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Dr. Lothar Ludwig Hardt and Hardt Trading FZE v Hussain Al Habib Sajwani and Peter Riddoch [2009] DIFC CFI 036

Dr. Lothar Ludwig Hardt and Hardt Trading FZE v Hussain Al Habib Sajwani and Peter Riddoch [2009] DIFC CFI 036

November 25, 2010

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laim No: CFI 36/2009

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 DEPUTY CHIEF JUSTICE SIR ANTHONY COLMAN

BETWEEN


(1) DR LOTHAR LUDWIG HARDT
(2) HARDT TRADING FZE
Claimants

-and-
HUSSAIN AL HABIB SAJWANI
PETER RIDDOCH
Defendants

 

Hearing: 29 & 30 September 2010
Counsel: Mr Raza Mithani (Simmons & Simmons) appeared for the Defendant/Applicants.Ms Ludmila Yamaiova (Al Sayyah Advocates & Legal Consultants) appeared for the Claimant/Respondents.
Judgment: 23 November 2010

JUDGMENT NO.2

1. This Judgment should be read together with my Judgment dated 4 April 2010. Reference should be made to that Judgment for the underlying facts. In this Judgment references to the Defendants are to the Second and Fifth Defendants only – Mr Sajwani and Mr Riddoch, the claim against the First Defendant having been struck out for want of jurisdiction and the claim against the Third and Fourth Defendants having been abandoned.

 

2. The application now before this Court is confined to the issue whether the claim against the Defendants or either of them should be struck out for want of jurisdiction.

 

3. It is in this case appropriate to consider the Claimants’ submissions by reference to counsel’s letter to the Court dated 10 August 2010, in effect the Skeleton Argument.

 

4. The case on jurisdiction rests on two provisions of Law No.12 of 2004, namely Article 5(A)(1)(b) and (d). These provide as follows:-

“(1) without prejudice to paragraph 2 of this Article, the Court of First Instance shall have the exclusive jurisdiction over:

(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.

 

(d) any application over which the Courts have jurisdiction in accordance with the Centre’s Laws and Regulations.”

 

5. As to Article 5(A)(1)(d) – which the Claimants’ counsel has put in the forefront of her Skeleton Argument – it is said that the Defendants have acted in breach of the Centre’s Laws and Regulations in particular:

(i) the Law of Obligations – No.5 of 2005
(ii) the Law of Contract – No. 6 of 2004
(iii) the Companies Laws – No. 3 of 2006 and No. 2 of 2009.

 

6. As to (i) it is said that the Defendants made representations and the Claimants acted on such representations and thereby suffered loss, namely their investment in the Damac Properties, it is further said that by reason of their representations and their relationship the Defendants owed to the Claimants a duty of care in tort and “to safeguard the Claimants’ investments” and “to deliver on their promises”. It is said that the Defendants were “negligent in their representations” and “in managing of the Claimants’ interest” resulting in the Claimant investing US$10 million without benefit.

 

7. As to (i) it is further submitted that the Defendants are liable for the tort of misrepresentation which has induced the Claimants to enter into contracts whereby they suffered loss and damage. This presumably refers to all the Damac contracts except for the first one. The misrepresentations are described as “facts about Damac, as a company, its relationship with the DIFC and the Defendants’ own ability and intentions to safeguard the Claimants’ interest”.

 

8. The Claimants further say that the Defendants committed the trust of deceit by making the same misrepresentations.

 

9. They also submit that the Defendants were in a relationship of tort and confidence with the Claimants within Article 158 of the Laws of Obligations and that the Defendants’ failure to safeguard the Claimants’ money was a breach of trust for which they are liable in respect of the Claimants’ losses.

 

10. As to (ii) it is submitted that the Defendants induced the Claimants “to enter into a contractual relationship with the Defendants’ business vis-a-vis Damac” by making fraudulent representations about the nature and safety of Claimants’ interest”. “Specifically the Defendants failed to perform their obligations as per their representations”.

 

11. As to (iii) it is said that the Defendants were in breach of their duty under Article 54 and 55 of the Companies Law and are therefore liable to compensate the Claimants for losses thereby caused to the Claimants, the Defendants having failed to exercise the requisite standard of diligence and skill that was expected of them being controlling minds of the companies in which the Claimants invested – breaches of the law which the Defendants perpetrated intentionally, recklessly and/or negligently.

 

12. The function of Article 5(A)(1)(d) is to provide for the Courts having jurisdiction over applications made under particular provisions of DIFC Laws, other than Article 5(A)(1)(a), (b) and (c), which give the Courts’ jurisdiction over specified types of application, for example under the Regulatory Law, the Arbitration Law and the Real Property Laws; see my earlier Judgment in this case at paragraph 46. Accordingly, one cannot invoke the Courts’ jurisdiction over claims for damages or compensation based on breaches of DIFC Law unless such claims either fall within Article 5(A)(1)(a), (b) or (c) or fall within another Law which expressly and specifically gives the Courts’ jurisdiction over such claims and so engages Article 5(A)(1)(d).

