Claim No: CFI 005/2010
THE JUDICIAL AUTHORITY OF THE DUBAI INTERNATIONAL FINANCIAL CENTRE
In the name of His Highness Sheikh Mohammad Bin Rashid Al Maktoum, Ruler of Dubai
IN THE COURT OF FIRST INSTANCE
BEFORE H.E. JUSTICE ALI AL MADHANI
|THE EMIRATES CAPITAL LIMITED
(1) MONTE CARLO STARS RESTAURANT
(a sole proprietorship)
(2) LIONEL JEAN-FRANCOIS HENRY
(the sole proprietor)
||21 and 22 September 2010
||Neal Brendel, K & L Gates LLP for the Claimant
Ludmila Yamalova, Al Sayyah Advocates & Legal Consultants for the Defendants
||3 November 2010
UPON HEARING the Claimant and the Defendants, their submissions and evidence
IT IS ORDERED THAT:
1. The Second Defendant in his personal capacity and his capacity as the sole proprietor of the First Defendant to pay to the Claimant the sum of (AED 783,235.04).
2. The Second Defendant in his personal capacity and his capacity as the sole proprietor of the First Defendant to pay to the Claimant interest up to the date of filing the Particulars of Claim dated 17 February 2010 in the sum of AED 12,643.20 and daily rate of interest of AED 158.04 from 18 February 2010 to date of payment.
3. The Second Defendant in his personal capacity and his capacity as the sole proprietor of the First Defendant to pay the costs of this claim.
1. The Claimant is a limited liability company registered in the DIFC under No.0533 located at Level 10, Office 1004, Al Safa Tower, Sheikh Zayed Road. The Claimant is regulated by the Dubai Financial Services Authority and is authorised to arrange credits or deals in investment and to advise on financial products and credit.
2. The First Defendant (Monte Carlo Stars Restaurant) is a sole proprietorship registered in Dubai under Trading License No.621846 to provide the services of a restaurant owned by the Second Defendant, Lionel Henry.
3. The Second Defendant is Lionel Jean-Francoise Henry, citizen of France who resides in Dubai. He is the sole proprietor of the First Defendant, Monte Carlo Stars Restaurant.
4. The Claim Form was submitted by the Claimant on 17 February 2010.
5. The Defendants applied for the Claimant’s Particulars of Claim to be struck out under Application No.38/2010, claiming that the Defendants’ named by the Claimant are the wrong parties to this claim. The Court dismissed the application.
6. On the 13 May 2010 a Case Management Conference was held and an Order was issued on 24 May 2010.
7. A Pre-Trial Review took place on 9 August 2010.
8. On 12 August 2010 The Defendants applied for the Court’s permission to add a further Witness Statement of Neal Tesch. The application was dismissed.
9. The matter went to trial which took place on 21 and -22 September 2010 and the Court, after hearing the parties’ submissions and factual witnesses, reserved Judgment.
10. The Claimant brought this claim before the Court on 17 February 2010 alleging that the Defendants initially approached the Claimant in order to find an Investor to their concept project. Thereafter, the parties signed an Engagement Letter dated 12 August 2009 in which the Defendants appointed the Claimant to act as a Placement Agent for two deferred units (projects) the first called Monaco Stars ‘N’ Bars Restaurant, Abu Dhabi and the second called Monte Carlo Stars Restaurant, Dubai Marina.
11. According to the Engagement Letter, the role of the Placement Agent was to:
“(a) Advise and assist in establishing an effective strategy to approach relevant investors for the restaurant concepts.
(b) Assist and coordinate investor contact and investor presentations as well as on-site visits and follow-up on behalf of MCS.”
12. The services of the Claimant as a Placement Agent were acquired upon a fee of 7% of the total capital raised for the project.
13. Following the signing of the Engagement Letter between the parties, the Claimant advised the Defendants on investment strategy, introduced the Defendant to Mohamed S. Bin Jabr Al Suwaidi of the Bin Jabr Group, provided a business plan, followed by signing a Term Sheet relating to investment between the Second Defendant and Bin Jabr.
