of this activity is estimated at the first
of the three sums sought.
[4] The pursuers aver (article 4) that the defender also set up NTM Energy FZC
(“NTM”), which he operated along with Mr Hamdani. Again, his connection with this
company was not disclosed to the pursuers. The defender:
“caused the pursuer to enter into arrangements with NTM for the purpose of making
a secret profit for his benefit”.
A specific example is given of a purchase order for casings and tubings at a price of
$309,558, when these items had been bought for only $183,442 and the defender, through
NTM, had retained the balance of “at least” $123,548 (sic), which is the second of the three
sums.
[5] The pursuers aver (article 5) that the defender:
“procured the sale of certain of the pursuer’s pipe/casing stock, either at an
undervalue to NTM, or to third parties directly, with the proceeds going to NTM and
not the pursuer. He did so without the pursuer’s knowledge or consent to sell on
said stock for further secret profits”.
The loss is the third of the three sums.
[6] The defender admits to being employed by RAK Petroleum, later DNO Technical,
and DNO Middle East, who were engaged to provide procurement and contract
management services to the pursuers. He maintains that he owed no duty to the pursuers
and that “it follows” that the pursuers have no title to sue. He admits setting up LSES along
with Mr Hamdani, but maintains that LSES was controlled by Mr Hamdani and was
engaged in legitimate consultancy work for the pursuers at rates below those previously
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paid by them. The defender also admits setting up NTM, but maintains that this too was a
legitimate venture and it had made what was the only successful bid for the contract to
supply the items concerned. The defender avers that it was Mr Hamdani who sold the
stock, which was scrap, on the pursuers’ instructions.
The averments of foreign law
[7] The pursuers plead their case under the law of the United Arab Emirates. In
particular, they aver (with punctuation amended at the bar) that:
“The defender was obliged by the UAE Civil Code, pursuant to Articles 282 and 283,
not to commit acts harmful to the pursuer causing financial loss; pursuant to Article
285, not to commit acts designed to deceive the pursuer and causing financial loss;
and pursuant to Articles 246, 264 and 265 to act in good faith, loyally and honestly as
an employee of the pursuer’s entities and in particular in making contracts on the
pursuer’s behalf. The defender breached said obligations by his actings aforesaid (to
put it another way the defender’s said actings are characterised as harmful acts that
bring into play the relevant Articles of the UAE civil code).”
[8] The Articles of the UAE Civil Code (UAE Law of Civil Transactions), which are
founded on by the pursuer in relation to financial harm, as translated by the pursuers’
expert (infra), read as follows:
“282 Any harm done to another shall render the doer thereof, even though not a
person of discretion, liable to make good the harm.
283(1) Harm may be direct or by causation.
(2) If the harm is direct, it must unconditionally be made good, and if it is
consequential there must be a wrongdoing or deliberate act or the act must have led
to the harm.
...
285 If a person deceives another he shall be liable to make good the harm
resulting from that deception.”
[9] The Articles referred to in relation to contracts are as follows:
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246(1) The contract must be performed in accordance with its contents and in a
manner consistent with the requirements of good faith.
(2) The contract shall not be restricted to an obligation on the contracting party to
do that which is [expressly] contained in it, but shall also embrace that which is
appurtenant to it by virtue of the law, custom, and the nature of the disposition.
...
264 That which is known between merchants shall have the effect of [express]
conditions made between them.
265(1) If the wording of a contract is clear, it may not be departed from by way of
interpretation to ascertain the intention of the parties.
(2) If there is scope for interpretation of the contract, an enquiry shall be made as
to the mutual intentions of the parties without stopping at the literal meaning of the
words, and guidance may be sought in so doing from the nature of the transaction,
and the trust and confidence which should exist between the parties in accordance
with the custom current in dealings.”
As will be seen, the relevance of these contractual provisions is marginal.
[10] In response to the defences, the pursuers state specifically that the pursuers do not
claim to have been the defender’s employers. They aver that their claim does not proceed as
one of breach of contract. The defences maintain that Articles 282, 283 and 285 all relate to
claims under the law of tort, whereas the pursuers’ case is based on breach of contract.
Articles 246 and 264 relate to the performance of contracts in good faith and in accordance
with commercial custom, but they do not apply because the defender did not have a contract
with the pursuers. Article 265 relates to the interpretation of contracts.
[11] The pursuers’ plea-in-law is in the following, almost meaningless, vague terms:
“The pursuer[s] having sustained loss and damage as a result of the defender’s
breach of his obligations owed to the pursuer[s], decree should be pronounced as
concluded for”.
The defender sought, inter alia, dismissal of the action on the basis of “no title to sue” or
absolvitor on the basis that the defender had not breached any obligation owed to the
pursuers.
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Procedure
[12] The parties are agreed that UAE law applied to the circumstances. UAE law had
been pled, although it was not said that, in this field, UAE law differs from Scots law or, if it
does, how it does. In due course, parties lodged their notes of proposals for further
procedure. The defender had tabulated a number of key issues requiring determination.
These included: (i) whether the pursuers have a title to sue; and (ii) whether the defender
owed any obligation to the pursuers. They also encompassed whether there had been a
breach of any obligation, and if so with what consequences. The defender had requested a
debate solely on title to sue. The pursuers’ note said:
“As both title to sue and whether the defender owed any obligation to the pursuer
(defender’s issues (i) and (ii)) are matters of UAE law standing the terms of the
expert legal opinions…, these issues fall to be treated as matters of fact. Accordingly
debate is inappropriate for further procedure. It follows proof is required either by
way of preliminary proof on UAE law or by way of full proof. In the circumstances
preliminary proof… is the best use of court time in that were the defender’s expert’s
position to be correct no further procedure would be required”.
[13] The commercial judge’s interlocutor of 22 June 2017 allowed a preliminary proof “on
the issues referred to in the pursuer[s]’ note of proposals”. This appears to have been taken
to mean that the proof would be about what the law of the UAE was in relation to the
defender’s issues (i) and (ii), in the context of the pursuers accepting that, if the defender’s
expert UAE lawyer was correct, the action would fail. As will be seen, after the proof, the
judge did not make any findings on what that law was, other than to state that he had:
“…no basis to make the necessary findings in fact that the defender’s alleged
conduct constitutes a tort under Article 282 or deception under Article 285. …if the
case as averred were proved this would not amount to a breach of Article 282 or
285…”.