 

13. Therefore, claims for breach of the Laws of Obtigations or for breach of the Contract Law which do not fall within Article 5(A)(1)(a) or (b) or (c) cannot be brought within the Courts’ jurisdiction by application of Article 5(A)(1)(d).

 

14. With regard to the claim for compensation under the Companies Law, it is essential that the ciaim is identified as one by the DIFC company itself or its shareholders against the directors or offices of the company for breeches of their duties under that Law.

 

15. The only DIFC company involved was Damac Park Towers Company.

 

16. However, there is no specific allegation of any breach of any particular duty under Articles 54 or 55 or any other Article of the Companies Law which was owed to the Claimants who were not shareholders in any of the Damac companies. There is, therefore, no essential factual foundation for jurisdiction arising under the Companies Law with regard to any breach of duty by either Defendant which related to his position as a director or officer of Damac Park Towers Company.

 

17. It follows that the Claimants cannot point to any factual basis for reliance on Article 5(A)(1)(d) to found jurisdiction.

 

18. With regard to Article 5(A)(1)(b), the Claimants rely on the following submissions:

(i) The Claimants were parties to a contract or “transaction” with the two Defendants within the meaning of Article (A)(1)(b), having transacted directly with them in the following respects:

(a) The Defendants represented to them facts about Damac and its connection with the DIFC;

 

(b) Part of the claim took place in the DIFC, in particular the Claimants invested in Park Towers, the Claimants visited the DIFC on multiple occasions and met DIFC officials there, completed DIFC forms and transacted with the DIFC as part of their application for approval and paid to DIFC 3.5 per cent of the value of Park Towers and “transferred money to a DIFC based property” as well as receiving correspondence from Damac Park Towers Company.

 

(c) The contract transaction described in (a) and (b) was an essential part of the claim because, following the investment in Park Towers, the Claimants made further investments in Damac Properties.

 

19. In Shihab Khalil v Shuaa Capital (7 December 2009) CFI 017/2009 at paragraph 18 the Court held that:

“.. in order to establish the claim arose from or related to such a contract or transaction the claimant must 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.”

Accordingly, in order to establish jurisdiction, the two Defendants have to show at the first stage that they were personally parties to a transaction with the Claimants. Their only pleaded factual basis for such a transaction is that “representations” were made to them. It is not asserted that they were parties to any specific contract and certainly not to any of the contracts for the investments in Damac Properties. But a mere representation taken alone cannot amount to a “transaction” within Article 5(A)(1)(b) unless it is an essential part of a contract of some other kind of relationship giving rise to mutual rights and obligations. It is not pleaded in relation to “transactions” that the representations relied on were an essential part of any such contract or relationship. Apart from the allegations of tortious conduct, which are relied on in relation to Article 5(A)(1)(d), the only allegation which could be said to refer to a transaction is that the Defendants were in a relationship of trust and confidence with the Claimants (see paragraph 9 above).

 

20. Whatever may be said about the pleading of that relationship of trust and confidence and the lack of specificity in respect of it, which may have some materiality in the context of the Defendants’ application to strike out the claim on the grounds of no real prospect of success, the reliance on that as a transaction concluded in whole or in part within the DIFC faces major obstacles. It is that, having founded any such contract and the trust and confidence relationship on only on the Defendants’ representations, the Defendants have adduced evidence that Dr Hardt’s meetings with the Second Defendant were in his offices on Sheikh Zayad Road and TECOM, both being outside the DIFC (Dr Hardt’s First Witness Statement, paragraph 21) and that all Dr Hardt’s meetings “with DAMAC” (which must obviously refer to both Defendants) were held in the same office, namely on Sheikh Zayad Road (Dr Hardt’s Second Witness Statement, paragraph 10). Given that the Claimants have not identified either in their pleading or Skeleton Argument any material representation made by either Defendant other than in the course of Dr Hardt’s meetings with them, the only “transaction” to which such representations could give rise would be one concluded, that is entered into, wholly outside the DIFC.

 

21. It follows that the Claimants have advanced no factual basis upon which it can be said that any of the claims relied upon fall within contract or transaction concluded inside the DIFC within Article 5(A)(1)(b) of Law No. 12 of 2004.

 

22. Finally, with regard to Article 5(A)(1)(b), the Claimants rely on a claim founded on an “incident” that has occurred within the DIFC. This must be a claim in tort. Here again the factual foundation relied on is the representations said to have been made by the Defendants and/or a duty of care owed to the Claimants arising from those representations and the relationship in the course of which they were made.

 

23. In Khalil v Shuaa Capital, supra, this Court held that, in order to found jurisdiction in respect of an incident amounting to a tort, an essential part of the cause of action must have occurred within the DIFC and as regards “essential part” the test was a part which would have to be pleaded if the pleading were not to be struck out. Specifically in relation to claims for negligence such part could be either the defendant’s conduct or the claimant’s resulting damage.

