Claim No. CFI 014/2010
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 JUSTICE SIR JOHN CHADWICK
(1) NATIONAL BONDS CORPORATION PJSC
(2) DEYAAR DEVELOPMENT PJSC
||23 September 2010
||Vernon Flynn QC (lead counsel) and Tom Montague-Smith (representing Hogan Lovells (Middle East LLP) for ClaimantMarc Massihi of Hikmat Fayad & Associates for First Defendant
Jim Delkousis of DLA Piper Middle East LLP for Second Defendant
||21 November 2010
REASONS FOR JUDGMENT
1. In these proceedings Taleem P.J.S.C claims declarations, so far as material, (i) that it is not indebted to National Bonds Corporation P.J.S.C (“NBC”) in the sum of AED 236,595,031.07 or at all under an agreement made between them and dated 6 July 2008 and (ii) that, by virtue of a novation agreed with NBC and Deyaar Development P.J.S.C (“Deyaar”), it has had no interest in property known as Sky Gardens, located within the Dubai International Financial Centre (“the DIFC”), since 31 August 2008 and is not liable for any finance provided by NBC for an interest in that property before or after that date. By counterclaim in the proceedings Deyaar seeks orders that Taleem pay sums amounting together to AED 183,508,531.40 and a declaration that, until payment, Taleem holds the property on trust.
2. By application notice No. 42/2010, NBC challenged the jurisdiction of the DIFC Courts to entertain the claim against it. By application notice No. 50/2010, Deyaar applied for an order that NBC be joined as an additional party to its counterclaim. Those applications came before me for hearing on 23 September 2010. I dismissed NBC’s challenge to jurisdiction; and I made the order for joinder sought by Deyaar. I indicated that I would put my reasons in writing.
The jurisdiction of the DIFC Courts
3. The Dubai International Financial Centre was established by UAE Federal Decree No.35 of 2004 made pursuant to Federal Law No.8 of 2004. The Dubai International Financial Centre Courts were formed pursuant to the Law of the Dubai International Financial Centre, No.9 for the year 2004 made by His Highness the Ruler of Dubai (“Dubai Law No. 9 of 2004”). Article 8(2) of that Law provides (so far as material) that:
“8(2) Unless otherwise provided by any other Centre’s Laws, the Centre’s Courts shall have exclusive jurisdiction to hear and determine any claims in which the Centre, the Centre Establishments or any of the Centre’s Bodies is party to and also to hear and determine any dispute, arising out of any transaction carried out in the Centre or an incident which took place therein.”
Article 8(4) provides that:
“8(4) The Centre’s Courts shall have exclusive competence to interpret this Law, the Centre’s Laws and the Centre’s Regulations.”
Article 2 defines “the Centre’s Laws” to mean “Any laws issued by the Ruler relating to the Centre”.
4. The Centre’s Laws, for the purposes of Article 8 of Dubai Law No.9 of 2004, include the Law of the Judicial Authority at Dubai International Financial Centre, Law No.12 of 2004 (“Dubai Law No.12 of 2004” or “the Judicial Authority Law”). Article 3(1) of the Judicial Authority Law provides that:
“3(1) The Courts of the Centre are hereby established and shall carry out their functions in an independent manner, in accordance with the provisions of this Law and the provisions of the other Centre’s Laws and Regulations.”
Article 5 (“The Jurisdiction of the Courts”) is in these terms, so far as material:
“5(A) The Court of First Instance:
(1) Without prejudice to paragraph 2 of this Article, the Court of First Instance shall have the exclusive jurisdiction over:
(a) civil or commercial cases and disputes involving the Centre or any of the Centre’s Bodies or any of the Centre’s Establishments.
(b) civil or commercial cases and disputes arising from or related to a contract that has been executed or a transaction that has been concluded, in whole or in part, in the Centre or an incident that has occurred in the Centre.
(c) objections filed against decisions made by the Centre’s Bodies, which are subject to objection in accordance with the Centre’s Laws and Regulations.
(d) any application over which the Courts have jurisdiction in accordance with the Centre’s Laws and Regulations;
(2) Parties may agree to submit to the jurisdiction of any other court in respect of the matters listed under paragraphs (a), (b) and (d) of this Article.”
5. It is important to have in mind that (subject to paragraph (2)) the jurisdiction conferred on the DIFC Courts by Article 5(A) of the Judicial Authority Law is “exclusive” jurisdiction. Plainly, it could not have been the intention to seek to confer jurisdiction on the DIFC Courts to the exclusion of courts whose jurisdiction lay outside the Emirate of Dubai. To seek to do so would be to seek to infringe the sovereignty of other states. But, equally clearly, it was the intention (in a case to which paragraph (2) of the Article did not apply) to confer jurisdiction on the DIFC Courts to the exclusion of other courts having jurisdiction within the Emirate. In particular, it was the intention to confer jurisdiction on the DIFC Courts (in respect of matters within paragraph (1) of the Article and in cases to which paragraph (2) did not apply) to the exclusion of the other courts of Dubai to which express reference is made in Article 7 (“The Enforcement”) of the Judicial Authority Law: that is to say, to the exclusion of “Dubai Courts”. In that context the expression “Dubai Courts” has the meaning given by Article 2: “The Emirate of Dubai courts established pursuant to Law No. (3) of 1992”.