The judge appears to have been led into a position whereby he was effectively listening to a
debate on the application of UAE law to the averments, rather than declaring UAE law as a
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matter of fact. The problem, which this unusual situation created, was that he was applying
UAE law without knowing what the facts were beyond the relatively skeletal averments and
the amorphous plea-in-law quoted above. Ultimately, the judge sustained the defender’s
plea of no title to sue, and that relative to the defender not having breached any obligation,
and granted decree of absolvitor.
The reports
[14] Both parties produced reports from their legal experts, which were treated as part of
their examinations-in-chief. The status of each expert was not ultimately an issue after
proof. It is convenient to deal with the reports in chronological order since this explains
their rather didactic structure. The first is from the defender’s expert.
Faisal Attia
[15] Mr Attia produced a report dated 30 May 2017. This was a response to the pursuers’
averments (supra). Mr Attia first considered the pursuers’ locus standi to claim damages
from the defender. He emphasised that the defender had not been employed by the
pursuers, who were a separate company from his employers. Citing Articles 250 and 251 of
the UAE Civil Code, he said that contracts affected only the contracting parties. A contract
could not impose an obligation on a third party. On this basis, he concluded:
“25. Therefore and as a matter of UAE law, … the Pursuer did not establish locus
standi to claim damages from the Defender in connection with the latter’s
performance of the Employment Contract”.
It was inconsistent for the pursuers to rely on parts of the Civil Code relating to both tort
and contract. The action was brought in connection with the defender’s performance of the
employment contract, yet the pursuers relied on the rules of tort.
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8
[16] Mr Attia said that Article 282 provided the basis for tort claims. He continued:
“30. ... Given that the action was brought in connection with the Defender’s
performance of the Employment Contract, the Pursuer’s reliance upon Article 282 is
misplaced.”
The same applied to the pursuers’ reliance on Articles 283 and 285 (paras 33 and 36).
[17] Turning to the contractual provisions, Mr Attia explained that, in terms of
Article 246, the defender and his employers, namely DNO Technical, were under an
obligation to perform the contract in good faith. However, the pursuers were not a party to
this contract and they could not invoke this principle. The pursuers had not specified the
way in which Article 246 applied. Article 264 did not apply to employment contracts and the
pursuers had not said how it was engaged. Similar considerations applied in relation to
Article 265. There was no issue raised about the interpretation of the employment contract.
James Whelan
[18] Mr Whelan produced a report of 26 June 2017, having been instructed to respond to
Mr Attia’s opinion. He commenced (para 2.2) by stating his understanding that, contrary to
Mr Attia’s thinking, the pursuers’ claim was made “in tort and not in contract”. The
pursuers were not the defender’s employers at any time and they did not contend that the
defender owed the pursuers any contractual duty. The starting point (para 5.2) was the
ancient Islamic sharia (law): “No harm [must be done] and no harm [done] in return”. It
was this that led to Article 282. The victim of wrongful conduct had a right of action for a
“harmful act” or “act causing harm”. An unjustified act causing financial loss to another
was a “harmful act”, whether it was theft of money or unauthorised arrangements and
whether or not by an employee, whereby another suffers financial detriment.
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[19] Article 283 dealt with the nature of the act causing the harm. If a person performed
an act which he had no right to perform, and harm resulted, he would require to make good
the harm, whether or not he intended to cause it. If a person was entitled to do the act, he
was liable only if harm was intended. If the defender did not have the right to perform the
acts complained of, and they resulted in loss, he was liable to make good the loss. Upon
demonstration that: (a) harmful acts were performed by the defender; (b) loss resulted to the
pursuer; and (c) there was a causal link, the defender would be liable (para 5.9).
[20] The facts as described in articles 3 to 5 (supra):
“5.10 ... appear on their face to show a deception practised by the defender on the
pursuer as to the bona fides of the contractual arrangements entered into by the
pursuer and the correctness of the excessive invoices paid by [them]. On my
understanding of the facts, the pursuer was by a deception induced to enter into
those arrangements and to pay the related invoices, to its financial loss.”
This would constitute an actionable harmful act, involving a deception under article 285.
The deception was ongoing, in that a pretence was maintained that the contracts had been
correctly made and that the excessive payments were properly due. Liability would result
under the general principles of UAE tort law, without the need to rely on Article 285. The
deception in 285 was a sub-set of the general prohibition against causing harm and did not
provide a separate cause of action.
[21] Mr Whelan provided (section 6) an overview of the UAE law of contract, even
although that had not been founded upon by the pursuers. He did so on the basis that one
material element in the determination of whether an act was an actionable tort was whether
or not the person had a right to do the act complained of. An argument could be presented
(although it never was) whereby, if a person had a right under a contract, there would be no
actionable tort if a third party suffered loss. Such an argument would be a bad one, but
Mr Whelan spent some time considering it. A UAE judge would find that the defender’s job
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title of “Contracts, Procurement and Logistics manager” involved a duty to his employer to
act with loyalty and honesty in making contracts on his employer’s behalf. There was no
difference between the UAE and the United Kingdom in this area. A contracts and
procurements manager, who entered into the kind of transactions complained of, would be
regarded as crooked in both countries and “will be liable to an action under the contract by
the employer, and in tort (or ‘harmful act’) by the victim” (para 6.9).
[22] Mr Attia’s first report was in error as it was written on the basis that the pursuers
had claimed to be the defender’s employer. It sought to refute an allegation which had not
been made. His sections on employment and contract law were irrelevant. Mr Attia had not
challenged the pursuers’ case based on tort, other than to say that reliance on the articles
relating to tort was misplaced in a case based upon contract.
Secondary Exchanges
[23] There then followed an exchange of, somewhat repetitive and occasionally rhetorical,
salvos from each expert. Mr Attia’s second report was dated 16 July 2017. He noted that the
pursuers were claiming only in tort, in which case Articles 246, 264 and 265 were no longer
relevant. In tort, there was a tripartite test: (a) a breach of legal duty (harmful act); (b)
damages; and (c) causal link (para 12). The pursuers required to establish that the defender
had committed a harmful act; meaning a breach of a legal, as opposed to a contractual, duty.
If the defender had set up corporate entities and conducted business as the pursuers had
averred, that would not amount to a harmful act. “Doing business” was not a breach of a
legal duty. Conducting business secretly might breach a contractual term, but it would not
give rise to a liability in tort. Since the pursuers had no contract with the defender, they had
no title to sue him. The pursuers had not satisfied the tripartite test.