14. Accordingly Bin Jabr made aggregate commitments in the sum of AED 11,333,072.00. The sum of AED 1,360,000.00 was in the form of equity whereas the rest was to be arranged by securing an overdraft.
15. As a result of Bin Jabr’s commitment to the Defendants’ project, the Claimant believes that they have fulfilled the terms of their agreement with the Defendants as enshrined in the Engagement Letter and, therefore, they are entitled to the placement fee of 7% from the Defendants, calculated at 7% of the total amount Bin Jabr committed to the project thus totalling AED 793,315.04.
16. The Claimant duly sent an invoice to the Defendants on 19 October 2009 requiring payment of AED 793,315.04.
17. The Claimant also claimed that upon receiving the invoice the Second Defendant had discussed the amount of the invoice and asked for an adjustment. As a result of that discussion, the Claimant made a reduction and the amount became AED 783,235.04. Accordingly, the Second Defendant signed that invoice.
18. The invoice has never been paid by the Defendants and, therefore, the Claimant brought these proceedings before the Court for payment of the following:
(a) The placing fee of AED 783,235.04;
(b) Interest of AED 24,022 being interest acquiring from 16 September 2009 to the date of the Claim Form at an interest rate of 7.36% per annum (as specified by Section 118 of DIFC Law No.6 of 2004 Contract Law);
(c) Costs including Court fees and lawyers’ fees;
(d) Any other such remedy as the Court may find just and equitable in the circumstances including multiple damages under Article 40(2) of DIFC Law No.7 of 2005.
19. In order to defend the claim, the Defendants submitted their Defence and a motion to strike out the claim was made on 11 April 2010. On 3 June 2010 the Defendants submitted their Substantive Defence as the Court decided not to strike out the claim and directed that it be dealt with at trial. Consequently, when referring to the Defendants’ Defence, the Court read and relied upon both documents submitted by the Defendants, along with their oral submissions.
20. In their Defence, the Defendants agree that they approached the Claimant in order to find an Investor to their concept projects of establishing two different restaurants – one in Abu Dhabi to be called Stars & Bars Restaurant and the second one in Dubai Marina to be called Monte Carlo Stars Restaurant which led to signing of an Engagement Letter between the Claimant and the Defendants.
21. However, the Defendants argue that the terms and conditions of their agreement with the Claimant (Engagement Letter) is not clear and should not be read as the only governing contract. The Defendants assert that the Term Sheet, Business Plan, invoice, correspondence and communication between parties must all be considered and interpreted in order to define the exact agreement between parties.
22. The first contention made by the Defendants is that they are not the correct party to these proceedings and that they should not be liable for paying the Claimant’s placement fee because the obligation to pay the placement fee falls on a new company to be incorporated in Abu Dhabi at a later stage. The Defendants’ support of this position is based on a number of different arguments which are as follows:
(a) The Defendants’ first argument is that the Engagement Letter did not provide for any provision specifying who should pay the placement fee. Therefore, the Defendants argue that no placement fee is due under the Engagement Letter because, standing alone, the Engagement Letter’s terms are unclear, ambiguous and consequently represent an invalid agreement.
(b) The Defendants’ second argument is that the Business Plan for the Abu Dhabi project and the Term Sheet signed between the Second Defendant and the Investor Bin Jabr provided that the new company Stars & Bars, Abu Dhabi (the name of which was changed at a later stage for logistical reasons to Monaco Stars Restaurant LLC) shall bear the fee and that this agreement was reflected clearly as the intention of the parties.