6. The Dubai Courts and the DIFC Courts are each integral parts of the Dubai legal system: they are each “Courts of Dubai”. The importance of co-operation between them is emphasised in the Protocol of Jurisdiction signed on 7 December 2009. The introduction to that Protocol contains the following passage:
“Jurisdiction is an important element of the judicial process. It is an important requirement that the Courts identify their jurisdiction to hear and determine cases, so that parties know the correct court to which their cases should be submitted. This avoids setting aside judgments for reasons of jurisdiction, loss of time, resources and costs to the justice system and to individuals. Dubai Courts and the Dubai International Financial Centre Courts (“DIFC Courts”) are pillars of the Dubai legal system and agree that both Courts shall have full judicial cooperation. The cooperation shall have a positive impact on effectively establishing and maintaining a strong Judicial System in Dubai.”
7. The Centre’s Laws include, also, the DIFC Court Law 2004 (“DIFC Law No.10 of 2004” or “the DIFC Court Law”). The purpose of that Law, expressed at Part 2, Article 6, is “to provide for the independent administration of justice in the DIFC in accordance with Dubai Law No.9 of 2004 and the Judicial Authority Law”. Article 19 of the DIFC Court Law contains further provisions as to the jurisdiction of the Court:
“19(1) The DIFC Court of First Instance has original jurisdiction pursuant to Article 5(A) of the Judicial Authority Law to hear any of the following:
(a) civil or commercial cases and disputes involving the Centre or any of the Centre’s Bodies or any of the Centre’s Establishments;
(b) civil or commercial cases and disputes arising from or related to a contract concluded or a transaction concluded by any of the Centre’s Establishments or the Centre’s Bodies;
(c) civil or commercial cases and disputes arising from or related to a contract that has been executed or a transaction that has been concluded, in whole or in part, in the Centre or an incident that has occurred in the Centre; and
(d) any application over which the DIFC Court has jurisdiction in accordance with DIFC Laws and Regulations;”
8. The Protocol of Jurisdiction records the need “to create an accurate mechanism to enable both Courts to interpret those rules … in the light of the applicable laws in the Emirate of Dubai …”. To that end, paragraphs 3 and 4 of the Protocol contain the following provisions:
“3 — DIFC Court’s Jurisdiction
The Dubai Courts and DIFC Courts agree that the DIFC Courts shall have exclusive jurisdiction over:
3.1 Civil or commercial cases and disputes involving the Centre or any of the Centre’s Bodies or any of the Centre’s companies, and branches of companies and establishments that are established or licensed to operate in the DIFC;
3.2 Civil or commercial cases and disputes arising from or related to a contract that is to be or has been performed in whole or in part within the DIFC;
3.3 Civil or commercial cases and disputes arising from a transaction that has taken place, in whole or in part, in the Centre, and which is related to Financial Banking Activities, Financial Activities, Ancillary Activities or any Activities licensed to be performed within the DIFC;
3.4 Civil or commercial cases and disputes arising from or related to an incident that has occurred in the Centre, except Criminal Proceedings relating to any Criminal Offence according to the Penal Codes; and
3.5 Disputes about Civil remedies flowing from or related to any Criminal offence that has occurred in the Centre.
4 — Dubai Courts’ Jurisdiction
Dubai Courts have general jurisdiction except for the mentioned areas in subparagraph 3 of this protocol.”
Paragraph 7 of the Protocol provides that it shall apply “until a legislative amendment further defines the Jurisdiction between the two Courts and to identify the relevant Court to resolve any conflict of jurisdiction between the two Courts, whether the conflict is positive or negative”.
9. It is clear, therefore, that — pending further legislative definition of the jurisdiction which the Dubai Courts, on the one hand, and the DIFC Courts, on the other hand, are to exercise within the Emirate of Dubai — the Courts have agreed between themselves that jurisdictional issues shall be determined by each in accordance with paragraphs 3 and 4 of the Protocol. The effect of that agreement is that each case should properly be heard by one Court or by the other; there should be no case in which the Courts differ as to which has jurisdiction; and, accordingly, there should be no case in which both Courts either claim, or refuse, jurisdiction. In determining a challenge to its jurisdiction, the DIFC Court should have those principles in mind.