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[24] Mr Whelan’s retort came in a second report of 12 September 2017. This contained an
initial observation that there was no divergence between the two experts on the essential
issues. Mr Attia had not sought to argue that the defender’s acts were justified and would
not be regarded as harmful. The essence of the pursuers’ case was that:
“4 ... the Defender dishonestly and deceitfully abused the position that he held
with his employers in order to induce the Pursuer into paying amounts of money
substantially greater than it should have paid under contracts arranged by the
Defender. Essentially, the factual case is that the Defender was a crooked manager
who cheated his employers’ customer, the Pursuer, which was also an affiliated
company of the Defender’s employer, for his own financial gain. I have expressed the
opinion of law - entirely uncontroversial… - that this amounts to the equivalent of a
tort under UAE law, warranting compensation.”
Most of Mr Attia’s second report was irrelevant because it assumed that the case was based
upon a breach of contract.
[25] Mr Whelan explained that, although the contractual connections did not form part of
the cause of action, they did form part of the background setting in which the harmful acts
were committed. They explained how the acts came to be committed and how the pursuers
were deceived. Looking at each of the three claims, first (article 3), a UAE court would
consider that the pursuers would have been entitled to rely on the defender acting in
accordance with his contract with their associated company; including the duty to act in
good faith (Article 246). The defender had deceived the pursuers into believing that the
transactions which they were entering were bona fide and the invoices were correct, when
they were inflated. This would be treated as an actionable wrong; consisting of deception
and concealment, whereby the defender caused the pursuers to pay excessive amounts.
[26] The second claim (article 4) involved the making of a secret profit as a result of the
deception involving NTM, whereby the pursuers issued a purchase order for an inflated
amount. There was again a wrongful act (the deceit), harm suffered (payment of an
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excessive amount) and a causal connection. The third claim (article 5) was a sale of stock to
NTM at undervalue. This amounted to obtaining money by deception, notably the
concealment of the defender’s interest in NTM. The sale of the pursuers’ goods without
their consent, and retaining the proceeds, was a tortious act warranting compensation under
UAE law. In deciding whether the defender had committed a tortious act, a UAE judge
would look at the factual context, notably the contracts (para 5.27), including the
employment contract. Mr Whelan concluded by repeating that there was no disagreement
on any point of substance between him and Mr Attia (para 6.1).
[27] Mr Attia responded in his third report of 19 September 2017. He said that there was
no dispute that deception was a harmful act which triggered liability in tort. The act of
deception was a breach of legal duty; the basis being Article 285. The Dubai Court of
Cassation had explained that there were two types of deception: verbal, which was telling
lies; and physical, which was the commission of fraud. Setting up LSES and NTM, without
telling the pursuers, was not a harmful act. Concealment was a breach of a disclosure
obligation, but the defender was under no such obligation. The failure of an employee to act
in good faith did not provide third parties with a title to sue. The defender’s employer
would have a title to sue, but, if Mr Whelan were correct, the defender would be liable to
pay damages twice for the same act. Mr Attia produced a series of judgments in Arabic as
examples of the principle of good faith being applied in the context of contractual claims
only. Mr Attia repeated his view that the pursuers’ case “is of a contractual nature” despite
the attempt to describe it as one in tort.
[28] The final shot was fired by Mr Whelan in his third report, which is dated
26 September 2017. He repeated that he did not see that there was any substantial difference
on the relevant issues of UAE law. The essence of Mr Attia’s challenge was based on a
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misunderstanding about what the case was about; not on any disagreement on UAE law.
The misunderstanding was the view that the pursuers’ case was based on contract when it
was based on tort, albeit that the contracts formed part of the background giving rise to legal
duty. The setting up of LSES and NTM was to create a situation in which the defender
would be able to deceive the pursuers and thereby extract money from them, which the
pursuers were not obliged to pay. The wrongful act was the taking of the money; not setting
up the companies.
[29] It was not disputed that any obligation to disclose existed only in the contractual
relationship, but this was a red herring. If a person used the existence of a contract as part of
a background of deception, whereby he took money from his victim, the victim claims in
tort based on the harmful act. “The contract forms part of the deception, not part of the
cause of action”. Mr Whelan provided an interesting analogy of a dishonest employee of
Halfords, wearing a Halfords’ uniform, selling a customer stolen goods and pocketing the
price. The customer would be entitled to make a claim against the employee in tort. Part of
the background is the customer’s assumption that the employee works for Halfords and is
behaving honestly and faithfully and playing his part in concluding a valid contract on
behalf of his employers. The claim is not under the employee’s contract of employment, but
is based on his deceit. The pursuers were entitled to expect that their affiliates’ employees
would discharge their obligations in good faith and honestly.
The Testimony
Mr Whelan
[30] Mr Whelan gave evidence first. He encapsulated his view as boiling down to one
single issue; whether this claim was properly to be characterised as a “claim in contract or a
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claim in ... tort”. He expressed puzzlement that Mr Attia had considered that, because the
defender’s acts had been done whilst he was engaged under a contract with his employers,
the pursuers’ complaint was based on, and arose out of, a breach of contract when this was
simply not so. A UAE court would ask first of all whether there was an unauthorised act.
Was the reason why the defender did not have a right to do the act purely because he was in
breach of contract, or was the act one which he was not entitled to do anyway, irrespective
of what the contract said? If so, it was an action in tort. The harmful act was the extraction
of money from the pursuers under what were effectively fraudulently generated invoices.
Thus, an invoice for $10,000 would go through the companies established by the defender
and generate an invoice for $25,000 to be paid by the pursuers. As a matter of UAE law, that
would be held by the courts to be a deception, a harmful act, a tort. Money had been
extracted wrongfully.
[31] Mr Whelan accepted what Mr Attia had said about privity of contract. His
fundamental disagreement was that, to Mr Whelan, the relevance of the contract was as part
of the background. It was because of the contract that the defender was able to establish a
system whereby he took the money. Mr Attia had confused that background with a claim in
breach of contract.
[32] Mr Whelan had posed certain questions upon which he sought Mr Attia’s answers.
The first was (transcript p 15):
“Is it agreed that under UAE law the locus standi of a civil claimant is established by a
proof of harm suffered by the claimant resulting from an unlawful act of the
defendant?”
Mr Attia agreed. The second question was:
“Is it agreed that the act complained of may be unlawful either (a) because it is
tort/delict or (b) because it’s in breach of contract?”
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Mr Attia disagreed with this. He said that an unlawful act would give rise to liability in tort
and a breach of contract would give rise to a liability in contract. Mr Whelan regarded the
issue as being a disagreement on terminology; his reference to unlawful being to cover both
contract and tort. The third question was (p 17):
“Is it agreed (a) that it’s a matter for the Dubai Court to decide whether the act is
correctly characterised by tort or a breach of contract and (b) that if a claimant
mischaracterises his claim, such mischaracterisation will not of itself adversely affect
his claim and that the Dubai Court will apply the correct legal characterisation to the
facts as proved on the evidence?”