(c) The third argument made by the Defendants is that correspondence and communications between the Claimant, Defendants and the Investor Bin Jabr is in support of the Defendants’ contention that the Defendants should not be responsible for the payment of the Claimant’s fee. The Defendants referred to various emails in which the Claimant mentioned the fee to the Investor. The Claimant asked the Second Defendant to include the placement fee in the draft of the Business Plan and the Term Sheet. The Defendants also refer to an invoice dated 4 November 2009 directed to a new company incorporated in Abu Dhabi requiring payment of the placement fee.
23. The second main assertion made by the Defendants, is that no placement fee is due because the Claimant has not performed its obligation of raising funds for the concept projects in Dubai and Abu Dhabi. The Defendants argue that the fundamental objective of the parties’ relationship was for the Claimant to raise capital for the two projects. However, the Claimant never raised any capital for the Dubai project and with regard to the Abu Dhabi project, as of June 2010, neither capital nor guarantee for further capital had been given and the Defendant referred to the statement of the Second Defendant as evidence. The Defendants add that it had never been the intention of the parties that any fees would be payable to the Claimant before the actual capital had been raised and that, moreover, the Engagement Letter did not refer to any payment due before the required capital was raised.
24. The third main assertion raised by the Defendants is that according to the Engagement Letter, at paragraph 3.2 “… Success Fee is deemed earned on the day of the signing”. The only document that was signed between the Defendants and the Investor is the Term Sheet agreed between the parties that is “not legally and financially binding” and “only sets out the parameter in which such parties intend in good faith to negotiate definitive and legally binding Final Documents”. No other document was signed between the parties and the Investor. Consequently, and in accordance with the Engagement Letter this means that the fee is not due.
25. A further argument raised by the Defendants is that no fee is due under the Engagement Letter due to misrepresentation and deceit because the Claimant represented to the Defendants that the fees shall be paid by the new company whereas the contract (Engagement Letter) did not reflect that. The Defendants claim that, according to Articles 29 and 40 of the DIFC Contract Law, the contract should be considered void and invalid.
26. The fifth argument introduced by the Defendants is a matter of public policy; the Engagement Letter, as the Claimant intends to interpret it, is unenforceable because it violates a fundamental principle of justice. To require the Defendants to pay a fee for the services that have not been rendered or pay a fee that is higher than the services received would be fundamentally unjust and unfair. Therefore, a contract that leads to that result would be ineffective and void.
27. The last argument raised by the Defendants is that the First Defendant, Monte Carlo Stars Restaurant, has nothing to do with this claim. It is not a signatory to the contract and, therefore, the Claimant entered the First Defendant into the dispute. Furthermore, the First Defendant states it is a different entity from Monaco Stars Restaurant LLC, Abu Dhabi who should bear the placement fee.
Claimant’s opposition to the Defendants’ Allegations and Arguments
28. In response to the Defendants’ Defence and arguments, the Claimant submitted a reply to the Defence on 29 April 2010 together with oral submissions during the trial. The following is a summary of the argument put forward by the Claimant:
29. The first argument submitted by the Claimant is that the Defendants are signatories to the Engagement Letter and, therefore, they are obliged to perform their obligation stated in the contract as long as that contract does not provide for another party to perform that obligation.
30. The second argument put forward by the Claimant is that the Defendants cannot amend or interpret the contract by any other means since it was agreed in that contract (Engagement Letter) at Clause 9 that:
“… No amendment to this agreement, unless in writing and signed by both parties, shall be valid or binding upon either party. There are no oral or other agreements or understandings between the parties affecting this agreement”.
31. The Claimant also refers to Article 31 of DIFC Contract Law No.6 of 2004 to support that argument. Accordingly the Claimant asserts that the Defendants are trying to draw the Court into an examination of the motives and intentions of the parties based on a purported course of dealing between them subsequent to the execution of a written contract which they contend to substitute the signatories of the Engagement Letter with a third party that did not exist at the time the contract was formed.