The challenge to jurisdiction in the present case
10. The proceedings were commenced by the issue, on or about 5 May 2010, of a Claim Form under Part 7
of the Rules of the DIFC Court (“the RDC”). The Particulars of Claim were attached to the Claim Form. On 17 May 2010 NBC filed an Acknowledgment of Service. On 25 May 2010 it filed notice of application (under Reference No 42/2010) seeking a declaration that the Court had no jurisdiction to try the claim. The ground relied upon, set out in Part C to the application notice, was that the claim was based on a Murabaha agreement dated 6 July 2008 which included a clause in these terms:
14.1 Each of the Parties irrevocably agrees for the benefit of the Seller that the courts of Dubai, UAE shall have jurisdiction to hear and determine any suit, action or proceedings, and to settle any disputes which may arise out of or in connection with this Agreement (respectively ‘Proceedings’ and ‘Disputes’) and for such purposes, irrevocably submits to the jurisdiction of such courts.
14.2 Appropriate Forum
The Buyer irrevocably waives any objection which it might now or hereafter have to the courts referred to in Clause [14.1] being nominated as the forum to hear and determine any Proceedings and to settle any Dispute and agrees not to claim that any such court is not a convenient or an appropriate forum.”
11. The challenge was developed in a Skeleton Argument filed on behalf of NBC on 14 September 2010. It is pointed out, correctly, that DIFC Law No.4 of 2007 — concerning land within the DIFC — came into force some 12 months before the date of the Murabaha agreement which is the subject of the present claim. It is said that, nevertheless, “the Parties agreed to irrevocably give Jurisdiction to Dubai, UAE courts and not to DIFC Courts while they had the opportunity to give such Jurisdiction to the DIFC Courts”. Reliance is placed on the decision of the DIFC Court of First Instance in proceedings CFI 036/2009
, Dr Lothar Ludwig Hardt and Hardt Trading FZE v Damac (DIFC) Company Limited and others
, in which a claim relating, in part, to land within the DIFC was struck out for want of jurisdiction. Counsel for NBC was invited to develop his submissions further in oral argument; but indicated that he was content to rely on the points made in his Skeleton Argument.
12. I was satisfied at the hearing of NBC’s application that unless I were persuaded that the reasoning in Hardt v Damac required a different conclusion — and that it would be wrong to depart from that reasoning — NBC’s challenge to the jurisdiction of the DIFC Courts could not be sustained on the grounds advanced in its Application Notice and its Skeleton Argument.
13. The premise on which that challenge is based is that clause 14.1 of the Murabaha agreement contains an agreement between the parties, to which effect should be given pursuant to Article 5(A)(2) of the Judicial Authority Law, to submit disputes under the Murabaha agreement to the Dubai Courts rather than to the DIFC Courts. But that is to equate the phrase “the courts of Dubai, UAE” with the “Dubai Courts” to the exclusion of the “DIFC Courts”. As I have explained, on a proper understanding of the position within the Emirate of Dubai, both Dubai Courts and DIFC Courts are “courts of Dubai”. Absent some compelling context — which does not exist in the present case — there is no basis for holding that the phrase “courts of Dubai, UAE” means the Dubai Courts rather than the DIFC Courts. It follows that the premise is flawed. The better view is that, by the use of that phrase in the Murabaha agreement, the parties have agreed to litigate disputes in Dubai, rather than somewhere else, but without choosing which between the two court systems in Dubai: that is to say, they have agreed to submit their disputes to whichever of the Dubai Courts and the DIFC Courts has jurisdiction under the laws of Dubai. Those laws include Dubai Law No.9 of 2004, and the Judicial Authority Law. And, as I have said, the question which of the Dubai Courts and the DIFC Courts has jurisdiction over the dispute under the laws of Dubai now falls to be decided with regard to the Protocol of Jurisdiction.
Hardt v Damac
14. I turn, therefore, to consider whether the reasoning in Hardt v Damac compels a different conclusion. The claim in that case, as appears from the judgment of Justice Sir Anthony Colman dated 31 March 2010, was for repayment of monies said to have been paid under 37 separate agreements for the purchase of residential and retail units in four separate property developments. One of those developments (The Park Towers development) was within the DIFC: the others were not. The first named defendant was a DIFC company; but, as the judge observed (at paragraph 6 of his judgment): “It was not and is not alleged to have been a party to any of the contracts and the Particulars of Claim contain not a single allegation of conduct by it, as distinct from the other Defendants, relating to the any of the contracts in question”. The contracts each contained a governing law and jurisdiction clause in these terms:
“This Agreement is made in the English language and the rights of the Parties hereunder shall be governed by the Laws of the United Arab Emirates and the Laws of Dubai and the Parties agree that any legal action or proceedings with respect to this Agreement shall be subject to the exclusive jurisdiction of the Courts of Dubai, United Arab Emirates.”