Mr Attia agreed, but this was irrelevant. The fourth question was (p 21):
“In the case of a claim correctly characterised as arising out of a tort is it agreed that
the opinions expressed by Mr Whelan on the UAE law of torts are correct?”
Mr Attia had already agreed that the tripartite test had to be satisfied. He had added that
the pursuers’ claim had not done so.
[33] In cross-examination, it was put to Mr Whelan (p 42) that he had shifted his position
from saying that the contract of employment was part of the background to one involving
entitlement on the part of the pursuers to rely on the defender acting in accordance with a
duty of good faith. Mr Whelan did not accept that this was a shift of position.
[34] When asked (p 50) about what he meant by “secret profits”, Mr Whelan said that this
was not a reference to the term of art used in fiduciary relationships. It was an allegation
that the defender was making a secret profit in that he did not tell anybody about what he
had been doing and was enriching himself at the pursuers’ expense. The circumstances here
involved the issuing of an invoice at an inflated sum. A UAE court would be likely to
interpret this as a fraud; even if that was not a word which was used in the pleadings. It
was put to Mr Whelan (p 62) that his description of the case being that the defender was a
“crooked manager who cheated his employer’s customers” was Mr Whelan “tendentiously
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glossing the pursuers’ averments”. He responded that this is how a UAE court would look
at the transaction. A similar proposition was put to Mr Whelan in relation to the defender
“dishonestly and deceitfully” abusing his position, but Mr Whelan again disagreed that this
was a gloss. It was just how the facts struck him.
[35] It was put to Mr Whelan (p 65) that he had misrepresented Mr Attia’s position on
whether the acts of the defender would have been classified as harmful, thus warranting
compensation. Mr Whelan considered that Mr Attia had not actually analysed the pleaded
facts at all. On being asked how it was possible to characterise the conduct of the defender
towards the pursuers as unjustified, or such that he had no right to perform it, Mr Whelan
replied (pp 70-71) that it was agreed that the defender was under a contract where there was
a general duty of honest actings. By means of front companies he had succeeded in
abstracting excessive sums from the pursuers. The pursuers were entitled to rely not on the
terms of the defender’s contract but on the appearance created by it.
[36] In relation to his description of the defender’s actings as being dishonest in relation
to the purchase order, Mr Whelan had relied (p 78) on the words of the summons, whereby
it was the defender who had caused the pursuers to enter into the arrangements with NTM.
There was an element of the tail wagging the dog (p 81). What was happening at the
preliminary proof was the wrong way round. In a UAE court, the facts would be examined
first and then the law would be applied to them. Here the court was looking at what the law
was without first having conducted a full inquiry into the facts. Mr Whelan agreed (p 82)
that if all that had been said to a UAE judge was what was contained in the summons, with
the use of words like “cause” or “via the defender”, the judge would say that this was not
good enough. He would have to know specifically what act or deed the defender did. The
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point was that, after an analysis of the facts, the court would come to a conclusion whether
there had been a wrongful act. If there had, then the law of tort would apply to it.
Faisal Attia
[37] In answer to a somewhat leading question, Mr Attia began (p 96) by commenting
that there had been nothing in Mr Whelan’s first report about what would amount to a
harmful act, but in his second report he had relied upon the principle of good faith in
Article 246. In his third report, he had shifted his position more into the notion of deception,
but that was not before the third report. The making of a secret profit did not amount to an
actionable tort (p 105). As between someone else’s employee and a third party, there was no
tort of making secret profits. Mr Whelan had not disclosed the basis upon which it could be
said that the defender did not have the right to perform the acts complained of. It was only
in his third report that Mr Whelan had moved towards the notion of deception (p 114).
There were two requirements for deception under UAE law. The first one was the
commitment of a fraudulent act and the second was that the act must cause the innocent
party to enter into the agreement. The defender did not have any obligation to disclose his
interests in LSES or NTM to the pursuers (p 119). It was extremely important, for the
purpose of applying Article 285, to know how the defender caused the pursuers to do the
particular things, or how those things were being done “via the defender”(pp 120-1).
Without that, it was not possible to discern any deception.
[38] In cross-examination, Mr Attia was asked whether it was acceptable in UAE law for
the defender to use LSES as a front company to conceal his initiation of and participation in
transactions on behalf of the pursuers. He replied (p 129):
“… the court will have to ... see there is harmful act was committed ... if the harmful
act committed and cause loss then it’s a tort claim, it’s a very tort claim”.
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18
The fact that a company had been incorporated and concealed was not enough to amount to
deception. If the front company had been concealed from the person’s employers and used
to initiate contracts; this could be entirely lawful or it could be deception (pp 130-1). There
was no obligation to disclose, other than to the employer. Mr Attia failed to see why the
defender had to disclose any information about his own companies. However, he accepted
(p 134) that, where a person had a contract, he was still under an obligation not to commit a
harmful act. If a person committed a harmful act by deception, that fell within Article 285.
On being pointed to that part of the pleadings in which it was alleged that the defender had
set up SFM to conceal the true principals behind LSES, Mr Attia said that, if that had caused
the pursuers to enter into an agreement that they would not have entered into otherwise,
this “could justify the requirement for deception”. In relation to the use of the LSES
employee “to further conceal” participation in the transaction, Mr Attia said (p 137):
“… if that was set up to the part of the whole plan, to cause the pursuer to enter into
transaction that he wouldn’t otherwise enter into, that would be, yeah, first part of
deception act”.
He nevertheless maintained that there was no explanation as to how the defender caused
the pursuers to enter into the transaction. However, on being asked if it was accepted that
the defender had caused the pursuers to enter into these arrangements, he said (p 138):
“Yeah of course. If he personally communicated ... the deception and caused the …
pursuer to enter into transactions, certainly, yeah”.
[39] The question of the inflated invoices was difficult for Mr Attia to determine in the
absence of an explanation of how they came to be issued. He would need to examine how
the pursuers had agreed to enter into the transaction with LSES and how they agreed on the
price. He continued (p 141):
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19
“No, I mean, if during the formation of these agreements, the consent of the pursuer
was defective as a result of deception then, of course, they can recover whatever loss
they suffered, yep”.
If the contract was created as a result of deception, then the pursuers could recover the
losses from the shareholder behind the company and by the person who did the harmful act.
That was by using Article 285, which “could be a basis for a tort claim, for sure”(p 142).