32. The Claimant denies that it has agreed to transfer the obligation of fee payment to any third party at any stage and claims that neither of the Defendants was released from their original obligation. The Claimant added that the issue of a third party being obliged to pay the fee was raised only at a later stage when the Defendants received the first invoice from the Claimant. The reason behind sending the invoice dated 4 November 2009 to Monaco Stars Restaurant LLC, Abu Dhabi is that it was upon the request of the Second Defendant to enable him to recoup payment from the Investor, Bin Jabr, who refused to be responsible for payment of such fee.
33. The Claimant insists that the role it was obligated to perform according to the contract (Engagement Letter) was to find an Investor for the Defendants’ concept project which it claims it has succeeded in doing so. It found the Investor and the project is now almost complete as there is a sign on the premises saying “opening soon”.
34. With regard to the question raised by the Defendants’ lawyer as to whether 7% of capital raised is a fair fee the Claimant argues that is what the parties had agreed upon initially and what the Second Defendant had approved when he received and signed the invoice.
35. The Claimant also argues that the 7% fee for finding an Investor during a period of recession and credit crunch should be considered reasonable and the fee is what the parties agreed upon initially and there is nothing to prove otherwise.
36. With regard to the Defendants’ argument of misrepresentation, the Claimant denies it and suggests there is no evidence in support of that claim.
In order to decide upon the dispute, the Court will deal with the parties’ arguments as follows:
Whether the Defendants undertook the obligation to pay the Placement Fee in accordance with the Engagement Letter or this obligation was transferred to a third party?
37. On the one hand, the Claimant insists that the Engagement Letter is the only agreement governing the relationship between the Claimant and the Defendants. The Defendants are the only signatory to the Engagement Letter with the Claimant and, therefore, they are the only parties concerned regarding the placement fee payment especially since no third party was mentioned in the Engagement Letter and neither of the Defendants were discharged or released at any stage during the period of contract formation or even after that.
38. On the other hand, the Defendants claim that it was always the intention of the parties that the placement fee be borne by a third party which was to be the new company to be formed as a result of the Claimant’s efforts to approach the Investor for the Second Defendant’s project.
39. Article 10 of DIFC Contract Law No.6 of 2004 provides that:
10- Binding character of contract
A contract validly entered in to is binding upon the parties. It can only be modified or terminated in accordance with its terms or by agreement or as otherwise provided in this Law.
40. Article No. 31 of DIFC Contract Law No. 6 of 2004 provides that:
31- Written modification clauses
A contract in writing which contains a clause requiring any modification or termination by agreement to be in writing may not be otherwise modified or terminated. However, a party may be precluded by its conduct from asserting such a clause to the extent that the other party has acted on reliance on that conduct.
41. What we can learn from Articles 10 and 31 of the DIFC Contract Law is that a contract is binding upon its parties and any amendments shall comply with the terms of that contract or in accordance with Contract Law. When it comes to a contract that contains a term requiring parties to agree in writing in order to modify or terminate it, they have to do so unless the asserting party has acted in a way that the other party has relied on.
42. Applying that law to the facts of the case, the Court finds that in the Engagement Letter the Defendants instructed the Claimant as follows;
“2. Role of Placement Agent: The Emirates Capital Limited will act as Placement Agent under a mandate from MCS and will perform the following duties, as requested by MCS:
2.1 Advise and assist in establishing a effective strategy to approach relevant Investors for the restaurant concepts.
2.2 Assist and coordinate Investor contact and Investor presentations as well as on-site visits and follow-up on behalf of MCS.
43. In return for its services, Emirates Capital Limited, the Claimant, receives fees in accordance with Clause 3 of the Engagement Letter:
3.1 Emirates Capital will receive a placement fee of 7% (“Placement fee”) of the total capital raised.
3.3 The Placement Fee shall be due and payable 10 days after the date of the Invoice.
44. In respect of this clause, the Defendants argue that, although the Engagement Letter provides for the Claimant to be entitled to a fee, the Engagement Letter kept silent from referring to who should pay the fee. The Defendants build their argument of interpretation in consideration of the surrounding circumstances and documents such as the Term Sheet and Business Plan.