15. After disposing of a number of procedural objections the judge turned, at paragraph 40 of his judgment, to address the question whether, by the governing law and jurisdiction clause, the claimants and defendants had agreed that any legal action or proceeding in respect to each of the contracts should be subject “to the exclusive jurisdiction of the Courts of Dubai as distinct from the DIFC Courts”. It is clear that, in that context, he was treating “the Courts of Dubai” and the “the DIFC Courts” as mutually exclusive. But it is also clear that the proposition that the DIFC Courts were Courts of Dubai had not been argued before him. The true distinction — as I have explained — is not between the DIFC Courts and the Courts of Dubai. The true distinction is between the DIFC Courts and the Dubai Courts in the sense defined in Article 2 of the Judicial Authority Law: that is to say, “The Emirate of Dubai courts established pursuant to Law No. (3) of 1992”.
16. At paragraph 42 of his judgment the judge said this:
“The wording of the clause being the same in all contracts, any submission that it is to be construed as conferring jurisdiction on this Court must either involve that it is to be inferred that the mutual intention was to confer such jurisdiction on the DIFC Court in all the contracts — covering both non-DIFC properties and DIFC properties — or that in the contract relating to Park Towers the same clause should be given a different meaning to that in the other contracts.”
He went on to explain why a submission to that effect must be rejected: first, because “the imposition of DIFC Law on a contract for the sale of non-DIFC realty would be highly improbable, particularly having regard to what is common ground, namely that none of those contracts were entered into in the area of the DIFC and none were required to be executed in the DIFC” (paragraph 44 of the judgment); and, second, because “at the time when the earlier contracts … were entered into, there was in place no land law in the DIFC other than Dubai Law” (paragraph 45 of the judgment). As the judge pointed out, until DIFC Law No 4 of 2007, came into force in June 2007, Dubai Land Law applied in the DIFC. In those circumstances it was, as he observed at paragraph 48, “inconceivable as a matter of inference that the parties would enter into a contract for the sale of realty in either DIFC or non-DIFC Dubai up to June 2007 in which they agreed that the contract should be governed by the Laws of the DIFC and that ‘any legal action or proceedings with respect to this Agreement’ should be subject to the exclusive jurisdiction of the Courts of the DIFC”. He said this, at paragraph 49 of his judgment:
“Further, the contracts contain nothing to indicate that the parties by using the words “Laws of Dubai” and “Courts of Dubai” were employing a specially-agreed meaning that confined the Laws to DIFC Laws and confined the Courts to DIFC Courts. . . . The “Courts of Dubai” would not be taken by anyone familiar with the relative jurisdiction of the Dubai and DIFC Courts and to the circumstances in which these agreements were entered into as referring to the DIFC Courts.” [emphasis added]
The judge concluded that, whatever might have been the position under Article 5(A)(1)(a) or (b) of the Judicial Authority Law, on the facts of the case before him the parties had contracted out of the jurisdiction of the DIFC Courts “under each of the many contracts entered into, including the Park Towers contracts”, and that, accordingly — in the light of Article 5(A)(2) — the DIFC Courts had no jurisdiction.
17. The judge then addressed the question whether — if, contrary to the decision which he had just reached, the governing law and jurisdiction clause in the contracts did purport to confer jurisdiction on the DIFC Court — the DIFC Court could accept jurisdiction. That question turned — as he explained at paragraph 3 of his judgment — on whether “in respect of any of the contracts, the facts pleaded in the Particulars of Claim fall within the scope of the jurisdiction of the DIFC Courts identified in Article 5(A)(1) of Law No.12 of 2004 [the Judicial Authority Law]”. He concluded that they did not do so. It follows that the result would have been the same even if the judge had treated the phrase “the Courts of Dubai” as including both the Dubai Courts and the DIFC Courts: that is to say, if he had treated the governing law and jurisdiction clause as an agreement to submit to the jurisdiction of whichever of those Courts jurisdiction was properly assigned under Dubai Law No.9, the Judicial Authority Law and the DIFC Court Law, having regard to the guidance given by the Protocol.
18. As I have said, I was satisfied at the hearing of NBC’s application that unless I were persuaded that the reasoning in Hardt v Damac required a different conclusion — and that it would be wrong to depart from that reasoning — NBC’s challenge to the jurisdiction of the DIFC Courts could not be sustained on the grounds advanced in its application notice and its skeleton argument. Having considered the reasoning in Hardt v Damac — set out in the preceding paragraphs of this judgment — I was not persuaded that it compelled or required a different conclusion. It is unclear whether the judge considered, in that case, the possibility that the phrase “the Courts of Dubai” could properly refer to both the Dubai Courts and the DIFC Courts: leaving the choice between those Courts to be made in accordance with the laws of Dubai. It seems that, without considering that possibility, he took the view that the phrase “the Courts of Dubai” must refer either to the Dubai Courts or to the DIFC Courts — to the exclusion of the other — and that, faced with that choice, the facts of the case before him pointed to the Dubai Courts. In those circumstances I am satisfied that I am at liberty to take my own view in this case.