 

24. In the present case, the tortious claims for misrepresentation, negligent misrepresentation and deceit are all based on representations alleged to have been made by the Defendants personally on which the Claimants relied and which caused loss and damage to the Claimants. Although it is pleaded that “a substantial part” of the Defendants’ representations “related to or took place in the DIFC”, as regards the place where the representations were made, this is expressly refuted by Dr Hardt’s own evidence already referred to, that all the meetings at which representations were made took place outside the DIFC (see paragraph 21 above). As regards that to which the representations related, that is the DIFC and the Defendants’ relationship to it, the location is irrelevant to the application of Article 5(A)(1). There is, therefore, no sustainable allegation that any of the alleged representations took place within the DIFC and it is, therefore, necessary to consider whether any of the alleged loss and damage said to have been caused by those representations is pleaded to have occurred to the Claimants within the DIFC.

 

25. The Claimants’ case is that, in reliance on the representations by the Defendants or either of them, they entered into the contract to acquire premises in the Park Towers development from Damac Real Estate Asset Management, later called Damac Park Towers Company, that, following that investment, and having been accorded by Damac the status of a VIP Investor, the Claimants entered into contracts with other Damac companies to acquire premises in Damac’s Lotus, Wild Flower and Water’s Edge developments. As it is put in the Claimants’ Skeleton Argument:

“Thus, out of the total investment of $10 million with Damac, the Claimants invested 90.66% (or $9,066,000) as direct result of their reliance on Defendants’ representations about Damac’s strength as a company largely due to its DIFC connection.”

 

26. The Claimants’ loss and damage case is pleaded as the loss of the amounts paid to the various Damac companies pursuant to the terms of each of the contracts for the acquisition of premises from each of those companies, which have not been developed and delivered in accordance with those contracts. So what the Claimants’ case really amounts to is that in reliance on the representations made to them (outside the DIFC) they entered into contracts to acquire properties inside the DIFC in the case of Park Towers and outside the DIFC in the case of Lotus, Wild Flower and Water’s Edge which contracts the development companies (not the Defendants) then breached by failing to develop the properties and failing to repay the money invested in them.

 

27. The Claimants’ seek to enhance the connection between the Defendants’ conduct and the DIFC by relying on the fact that the Defendants emphasised the uniquely good standing of Damac and of the Defendants with the DIFC and by the presentation of a video which dwelt at length on that good standing. They also rely heavily on the fact that Damac Real Estate Asset Management – the Park Towers contracting party – was a DIFC-incorporated company and that the Defendants were respectively a Director and Chief Executive Officer and the controlling minds of that company. They further rely on the administrative action which the Claimants were obliged to take within the DIFC in order to obtain permission to acquire Park Towers and the fact that they were required to pay 3.5 per cent of the value of the Park Towers premises to the DIFC authorities in order to obtain consent to acquisition of those premises.

 

28. The defect in the Claimants’ case on negligent or fraudulent misrepresentation is that there is no relevant connection with the DIFC of any alleged conduct on the part of either Defendant and the losses which the Claimants sustained by reason of the contracts which they entered into and the payments under them which they made to any of the owners of the Lotus, Wild Flower, or Water’s Edge developments. The contracts in respect of those properties, all of which were outside the DIFC, and the payments under them, none of which were made in or to any entity in the DIFC, could not be the basis of the allegations of any loss and damage within the DIFC. Accordingly, neither the Defendants’ alleged conduct nor the alleged loss and damage can be shown to have occurred within the DIFC.

 

29. As to Park Towers, the claim as advanced does on its face allege facts which might be the basis of an argument that at least some loss and damage had been sustained by the Claimants within the DIFC. In this connection it is important not to lose sight of the fact that this hearing is not of the application to strike out the claim on the grounds of its having no realistic prospect of success but on and only on the grounds of want of jurisdiction. In my Judgment, the location of the Park Towers development and of Damac Park Towers company sufficiently asserts loss and damage within the DIFC to constitute the claims for misrepresentation within the jurisdiction of this Court because an essential part of the cause of action namely consequent loss and damage, could be said to be located within the DIFC so as to amount to an incident within the DIFC. The case advanced on breach of the Defendants’ duty of care in respect of the management of the Park Tower development also demonstrates a sufficient location of loss and damage to amount to an incident within the DIFC.

 

30. In reaching this conclusion I express no view on whether the claims in tort should be struck out because they are bound to fail. That issue has not been before the Court. I would only say that the Claimants should bear in mind that the sustainability of a claim pleaded in this Court depends heavily on whether it is coherently expressed in a coherent pleading. At the last hearing I made certain adverse comments about the Claimants’ Particulars of Claim. Little or nothing seems to have been done to improve that pleading. It still bears little resemblance to the method of pleading a case required under the RDC and is almost totally deficient in the particulars which would have to be given, specifically as to the representations and the consequent loss and damage. Those advising the Claimants would be well advised to study some precedents of an English Particulars of Claim under the CPR in claims for deceit, negligent misrepresentation and negligence if this action is to be pursued further.

 

31. In the event, the whole of the claim will be struck out except that part of it which relates to the Park Towers property. The Particulars of Claim must be amended accordingly.

 

32. I shall hear separate submissions on the costs of this application.

 

Deputy Chief Justice Sir Anthony Colman
Date of Issue: 25 November 2010

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