45. It is true that the Engagement Letter does not specifically mention who should pay the fees. However, since the written contract made no express reference that a third party should bear that obligation, Article 10 of the Contract Law provides the answer as the contract is binding upon its parties. Accordingly Cause 3 of the Engagement Letter shall be read as that:
“3.3 The Placement Fee shall be due and payable 10 days after the date of the invoice.
46. Both parties agreed upon a way as to how the agreement should be amended as provided in Clause 9 of the Engagement Letter:
“… No amendment to this agreement, unless in writing and signed by both parties, shall be valid or binding upon either party. There are no oral or other agreements or understandings between the parties affecting this agreement”.
47. Article 31 of DIFC Contract Law and Clause 9 of the Engagement Letter have made it clear that the only way the parties could amend Clause 3.3 of the Engagement Letter (according to Article 10 of the Contract Law), is to go through a written agreement to be signed by both parties.
48. The Defendants offered no written agreement amending the initial agreement by substituting the Defendants with a third party to bear the placement fees or to release the Defendants from doing so.
49. Furthermore, according to Clause 9 of the Engagement Letter the parties’ understanding regarding who shall pay the fees is not relevant because it was not formulated into a written agreement to be considered a legally amended agreement to the Engagement Letter.
50. With regards to the Defendants’ argument that it was stated in the Term Sheet (signed between the Second Defendant and the Investor Bin Jabr) that the placement fee was to be paid to Emirates Capital Limited or the mention of those fees in the Business Plan of the new company which was drafted by the Claimant, the Court finds that both documents mentioned by the Defendants are not relevant and cannot be considered to be a written amending agreement to the initial contract for the simple reason that it was not signed by the Claimant according to Clause 9 of the Engagement Letter and Article 31 of DIFC Contract Law.
51. The Defendants argue that the Claimant directed and sent the invoice to the new company, Monaco Stars Restaurant LLC, Abu Dhabi on 4 November 2009 as evidence that the new company should pay the fees. The Claimant referred to the Defendants’ request to requiring him to pay the fees as stated in Mr Henry’s email dated 6 November 2009:
In order for us to be able to pay you. You have to address the Invoice to Monaco Stars Restaurant LLC Abu Dhabi. Otherwise I guess will not accept to honor the payment on our joint company”.
52. The Court’s finding in this matter is that the invoice sent to the new company in Abu Dhabi, at the request of the Second Defendant, after he was sent two invoices on 19 October and 4 November 2009. The new invoice sent to the new company Monaco Stars made no release or discharge to the Defendants from their original obligation towards the initial invoice and, therefore, it was just a means to assist the Second Defendant to arrange the fee through his new joint company. This evidence was supported by the statement of Michael Huebener in his Second Witness Statement, at paragraph 18:
“At the request of Mr Henry, at the same time the Amended Invoice was issued, the Claimant also issued an invoice that was addressed to Monaco Stars Restaurant LLC …was issued by the Claimant solely at the request of Mr Henry to assist him seek reimbursement of the Placement Fee from Bin Jabr. In no way was the issue of Monaco Stars Invoice intended to amend, vary or release the obligations of the Defendants to pay the Placement Fee under the terms of the Engagement Letter”.
53. The Court has found from what has been discussed above that the Defendants had undertaken the obligation of paying to the Claimant the fee of 7% of the total capital raised for the new company as instructed by the Defendants. The Court also finds that obligation upon the Defendants has never been released or transferred to a third party by any valid means that comply with the requirements of Clause 9 of the Engagement Letter and Articles 10 and 31 of the DIFC Contract Law and that if the Court finds otherwise, it would be re-writing of the contract in a way that goes against the wishes of the parties.
Whether the Claimant performed its duty in order for the fees to become due?
54. As stated in paragraph 23 above, the Defendants raise the argument that no capital was raised and, therefore, the Claimant did not perform its duties in order to claim the fees in return.