Do the DIFC Courts have jurisdiction under the laws of Dubai?
19. Although I was satisfied that NBC’s challenge to jurisdiction could not be sustained on the grounds advanced in its Application Notice and its Skeleton Argument, I thought it necessary to consider, of the Court’s own motion, whether the DIFC Courts should accept jurisdiction in the present case. A jurisdictional issue having been raised, it seemed to me that the Court ought to satisfy itself that, in accepting jurisdiction, it was acting consistently with the laws of Dubai and the Protocol.
20. In order to address that question it is necessary to examine the claims made in the proceedings in greater detail than I have done so far. The allegations made in the Particulars of Claim are not easy to summarise; but I must attempt to do so:
(1) Taleem, NBC and Deyaar are each incorporated and registered in the Emirate of Dubai. None are DIFC registered companies.
(2) Taleem had, for some time prior to 2008 been engaged in the establishment of schools in Dubai. In June 2007 it was acquired by Madaares P.J.S.C. (“Madaares”). NBC was a shareholder in Madaares: so also was Amlak Finance P.J.S.C.
(3) It is said, at paragraph 7 of the Particulars of Claim, that Taleem wished to identify profitable short-term investment opportunities in order to recoup some of the accumulated losses identified in its books following its acquisition by Madaares. The goal was to realise such profits by its year end, 31 August 2008. NBC and Amlak Finance were aware of this goal; and were in a position to assist.
(4) The vehicle through which the goal was to be attained was an interest in property within the DIFC known as Sky Gardens. Sky Gardens was to be purchased in the name of Amlak Sky Gardens LLC (“ASG”), a company set up by Amlak Finance. On 7 July 2008, acting (it is said) on promises and representations made by NBC, Taleem entered into a Tripartite Agreement with Amlak Finance and DIFC Investments LLC under which Taleem agreed to pay 33 per cent of the instalments and liabilities incurred by ASG. It is alleged (at paragraph 11 of the Particulars of Claim) that: “Under the terms of the Tripartite Agreement Taleem received a beneficial interest of 33% in the Property held in trust by Amlak Finance, as the appointed manager of ASG”.
(5) Prior to 7 July 2008 NBC had made payments (amounting together to AED 54,132,424.50) to Amlak Finance in connection with the purchase of the Sky Gardens property. On 12 July 2008 NBC made a further payment of AED 81,198,637 to ASG for that purpose and lodged post-dated cheques in respect of future instalments of the purchase price. On 6 August 2008 Taleem lodged its own post-dated cheques with Amlak Finance (in substitution for those lodged by NBC) in respect of payments falling due under the Tripartite Agreement. It is alleged (at paragraph 13 of the Particulars of Claim) that NBC undertook to provide funds for the payment of such cheques as would be necessary.
(6) Paragraph 16 of the Particulars of Claim is in these terms:
“Thus, having introduced the Sky Gardens transaction to Taleem and procured the acquisition of a 33% interest which it funded, NBC was engaged in the disposition of that interest so that Taleem could raise a profit, to be taken into its accounts before 31 August 2008”.
(7) That objective was to be achieved by arranging for Deyaar to purchase Taleem’s interest in the Sky Gardens property. The purchase price payable by Deyaar was intended to give rise to the realisation, by Taleem, of a profit of some AED 70 million.
(8) The arrangements for the purchase of Taleem’s interest in the Sky Gardens property are said to have been agreed between Taleem, NBC and Deyaar at the end of October 2008. It is alleged (at paragraph 22 of the Particulars of Claim) that:
“Thereafter Taleem proceeded to sign a Murabaha agreement with NBC intended to regulate payments totalling AED 135,331,061.50 that NBC had made to acquire the interest in the Properly, arranged for Taleem under the Tripartite Agreement signed on 7 July 2008. The Murabaha Agreement between NBC and Taleem was back-dated to 6 July 2008. The profit agreed between the parties was AED 1,492,698.62. In the premises, at the time this finance agreement was signed by Taleem, NBC had confirmed the terms of the novation agreed by NBC with Deyaar.”
(9) Paragraph 24 of the Particulars of Claim set out the terms of an e-mail sent on behalf of NBC to Taleem which is said to confirm “the novation agreed between Taleem, NBC and Taleem”. The effect is pleaded in paragraph 25:
“Thus, by an agreed process of novation arranged by NBC, Deyaar acquired the interest in the Property and became liable to NBC for two payments of AED 81,198,637 made by NBC in respect of the sums due from ASG to [First Dubai Real Estate Development K.S.C.C.] on 15 September and 15 November 2008. Entries recording this fact were made in the accounts of both NBC and Deyaar. Deyaar thereafter conducted its due diligence process during November 2008 to satisfy its own requirements in preparation for the formality of signing the documentation agreed between NBC and Deyaar for the acquisition.”