[40] In relation to the use of NTM, the inflated purchase order and alleged secret profit,
there would be a claim in tort if there was “a complete deception” (p 144) carried out and
involving the two requirements. But there were still missing facts, notably how the
defender caused the pursuers to enter into the transaction. The following exchange (p 145)
then occurred:
“… if one fills out the background with certain facts, one can get to a claim by ... the
pursuers against the defender at tort under Article 285? – Yes”.
[41] If the wrong consisted in a deception and concealment, whereby the defender caused
the pursuers to pay excessive amounts, then an Article 285 tort would be in play (p 157).
The pursuers would have a claim in tort under the heading of deception if they had had a lot
of money removed as a result. Mr Attia agreed (p 170) that there was no dispute that
deception was a harmful act that would trigger liability and tort under UAE law.
[42] The defender was under an obligation to act in good faith (p 183), but the pursuers
were not entitled to expect that affiliate employees would discharge their obligations to their
employer, and through their employer to the pursuers, in good faith and honestly. Acting in
good faith was a moral obligation only (p 135). A legal obligation would be owed only to
the other side of the contract.
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The commercial judge’s reasoning ([2018] CSOH 2)
[43] The commercial judge was of the view (para [10]) that neither of the parties’ experts
had departed to any material extent from what they had said in their reports. It was his
view that their testimony added nothing of materiality to what had been said in their
reports. He considered that there was a degree of common ground between the experts. In
order to establish liability in tort the tripartite test required to be satisfied; that is to say: (a) a
harmful act; (b) damages; and (c) a causal link. There was also an agreement that deception
was a harmful act which would trigger liability in tort. That is to say the act of deception
was a breach of a legal duty in terms of Article 285. The judge identified (para [18]) the
dispute as whether the claim advanced by the pursuers sounded in terms of tort in UAE
law. This turned on a narrow question, which he identified as the relevance of the
defender’s contract of employment in respect of breaches of Articles 282 and 285. The
question (para [79]) was whether there was a basis on the evidence of the two experts to
make the necessary findings-in-fact that the conduct of the defender constituted a tort under
Articles 282 or 285 of the UAE Civil Code.
[44] According to the commercial judge (para [81]), Mr Whelan’s starting point had been
directed towards a defence which had not been advanced by the defender, namely that the
contract of employment entitled him to act as averred by the pursuers. When considering
Articles 282 and 285, Mr Whelan had not referred to the contract of employment as being
relevant to what amounted to a breach of these articles. He gave no basis for his statements
that the defender did not have the right to perform the acts complained of or that he could
plausibly argue that he had. In his second report he had considered the relevance of the
contract of employment as part of the background story and had gone on to say that the
pursuers would have been entitled to rely on the defender acting in accordance with his
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21
contract. Mr Whelan’s statements that the contract was relevant as part of a background
story and then that the pursuers could rely on the defender acting in accordance with the
contract, were “materially different” (para [86]) from each other. Mr Whelan was saying
(para [87]) that the duty to act in good faith, which was owed by an employee to an
employer, was, by a roundabout route, owed to a third party. There was no basis cited by
him for that assertion. The obligation in Article 246 was owed by one contracting party to
the other. It did not give any right to a third party. This showed that Mr Whelan’s position
was misconceived. Mr Whelan was in effect saying (para [89]) that a third party had the
same right as one to a contract; that the third party had a right to expect that the party to the
contract would act in good faith. The Lord Ordinary continued:
“[90] I consider that Mr Whelan cannot have it both ways; he cannot on the one
hand accept that a third party does not obtain any rights from a contract and
simultaneously say that nevertheless the pursuer was entitled to expect the defender,
because of his contract of employment, to act in good faith”.
[45] The commercial judge considered that Mr Whelan had changed his position in his
third report by referring to the contract of employment as forming part of the background.
He continued:
“[93] These material changes of position in the way that Mr Whelan deals with the
issue of the relevance of the contract of employment and the inconsistent positions
which he adopts tends strongly to show that reliance cannot be placed on his
evidence as regards this central issue. I am persuaded, that on a fair reading of his
reports as a whole Mr Whelan is asserting, as a fundamental part of his argument,
that the pursuer has a right in the circumstances of this case to rely on the defender
having performed his employment contract consistently with the duty of good faith
owed to his employer for the purpose of establishing liability under Articles 282 and
285 of the Code. That I believe is an unsound argument as such a right in terms of
UAE law arises only as between contracting parties.
[94] Mr Whelan cites no authority of the UAE courts which supports his position.
In addition ... at various points in his report, he appears to accept that the duty of
good faith is only owed between contracting parties and thus undermines his own
fundamental argument. His position is wholly lacking in clarity.”
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22
[46] On the other hand, the commercial judge regarded (para [99]) the analysis of
Mr Attia to be clear and compelling. It was fully argued and supported by case law and
reference to the Code. He had maintained a consistent position throughout. He had no
difficulty in preferring his evidence on the central issue. He continued:
“[99] … On a fair reading of the pursuer’s cases, with respect both to breaches of
Articles 282 and 285, the failure of the defender to act in good faith and in particular
in terms of that obligation to disclose to the pursuer the setting up of the companies
and his role therein is central to the pursuer’s position.
[100] That this is the central plank in its case, can be seen by the averment that as a
result of his actings the pursuer made ‘secret profits’ ... The phrase ‘secret profits’ is
one which would properly be understood in UAE law, as in other systems of law, as
deriving from an employment or fiduciary duty. No such employment of fiduciary
duty exists between the pursuer and defender which would be commonly
understood and understood in terms of the law of the UAE in the context of a breach
of a contractual duty of good faith.
...
[102] Overall I conclude the pursuer is seeking to rely on a contractual duty owed
by the defender to his employer but not to it as a third party in order to found its
case in tort.
Further confirmation that that is the case is found in the following: the lack of
averments of false representations made by the defender, which induced the pursuer
to transact. There are no averments as to how the defender … induced or caused the
pursuer to enter into the transactions From the lack of such averments it is clear that
the heart of the pursuer’s case is the failure to disclose the setting up of the other
companies, his role therein, and his thus deriving a secret profit. On looking to the
evidence of the two experts I believe that in terms of UAE law it is clear that no such
duty of disclosure exists in the absence of a contractual relation between the parties.”
[47] The commercial judge considered (para [103]) that the tripartite test had not been
made out. Mr Whelan had been seeking to identify a breach of a legal duty in the context of
a failure to act in accordance with the defender’s contract of employment. He had said that
the averments showed a deception practised by the defender, but no such deception had
been averred (para [108]). There were no averments (para [108]) as to the bona fides of the
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23
contracts or the correctness of the invoices. A striking feature of the averments “is the
almost complete absence of any averments of misrepresentation”(para [109]). There was no
basis for the assertion that the defender had a duty to disclose his beneficial interest in NTM
to anyone other than his employer.