55. In order to determine whether the Claimant performed its duty, Clause 3.1 and 3.2 of Engagement Letter have to be examined:
3.1Emirates Capital will receive a placement fee of 7% (“Placement fee”) of the total capital raised
3.2 ” …The Success Fee is deemed earned on the day of the signing”.
56. Evidently, there are two conditions for the Claimant to satisfy in order for the Claimant to consider itself as having performed its duties to the Defendants. The first condition is that capital is to be raised and the second condition is that of the signing which the Defendants consider to be an ambiguous term.
57. With regard to the first condition which is raising capital, the incident of 19 October 2009 when the Claimant sent the invoice to the Second Defendant who received it and raised no objection or challenges regarding it other than asking for a reduction in the fees. In addition to that, when the Second Defendant himself asked the Claimant to address the invoice to the new company, Monte Carlo Stars Restaurant as it was addressed earlier, both of these incidents can be considered as evidence itself that the Claimant performed its duty. Furthermore, Mr Henry (the Second Defendant) made it very clear when he was asked by the Claimant’s lawyer during his testimony:
“The project Monaco Stars Restaurant LLC Abu Dhabi is 75% of accomplishment with costs over AED 10 million so far”
58. There is evidence that the Claimant performed its duties of finding an Investor to fund the Defendants’ concept project worth over AED 10 million for 75% of the project.
59. As to the condition mentioned in clause 3.2 “The Success Fee is deemed earned on the day of the signing”. The extreme interpretation of the word (signing) (as the defendants would go to) would not exceed the signing of the contract between the Defendants and the Investor Bin Jabr and that is exactly what happened. According to the Articles of Incorporation of the Monaco Stars Restaurant and the License Agreement dated 9 December 2009, it was signed between the Defendants and Bin Jabr, the Investor, as exhibited by the Claimant in Tab 16 and 17 File C of the Trial Bundle.
60. Thus, it was evidenced that the Claimant had done its duty of not just introducing an Investor but sealing the deal after capital had been raised and, therefore, the placement fee is due according to the Engagement Letter.
Whether no fee is due under the Engagement Letter due to Misrepresentation and Deceit?
61. The Defendants raised this argument claiming that the Claimant induced the Defendants to sign the Engagement Letter contrary to what had been represented to them. The Court found no evidence for this sort of defence and it was even proved against the Defendants when the Claimant’s lawyer asked the Second Defendant and his wife, Christina Henry, during their testimonies where they both said that they been given the draft of the Engagement Letter to study it and revise it within a couple of days before they should sign it and return it. It is evident that the Defendants have failed to prove this argument and, therefore, it is dismissed.
Damage claimed by the Claimant
62. The Claimant has requested for multiple damages according to Article 40(2) of Law of Damages and Remedy No 7 of 2005. However, the Claimant presented no evidence that they have suffered any harm, loss or damage as a result of the Defendants’ action which, itself, is not proved as deliberate conduct. Accordingly. this application is dismissed.
The Relationship between the First and Second Defendant
63. It is evident that from the Trading License of the First Defendant, Monte Carlo Stars Restaurant (No. 621846) issued by the Department of Economic Development, it is a sole establishment owned by the Second Defendant, Lionel Henry and, therefore, the Court considers the two Defendants as one and the judgment shall be entered against the Second Defendant in his personal capacity and in his capacity as sole proprietor of the First Defendant.
64. I hold that the Claimant was entitled to succeed in its monetary claims to the extent indicated earlier in this judgment. I award the sum of AED 783,235.04 in respect of the claim together with interest up to the date of filing the Particulars of Claim on 17 February 2010 of AED 12,643.20 and daily rate of interest of AED 158.04 from the date of 18 February 2010 to date of payment. I order that the costs of the claim be paid by the Second Defendant.
H.E. Justice Ali Al Madhani
Date: 3 November 2010