(10) It is said (at paragraph 25 of the Particulars of Claim) that, on 4 December 2008, Deyaar delivered two cheques to Taleem, amounting together to AED 72,141,913: and that “such act of payment completed the novation arranged by and agreed with NBC for itself and Taleem”. All that remained (it is said) were “the formalities of executing documents that NBC had produced with its lawyers, and agreed with Deyaar to record the acquisition of the interest in the Property.”
(11) Paragraph 31 of the Particulars of Claim is in these terms:
“…by a letter dated 12 April 2009, signed by the Chief Executive Officer, NBC confirmed that the aggregate principal balance due from Taleem with regard to financing of a 33% interest in Sky Gardens was AED 135,331,061.25 and that such liability under a Murabaha Agreement dated 6 July 2008 had been assigned to Deyaar.”
21. Nevertheless, on 5 April 2010, NBC demanded payment of a sum of AED 236,595,031.07, “claiming that such (unexplained) sum arises under a Wakala Agreement signed by Taleem on 6 July 2008”. Taleem denies having signed a Wakala agreement with NBC on 6 July 2008 or on any other date. It is, I think, reasonably clear that the reference (in the demand) to a Wakala agreement is an error: the application has been argued on the basis that the relevant agreement is the Murabaha agreement of 6 July 2008. It is said (at paragraph 33 of the Particulars of Claim) that:
“NBC based its claim on an assumption that the Sky Gardens sale transaction between Deyaar and Taleem was not approved by the Board of Directors of Deyaar and thus the sale was not executed …”
22. Relief is sought in the following terms:
“(a) A declaration that [Taleem] is not indebted to NBC in the sum of AED 236,595,031.07, or at all under a Wakala Agreement.
(b) That Taleem and Deyaar concluded a transaction with NBC whereby the 33% interest in the Property at Sky Gardens was transferred along with associated financing obligations, and so Taleem is entitled to retain an agreed premium of AED 72,141,913 paid by Deyaar on 4 December 2008 by cheque.
(c) That by virtue of a novation agreed with NBC and Deyaar . . . as from 31 August 2008 Taleem no longer has any interest in property located within the DIFC, nor is it liable for any finance provided by NBC for such interest in property located within the DIFC before or after that date.
(d) That in accordance with Sections 14 and 15 of the Law Relating to the Application of DIFC Laws (Amended and Restated), the law of the jurisdiction where property is located governs the validity and extent of, and the validity of any transfer of, interests in the Property, located within the DIFC. Accordingly, DIFC laws govern the said novation dealing with Taleem’s interest and financing in the Property, as agreed between NBC, Deyaar and Taleem. Thus the Court of First Instance in the DIFC Courts has exclusive jurisdiction over the dispute that has arisen between Taleem, NBC and Deyaar.”
23. For completeness I should add that I was shown the Murabaha agreement dated 6 July 2008. It is in the English language. It recites that:
“Whereas the Buyer [Taleem] has requested the Seller [NBC] to purchase the Property as more particularly described in Annexure 1 (“the Property”), and promised to buy the Property from the Seller after the seller has obtained title to, and possession of , the Property;
Whereas pursuant to the Buyer’s Promise to purchase dated 7 July 2008, the Seller has purchased the Property and acquired title to, and possession of, the Property;
Whereas following the Seller’s notification to the Buyer of the purchase of the Property, the Buyer is willing to fulfil its promise to purchase the Property from the Seller in accordance with the terms of the Promise and this Agreement.”
The operative clause (clause 2: Sale of the Property) provides that:
“In consideration of the Sale Price defined in Clause 3.1 below and in accordance with the terms and conditions of the Promise and this Agreement, the Seller hereby sells (by way of Murabaha) to the Buyer and the Buyer purchases the Property as more particularly described in Annexure 1.”
The sale price is defined as AED 136,823,760.12, comprising cost price AED 135,331,061.50 and AED 1,492,698.62 profit. The Property was described, at Annexure 1 to the Agreement, as “Sky Gardens Tower, Dubai International Financial Centre, Dubai United Arab Emirates”. On its face, that transaction is, indeed, a sale of land within the DIFC; albeit a sale by way of Murabaha.
24. It was submitted on behalf of Taleem that the DIFC Courts have jurisdiction under Article 5(A)(1)(b) of the Judicial Authority Law. Jurisdiction is conferred under that paragraph in the case of:
“civil or commercial cases and disputes arising from or related to a contract that has been executed or a transaction that has been concluded, in whole or in part, in the Centre or an incident that has occurred in the Centre.”