[48] By the time of his third report, Mr Whelan’s characterisation of the deception had
gone well beyond the setting up of the companies and the non-disclosure of his interests.
He had now characterised the deception as “a larger scheme of deception” or a “web of
deception” (para [112]). There were no averments of such a larger scheme or web of
deception. There were no averments of conscious dishonesty or fraud. There were no
averments that the defender took money from the pursuers. There were no specific
averments amounting to deception within the meaning of Article 285. The averments as to
how the defender deceived the pursuers were limited to the setting up of the company and a
failure to disclose his position, which was a duty he did not owe to the pursuers.
[49] Although the commercial judge preferred the evidence of Mr Attia on the essential
issues, and regarded Mr Whelan’s argument as to the relevance of the contract as unsound,
he did not accept (para [117]) the defender’s contention that Mr Whelan had adopted the
position of advocate on behalf of the pursuers or (para [118]) that he had indulged in
tendentious glosses on the averments. If he had gone beyond what had been averred, this
was because he had erred in his understanding of the written pleadings.
[50] For all of these reasons, as already indicated, the commercial judge held (para [119])
that he had no basis upon which to make the necessary findings in fact that the defender’s
conduct constituted a tort under Article 282 or deception under Article 285. If the cases
averred were proved, this would not amount to a breach of either article.
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24
Submissions
Pursuers
[51] The pursuers contended that the scope for a successful appellate review of findings
relating to foreign law was wider than that which applied to other findings in fact (Kolbin &
Sons v Kinnear & Co 1930 SC 724 at 737-8, 748 and 753; King v Brandywine Insurance Co
[2005] 1 Lloyd’s Rep 655 at para 66). The function of the expert was: to inform the court of the
relevant content of the foreign law, notably any authorities and their status. Where there
was no authority, the role was to assist the judge in making a finding as to what the foreign
Evans LJ at para 23).
[52] The preliminary proof had been about whether or not the conduct of the defender
could amount to an actionable tort or the equivalent under UAE law. Contrary to the
commercial judge’s view, the evidence of Mr Whelan, in both his reports and his testimony,
supported the view that the defender owed non-contractual duties to the pursuers. In cross-
examination Mr Attia had made a number of concessions which had not been reflected in
the commercial judge’s opinion, but which on analysis supported the position of the
pursuers. The judge had not discussed or analysed the testimony of either expert and had
erred in not so doing. Where the reports were in conflict, the responses of the experts under
cross-examination were highly relevant. In cross-examination, Mr Attia had been required
to examine the pursuers’ pleadings in detail in a way which his reports had not reflected.
The absence of such a discussion or analysis had led the judge into error in considering that
Mr Attia’s evidence was “clear and compelling”.
[53] The commercial judge had erred in criticising Mr Whelan for regarding the
averments as showing a deception practised by the defender on the pursuers in relation to
Page 25 ⇓
25
the bona fides of the contractual arrangements entered into by the pursuers and the accuracy
of the excessive invoices paid by them. Mr Whelan had regarded the averments as setting
out deception in UAE law. When questioned about the absence of the use of the words
fraud and dishonesty in the averments, he had said that, nevertheless, that is how the
averments would strike a UAE court. The same point arose when he was accused of
tendentiously glossing the pursuers’ averments. He had replied that he was explaining how
a UAE court would approach the averments. The test was what the UAE court would make
of them and not how their relevance would be approached by a Scottish judge. In any
event, analysis of the averments in the third, fourth and fifth articles of condescendence,
would normally be taken as implying deception causing harm.
[54] To the extent that the commercial judge had thought to apply a technical meaning to
“secret profits”, he had ignored Mr Attia’s acceptance in cross-examination that, using
ordinary language, profits made in secret would found a tort claim under Article 285. He
had ignored Mr Whelan’s evidence in cross-examination that he was not using the term in
the context of employment or a fiduciary duty, but in the way it had been referred to in the
pleadings. As he said, when an invoice purporting to be the correct charge would produce a
secret profit it was a wrongful act. Regardless of the label placed on the conduct,
Mr Whelan’s evidence was that there would be an actionable tort under UAE law on the
facts presented.
[55] The commercial judge had failed to understand Mr Whelan’s evidence that there was
a general principle, which did not arise out of any contractual or fiduciary relationship, in
UAE law to act lawfully and honestly which founded an action in tort. This was clear from
Article 282. The evidence was such as to show that there was a sound basis for the court to
hold that the defender owed obligations to the pursuers pursuant to Articles 282 and 285,
Page 26 ⇓
26
wholly distinct from any contractual relationship. On a sound analysis of all the evidence,
and applying that to the case as averred, the judge should have held that there was a
relevant case in UAE law and that pronouncing absolvitor was an error.
Defender
[56] The commercial judge had approached his task because of the way in which
Mr Whelan had proceeded. He had been interpreting the pleadings and stating whether a
case was available under Articles 282 or 285. It was accepted that this was an unusual
approach; having findings-in-law before the findings-in-fact. It was not open to this court
now to allow a proof before answer or one which excluded averments of UAE law. All that
could be done was either to refuse the reclaiming motion or to make findings-in-fact of what
the UAE law was, thus providing tools for the judge to apply in due course.
[57] Articles 282 and 285 were not self-explanatory. The court should not interfere with
the commercial judge’s well-reasoned conclusions on what the law of the UAE was. The
judge had found that the essence of the pursuers’ case had failed because of their reliance on
the underlying employment contract and the concept of secret profits. The judge held that
the pursuers’ expert had not addressed himself to the case contained in the pleadings. The
commercial judge was hearing a proof, but he had not been provided with the precise facts.
The court was not in a position to lay down findings on whether what the defender had
done brought him within Articles 282 or 285.
[58] Proof of UAE law was a matter of fact and the court should not interfere with the
judge’s findings on that (Kolbin & Sons v Kinnear & Co (supra)). It was not open to the court
to apply hybrid law. There was no general principle that it was easier to interfere with a
first instance judge’s findings on foreign law (King v Brandywine Insurance Co (supra) at
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27
paras 66-68; MCC Proceeds v Bishopsgate Investment Trust (supra) at para 23.) It was the
expert’s role to provide the tools for the court to decide the case.
[59] The averment that the defender was employed by an associated company was
denied. There was no averment as to why that mattered. Mr Attia had said that it did not.