In his judgment in Shibab Khalil v Shuaa Capital psc
), dated 7 December 2009, Justice Sir Anthony Colman explained that:
“In order to bring himself within Article 5(A)(1)(b) the Claimant would have to establish that his claim arose from or related to a contract that had been executed in the Centre or arose from or related to a transaction that had been concluded in the Centre or from an incident that had occurred in the Centre. In order to establish that the claim ‘arose from’ or ‘related to’ such a contract or transaction the claimant must, in my judgment, be a party to any such contract or transaction and further the contract or transaction must form an essential part of his cause of action. Moreover, in the context of ‘civil or commercial cases and disputes’ the natural meaning of ‘transaction’ is wide enough to include a range of deals including, but not confined to, a contract, and the word ‘concluded’ in that context obviously does not mean ‘completely performed’. So it must therefore mean concluded in the sense of ‘entered into’. Accordingly the more specific phrase ‘contract that has been executed’ must, in my judgment, refer to a contract that has been performed within the Centre. The words ‘in whole or in part’ separated by parenthetic commas, must be available to qualify ‘executed’ as well as ‘concluded’ and therefore have the effect of covering a claim relating to a contract which has been wholly or partly executed, in the sense of performed, within the Centre.”
25. Taleem’s claim in these proceedings arises from three contracts (or alleged contracts). The first in time is the Tripartite Agreement, dated 7 July 2008, made between Taleem, Amlak Finance and DIFC Investments LLC. The second, dated 6 July 2008 (but said to have been made at the end of October 2008) is the Murabaha agreement between Taleem and NBC. The third, said to have been made in December 2008, is the alleged novation to which Taleem, NBC and Deyaar are said to be parties. Each of those contracts relates to an interest in land, the Sky Gardens Property, which is within the DIFC. Each of those contracts is said to have been performed, at least in part. In those circumstances, adopting the approach explained in Shibab Khalil v Shuaa Capital, I was satisfied that the DIFC Courts had jurisdiction pursuant to Article 5(A)(1)(b) of the Judicial Authority Law. I was satisfied, also, that the case fell within Article 19(1)(c) of the DIFC Court Law and paragraph 3.2 of the Protocol.
The Dubai Courts
26. For completeness I should add that I was satisfied that, for the DIFC Courts to accept jurisdiction in a case where the dispute turned on the effect of contracts for the sale of an interest in land within the DIFC, would not be inconsistent with the approach which the Dubai Courts would take, in similar circumstances, if the jurisdictional question arose as between it and the Courts of another Emirate. The evidence put before me on behalf of Taleem included the affidavit, dated 27 July 2010, of Salem Al Hammadi, an advocate authorised by the Ruler’s Court to appear in the Dubai Courts. He deposed that the major part of his practice as an advocate was in litigation, mainly in the fields of real estate, commercial and civil claims. At paragraph 6 of his affidavit he explained that Articles 31 to 41 of UAE Federal Law No 12 of 1992, the Code of Civil Procedure, govern local jurisdiction of the Courts in the Emirates; and are applied in the Dubai Courts. Questions as to which Courts within the Emirates have jurisdiction to determine claims are determined in accordance with those Articles.
27. Mr Al Hammadi goes on to explain in his affidavit that Article 32 of the Code of Civil Procedure governs jurisdiction in cases related to real property. Put shortly, in cases within Article 32(1) — which he describes as cases in which the claim is to the real property itself — jurisdiction lies with the Court in the place where the real property is located. In cases within Article 32(2) — which he describes as cases where the claim is a personal claim relating to real property — the claimant has a right to choose either the Court with jurisdiction in the place where the property is located or the Court with jurisdiction where the defendant is domiciled. As he put it “The choice is the claimant’s choice and the defendant cannot object to jurisdiction based on that choice”
28. Mr Al Hammadi refers in his affidavit to two decisions of the Dubai Court of Cassation, No.403 of 1998 and No.292 of 2004. I was provided with English translations of the judgments in those cases. Put shortly, in the former, the claimant was the purchaser of land located in the Emirate of Ras Al Khaimah. He was proceeding in the Courts of Ras Al Khaimah to enforce that contract. A bank had obtained, in the Dubai Court, an attachment over the share in that land of one of the sellers; and an order for the sale of that plot. The claimant appealed and the Dubai Court issued a judgment which did not recognise the attachment. A question arose whether the Dubai Court had had jurisdiction to consider the case. On an appeal to the Court of Cassation it was held:
“…that Dubai Court does not have the jurisdiction to consider the case, by noting that the plot of land the subject matter of the case which the Appellant claims that he is entitled to, and that it should be returned to him, is located in Al Fahlif Area in the Emirate of Ras Al Khaimah and that this claim is a claim concerning entitlement to real estate, and therefore the Emirate of Ras Al Khaimah Court in which jurisdiction the property is located shall have jurisdiction to consider the case. This is a jurisdiction relating to the location of the property, which is a matter related to Public Order to be raised by the Court itself, and accordingly a judgment should be made cancelling the appealed judgment and to rule that the Dubai Courts do not have jurisdiction to consider the case.”