The concept of secret profits was at the heart of the pursuers’ case, but its relevance was
disputed by Mr Attia as it had no part to play in the law of tort. There was no mention in
the pleadings about the pursuers having been deceived or how that had been done or what
had been achieved. There was no mention of fraud, breach of a fiduciary duty, theft,
removing money or misrepresentation. The pursuers’ averments lacked specification. They
did not meet the appropriate standard for averments of fraud. This could be illustrated by
reference to the purchase order which had not been signed by the defender.
[60] Much of the debate had been taken up in identifying what was a legal duty. The
contention was that the pursuer was entitled to expect that the defender would perform his
employment contract. There was a sharp disagreement about this. Mr Whelan had turned
full circle on this, as the commercial judge had held, from his first report to his third.
[61] It was clear that making secret profits had not been a tortious act. Mr Attia had
addressed the question of deception. There had been no averments of taking money from
the pursuers or the existence of a web of deception or a fraudulent scheme. Mr Attia had
not conceded that there had been deception or a breach of a legal duty. The commercial
judge’s opinion had not been vitiated by any failure to have regard to the oral testimony.
There had been a sharp dispute between the experts and Mr Whelan was found to have
been self-contradictory. He had interpreted the pleadings in a manner which they could not
bear.
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28
Decision
[62] Foreign law must be proved as a matter of fact. This often means that parties will
adduce experts in the foreign law to explain the relevant rules and principles. The task of
ascertaining foreign law remains that of the court. It will seldom be a question of simply
preferring one expert as more reliable than another as if he was an eye witness speaking to
events which he had observed. Especially when the foreign law is in codified form, the
court will have to look at the written materials and decide for itself, if necessary with the
assistance of experts, what the law has been proved to be (Kolbin & Sons v Kinnear & Co 1930
SC 724, LJC (Alness) at 737-8, Lord Ormidale at 748-9; Lord Anderson at 753). As it was put
in Parkasho v Singh [1968] P 233 (Cairns J at 250, cited in King v Brandywine Insurance Co
[2005] 1 Lloyd’s Rep 655, Waller LJ at para 66) “the question of foreign law, although a
question of fact, is a question of fact of a peculiar kind”. The same considerations as apply
to a review of fact, and the advantages which a first instance judge has from having heard
and seen the witnesses testify, do not apply with quite the same force. In this case, in any
event, the commercial judge does not appear to have taken account of the testimony of the
experts, other than to say erroneously that neither had departed from the content of his
reports. The judge relied exclusively upon an analysis of the expert reports. The appellate
court is at no disadvantage in carrying out the same exercise to see if the judge has correctly
understood their import. As will be seen, not only does the court disagree with the judge’s
analysis, and considers that he has misinterpreted what Mr Whelan reported, it is also of the
view in particular that he was in error in failing to have any regard to important concessions
made by Mr Attia in cross-examination.
[63] Much of the confusion appears to have stemmed from the averments of the pursuers,
which cite certain Articles of the UAE Civil Code (246, 264 and 265) which are part of the
Page 29 ⇓
29
law of contract and have little, if any, relevance to the pursuers’ case which, as Mr Whelan
was at pains to point out, is based on delictual liability and not breach of contract.
Articles 246(2), 264 and 265 have nothing to do with this case. Article 246(i) is at best of
peripheral relevance and reference to it could usefully have been omitted. The confusion
might have been avoided had the pleader taken the trouble to frame proper pleas-in-law
which set out the basis of the action in clear terms. It is nevertheless reasonably apparent, at
least having had the advantage of hearing the parties, that that basis is the equivalent in
UAE law of a delictual action (akin to fraud) based on the application of Articles 282 and
285.
[64] In his first report, Mr Attia’s proposition (para 25) had been that, because the
defender was not employed by the pursuers, the pursuers had no “locus standi” to claim
damages “in connection with the [defender’s] performance of [his] employment contract”.
The pursuers could not rely on Articles 282 or 285. Contrary to the commercial judge’s
opinion, Mr Attia accepted in cross-examination that the fact that the defender was not an
employee of the pursuers did not prevent the pursuers from relying on either of these two
articles; ie to proceed with a claim in tort. He accepted that, if the setting up of LSES was to
conceal the defender’s participation in the pursuers’ transactions and constituted a
deception (a harmful act) then, if it also caused loss, a “tort claim” would be available under
Article 285. The same applied to the use of SFM. A contract induced by deception could
form the basis of a tort claim allowing the deceived to recover losses from the deceiver.
Again, with NTM, if the invoices involved deception whereby the pursuers paid excessive
amounts then there could be a claim. Although these material concessions in cross-
examination may not amount to a clear contradiction of Mr Attia’s views as expressed in his
reports, they amount to a significant addition to these views. Ultimately, as Mr Whelan
Page 30 ⇓
30
said, Mr Attia’s views did not differ from Mr Whelan’s on the substantive law of the UAE.
The judge has not taken these concession into account and has reached an erroneous
conclusion as a result.
[65] The commercial judge was in error in stating that Mr Whelan’s starting point had
been directed towards a contractual defence which was never advanced. This was not his
starting point but a commentary (albeit ultimately a pointless one), late on in his report, on
the relevance of a contract to whether the defender had a right to do what he did.
Mr Whelan’s central proposition in his first report and thereafter was that the case was
based on Article 282, which is the UAE equivalent of the delictual duty not to harm others.
The starting point was the ancient Islamic sharia which instructed Article 282. A victim of
wrongful conduct had a right to action. This included unjustified acts causing financial loss
to others, whether or not the person harmed was an employer. He correctly interpreted the
averments in the summons as a deception practised by the defender on the pursuers about
the bona fides (genuineness) of the contractual arrangements entered into by the pursuers
and of the excessive invoices. He stated very clearly (1st rep para 5.10 supra) that this would
constitute a harmful act under Article 282, even without the specific deception provision in
Article 285. As Mr Whelan later put it, a person in the defender’s position, and doing what
he did, would be regarded as crooked in the UAE as he would in the UK. He would be
liable in contract to his employer and in tort to the victim. It is clear from his first report that
Mr Whelan was stating that an employee of one entity could be liable for wrongful acts
which caused another entity harm. On this being rejected by Mr Attia, as not meeting the
tripartite test, because setting up companies and “doing business” in secret was not a breach
of a legal duty, Mr Whelan, perhaps with increasing exasperation, pointed out (again) in his
second report, that the nature of the pursuers’ case was dishonesty and deceit; “a crooked
Page 31 ⇓
31
manager who cheated his employers’ customer ... an affiliated company for his own
financial gain”.
[66] It is not a valid criticism, as the commercial judge thought, that Mr Whelan did not
initially refer to the contract of employment as being relevant to the Article 282 claim, when
all that he was saying was that it was the employment that provided the context for the
delictual acts. In his second report he expanded on this by spelling out that the contractual
arrangements were part of the background context, in that the pursuers would be working
on the assumption that an affiliate’s employee would be doing his job in good faith as his
contract required (Article 246). After Mr Attia had stuck firmly to his guns, in repeating in
his third report that setting up companies and concealment were not harmful acts,
Mr Whelan repeated his fundamental point in his third report; that it was not the setting up
of the companies in secret that grounded the action but their use in a deception designed to
cause the pursuers loss, and which did so.
[67] The commercial judge was in error in criticising Mr Whelan for giving no basis for
his statement that the defender did not have the right to perform the acts complained of. On
the understanding that deception is actionable under Articles 282 and 285 as a harmful act
(if it causes damage), there is no need to provide a basis for stating that a person has no right
to deceive others where that is designed, as the pursuers aver, to fool them into paying more
than they ought to have paid because of that deception. Even more clearly, it hardly
requires a basis to say that a person has no right to sell off another person’s assets at
undervalue without telling them and thus achieving personal gain (article 5).
[68] It is not correct, as the commercial judge said, that it is inconsistent to say that the
contract of employment was relevant as background and at the same time that the pursuers
could rely on the defender acting in accordance with the contract. It is that reliance, or
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32
assumption, that the defender is acting honestly as an employee of their affiliate, that forms
part of the background which results in the success of the scheme. It is nothing to the point
that an employee does not owe a contractual duty of good faith to his employers’ affiliate.
As Mr Whelan repeatedly said, it is not that which forms the cause of action, but the
deception perpetrated in a manner which caused the pursuers’ loss and the defender’s gain.
Again, contrary to the judge’s view, Mr Whelan’s position was not at all misconceived. He
was not, and did not at any point, assert that a third party had the same right as a
contracting party to expect that an employee would act in good faith.
[69] The commercial judge has misunderstood Mr Whelan’s position which has been both
clear and consistent throughout. This is a claim under the UAE law of delict, as set out in
Articles 282 and 285. A UAE judge would regard the actions as averred on record as
harmful acts because they amount to deliberate deception of the pursuers by the defender in
order to produce a personal benefit to the defender and loss to the pursuers. The facts
would have to be proved and flesh put on the bones of the averments, but part of the
background, and what perhaps causes, at least to some degree, the pursuers to pay the
invoices or allow their property to be sold, is the defender’s position as an employee of the
pursuers’ affiliates, acting as the pursuers’ procurement and recruitment officer. The terms
of his employment are not founded upon as the cause of action, but the defender’s position
is highly relevant to how the deception and related activities operated. His duty to act in
good faith is not “a fundamental part of [Mr Whelan’s] argument”. The actionable
deception could have been engineered by someone with no contract with the pursuers’
group of companies. However, the defender’s position made the deception far more likely
to work. The judge’s interpretation of what the case is about falls into the same error as
Mr Attia did in his first report. The pursuers are not, again contrary to the judge’s opinion,
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33
seeking to rely on the defender’s contractual duty to found their delictual action. As
Mr Whelan said many times, the contract is background, but it is relevant to the success of
the deception.
[70] “Secret profit” is a term of art in Scots law, but the case is not pled in Scots law. The
meaning of the phrase in the pleadings is quite clear in its context. It is referring to the
personal gain of the defender from the deceptions which he perpetrated. Equally, the fact
that there is no duty of disclosure owed to the pursuers does not detract from the averred
fact that the concealment of the defender’s position with the intermediate companies formed
part of what can, on the averments made, reasonably be described as a web of deception or a
fraudulent scheme.
[71] The tripartite test, which both experts agree to be appropriate in a delictual claim,
will be passed if the pursuers prove: (i) deception; (ii) loss; and (iii) causation. This was
accepted by Mr Attia in cross-examination. It is not accurate to say that there are no
averments of deception or misrepresentations concerning the bona fides of the contracts. The
averments in Articles 3 and 4 of condescendence make it clear that the pursuers set out to
prove that the defender set up various companies with a view to using them as a vehicle to
inflate what would otherwise be the true costs payable. This necessarily implies that the
defender is pretending, fraudulently, that the invoices which he caused to be sent to the
pursuers were genuine (ie that they arose from genuine commercial dealings), when in
reality they were a device which involved the defender, through his companies, rewriting
invoices having done nothing to merit any payment at all. The scheme or web of deception
is patent from the averments, as is conscious dishonesty and fraud. That is of the essence of
the case, as Mr Whelan repeatedly attempted to explain. The averments in Article 5, which
the commercial judge did not fully address, are even more clear in setting out a delictual
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claim of a harmful act causing the pursuers loss by selling off their assets at an undervalue,
and in any event retaining the profits, all without the pursuers’ knowledge.
[72] The court must determine what the applicable UAE law is. The decision is based on
the evidence of the experts, who have pointed to the relevant Articles and principles. As
Mr Whelan said, there is no substantial difference in what the experts said the law was. It is
that delictual acts are covered by the general principle contained in Article 282 of the Civil
Code, viz:
“Any harm done to another shall render the doer thereof ... liable to make good the
harm.”
As a subset of this principle, in relation to deception, Article 285 provides
“If a person deceives another he shall be liable to make good the harm resulting from
that deception.”
In order to succeed, a tripartite test must be passed. First, there requires to be a “harmful
act”. Another description of that act is “wrongful”. An act of deception is a harmful act.
Secondly, there must be a loss or damage to the person deceived. Thirdly, the deception
must have caused that loss. In the performance of a contract, including an employment
contract, the contracting parties must, in terms of Article 246(1) act in good faith. Although
that is not a ground of action, the fact that the defender was tasked by his employers to be
the pursuers’ procurement and recruitment officer may be relevant to the proof of deception
and causation.
[73] If the pursuers pass the tripartite test in relation to the averments in each of the third,
fourth or fifth articles of condescendence, the defender will be liable to pay damages to them
under UAE law. Accordingly, the court will allow the reclaiming motion and recall the
commercial judge’s interlocutor of 16 January 2018. It will repel the defender’s third plea-in-
law and allow the parties a proof before answer in respect of their averments of fact; the
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applicable law of the UAE having been found as fact in this opinion. The cause will be
remitted to the commercial court to determine further procedure in advance of that proof in
accordance with this decision.