29. In the latter case (No.292 of 2004) the Court of Cassation again emphasised that, in a case within Article 32, the question of jurisdiction “shall not be established by an agreement of the litigants but shall be established by virtue of Law”. Taleem relies on that decision in support of its submission that, even if clause 14.1 of the Murabaha agreement were to be read as an agreement to submit to the jurisdiction of the Dubai Courts (rather than to the DIFC Courts), the Dubai Courts would not give effect to that agreement: it would determine the question of jurisdiction in accordance with Article 32 of the Code of Civil Procedure. It was submitted that, under that Code, jurisdiction would lie with the DIFC Courts; either under article 32(1) or, as a result of a choice which the claimant was entitled to make, under Article 32(2).
30. I should emphasise, however, that I have not been persuaded that, in a case where the jurisdictional question arises as between the Dubai Courts and the DIFC Courts, the Dubai Courts would determine the matter in accordance with the provisions of the Code of Civil Practice alone. Rather, as it seems to me, the Dubai Courts would have regard to the provisions of the Judicial Authority Law — which, as I have said, is part of the Laws of Dubai — and would ask itself whether the claims in the present case fell within Article 5(A)(1) of that Law. In the light of the decisions of the Court of Cassation to which I was referred, I have no reason to think that the Dubai Courts would not reach the same conclusion in answer to that question as that which I have reached in this Court. Disputes arising under or in relation to contracts for the sale of land are to be determined by the Courts within whose jurisdiction the land is located.
31. For those reasons I was satisfied, at the conclusion of the hearing, that NBC’s challenge to the jurisdiction of the DIFC Courts was misconceived. Accordingly, I dismissed its application under notice No. 42/2010.
Deyaar’s application for leave to join NBC as a defendant to its counterclaim
32. Deyaar has not challenged the jurisdiction of the DIFC Courts. That, of itself, would not be determinative if (contrary to the decision which I have reached) the DIFC Courts did not have jurisdiction under Article 5(A)(1) of the Judicial Authority Law. In such a case, the DIFC Courts would observe the Protocol and decline to entertain the claim. But that is not this case.
33. Deyaar has counterclaimed in the proceedings. Put very shortly, Deyaar contends, first, that the novation upon which Taleem relies was never concluded; and, second, that, if it were, it ought to be set aside on the ground that it was entered into by the relevant officer of Deyaar in breach of fiduciary duty and that that breach was known to both Taleem and NBC. Deyaar claims against both Taleem and NBC repayment or return of the sum of AED 72,141,913 paid on 4 December 2008 (to which I have referred earlier in this judgment); and repayment or restitution of sums amounting to AED 113,666,181.40 paid pursuant to the (purported) novation in April and May 2009. It claims against Taleem an order that the novation (if completed) be set aside and a declaration that, until repayment of the sums claimed against Taleem and NBC, Taleem holds the 33 per cent interest in the Sky Gardens property upon trust for Deyaar.
34. It seemed to me beyond argument that, if (as I have held) the DIFC Courts have jurisdiction to determine the claims of Taleem against NBC and Deyaar, then (i) the DIFC Courts have jurisdiction to determine Deyaar’s counterclaim against Taleem and, also, (ii) the DIFC Courts have jurisdiction to determine Deyaar’s counterclaim against NBC.
35. By application notice 50/2010 Deyaar seeks an order, pursuant to RDC 21.11, that NBC be added as an additional party to its counterclaim. The Rule is in these terms:
“A defendant who wishes to counterclaim against a person other than the claimant must apply to the Court for an order that that person be added as an additional party.”
The matters to which the Court is to have regard, when considering an application under RDC 21.11, include:
“(1) the connection between the additional claim and the claim made by the claimant against the defendants;
(2) whether the additional claimant is seeking substantially the same remedy which some other party is claiming from him; and
(3) whether the additional claimant wants the court to decide any question connected with the subject matter of the proceedings —
(a) not only between the existing parties and a person not already a party; or
(b) against an existing party not only in a capacity in which he is already a party but also in some further capacity.” [RDC 21.30
36. It may be said that RDC 21.11
is not, in terms, apt to apply to a case, such as the present, where one defendant seeks to claim against a person who is already a defendant to the claim brought by the claimant in the proceedings. But Deyaar has taken the view (understandably in the circumstances) that the prudent course is to assume that permission to bring a counterclaim against NBC is required. It is unnecessary to decide whether permission is, indeed, required in this case; and I have not done so. At the conclusion of the argument, it seemed to me plain that this was a case in which, if permission were required before Deyaar could bring its counterclaim against NBC, that permission should be granted. Deyaar’s claims against NBC are inextricably linked with Taleem’s claims in the proceedings; and with Deyaar’s claims (properly brought by counterclaim) against Taleem. Accordingly I granted the relief sought in application notice 50/2010.
Justice Sir John Chadwick
Dated: 21 November 2010