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CFI 025/2012 – Reasons for the Order of Justice Sir Anthony Colman

CFI 025/2012 – Reasons for the Order of Justice Sir Anthony Colman

November 11, 2013


Claim No: CFI 025/2012










1. On 4 August 2013 I handed down judgment following a two day trial. I directed that there should be immediate judgment for each of the Claimants. Together with interest up to the date of that judgment, the amounts due are:

(a) Mr Rohan: AED 5,264,492.33;
(b) Mr and Mrs Pugh: AED 5,335,172.83;
(c) Mr Cox: AED 1,773,464.27.
Interest on such sums from 4 August 2013 until payment was to accrue at 3% above three month EIBOR. The final quantification of damages was adjourned so that further submissions could be made. Such submissions were duly made in the course of the hearing on 11 November 2013 whereupon I determined that the Claimants were not entitled to recover damages, over and above interest on the amount of their deposits, in respect of loss of use and rental income from the apartments the subject of their purchase agreements.


2. The Defendants, having obtained permission from the Chief Justice Michael Hwang to appeal against my judgment, subsequently applied for a stay of execution pending determination of their appeal. For this purpose the Defendants relied on RDC 48.22. That Rule provides:

“A party against whom a judgment has been given or any order made may apply to the Court for a stay of execution of the judgment or order or other relief on the ground of matters which have occurred since the date of the judgment or order, and the Court may by order grant such relief, and on such terms, as it thinks just.”

It is to be noted that, absent an order granting a stay, the commencement of an appeal does not operate as a stay of the order appealed against, in accordance with RDC 44.5.


3. The Defendants, who are the developers of a very large tower block known as the Buildings by Daman, to be comprised of office and residential units, included in the DIFC Grounds of Appeal as grounds for granting a stay a statement that a stay would be unfair and would “result in larger economic harm to the Defendant to impose an immediate payment burden…under its current financial circumstances” and also that it appeared that three of the Claimants — Mr Rohan, and Mr and Mrs Pugh did not live in Dubai. In truth Mr Rohan lives in the Republic of Ireland and Mr and Mrs Pugh in England.


4. In support of the application the Defendants filed a witness statement from one Serena Montalbano of the Defendant’s lawyers in which she asserted that it would be economically harmful to the Defendant to be forced to pay the judgment debt before the appeal was resolved. The same phraseology — “economically harmful” — was used by Mahdhar Al Tamimi in a subsequent witness statement. He described himself as Chief Operating Officer of Daman Investments — an entity described as “the Manager” of Defendant. Daman Investments is, I infer, the owner of the Defendant and is in turn owned by various relatively wealthy investors. Mr Al Tamimi went on to explain that, due to numerous producers of office units having defaulted on their obligation under the purchase contracts to pay deposits and price instalments, the Defendant had been paid some AED 290 million less than anticipated at the point of time when all the office units had been completed. The Defendant also had a loan of AED 500 million from Emirates NBD upon which they were currently unable to pay the monthly interest. Mr Al Tamimi explained that the Defendant was “working aggressively” to sell all remaining assets in order to facilitate further payments towards completion of the project to the effect that if they were forced to satisfy the judgment debt, that “would delay the payments due to the contractor, and as a consequence would further delay the completion of the project.” The current anticipated completion date is 31st December 2013.


5. In a further statement filed by the Defendant on 8th September 2013, Mr Charles Buderi, a partner in the Defendant’s lawyers, in response to a statement by the Claimants’ solicitor, stated:

“In paragraph 6, Mr Carnell states that “there is no suggestion that without a stay the Respondent will be unable to proceed with its appeal.” Again, he completely misses the point of Mr AI Tamimi’s witness statement. The point is that, as clearly stated by Mr AI Tamimi, an obligation to immediately pay the judgment (whether the appeal proceeds or not) will result in larger economic harm to Daman and others who depend on the building being completed as soon as possible because it will exacerbate the cash flow difficulties Daman is experiencing and further harm its ability to pay AI Habtoor Leighton for completing the construction works and/or service its external debt obligations, all of which would negatively impact its ability to complete the project.”


6. It is to be observed that the Defendant’s application was mounted under RDC 48.22. It seemed that the only matter which had occurred since the date of the judgment appealed against was the mounting of the appeal itself, although the Defendant did not identify that matter as bringing their application within that provision. RDC 48.53 provides as follows:

“Where a judgment is given or an order made for the payment of money, and the Court is satisfied, on an application made at the time of the judgment or order, or at any time thereafter, by the judgment debtor or other party liable to execution:

(1) that there are special circumstances which render it inexpedient to enforce the judgment or order; or
(2) that the applicant in unable from any cause to pay the money;
then the Court may by order stay the execution against assets of the judgment or order either absolutely or for such period and subject to such conditions as the Court thinks fit.”


7. The specific reference in this Rule to a judgment having been given or an order having been made for the payment of money makes it clear that this Rule is reserved exclusively for stays of money judgments or orders whereas RDC 48.22 is of general application to other kinds of judgment or order. Accordingly, the Defendant in this case started off by the wrong machinery. Had they relied, as they should have done, on RDC 48.53 they would have had to comply with RDC 48.55 by which it is provided:

“The grounds on which an application under Rule 48.53 is made must be set out in the application notice and be supported by an affidavit made by or on behalf of the applicant substantiating the grounds and, in particular, where the application is made on the grounds of the applicant’s inability to pay, disclosing his income, the nature and value of any property of his and the amount of any other liabilities of his.”

However, the Defendant’s application was not supported by any assertion that it was unable to pay the three judgment debts nor by disclosure of its income, the nature and value of its property or the amount of any other liabilities. It was no doubt for this reason that by email of 22 September 2013 the Registry passed on to the Defendant a direction by the Chief Justice Michael Hwang that by no later than 4pm on 13 October 2013 the Defendant should file evidence of its financial circumstances including, but not limited to, management accounts, audited accounts and cash flow projections, together with a specific proposal for a performance bond or similar instrument from a first class financial institution or bank in Dubai.


8. That direction was not complied with. However, it is right to say that it was not open to the Chief Justice to direct that the Defendant should make a specific proposal for a performance bond. Fortification of an order for a stay by such an instrument can certainly be offered by an applicant but, unless and until the Court puts him to his election as between refusal of a stay and fortification of such an order, the Court cannot direct him to propose that course.


9. In the event the Defendant filed a short witness statement by one Bashar Tahboub who stated that he was the Group Finance Manager of Daman Investments which was “the Manager” of the Defendant. He stated that he had been asked to “prepare documents reflecting Daman’s current cash flow situation. Mr Tahboub stated that the documents which he had prepared showed that the Defendant was “currently cash negative” and indeed a cash flow projection exhibited to his statement showed that by the fourth quarter of 2013 the Defendant would have a negative cash flow of AED 537,630,549.32 and that by the first quarter of 2014 that negative cash flow would have reduced to AED 418,017,707.34. According to Mr Tahboub, that would be primarily due to a capital repayment to Emirates NBD of AED 500 million. This was to be repayment of a bank loan. It is also to be observed that in the same quarter projected payments to the Contractor (Al Habtoor Leighton LLC) were projected at AED 153,731,189.41.


10. Mr Tahboub stated that the economic situation was expected to improve “at some point in 2014” with the payment of the final instalments by those who had purchased units in the building as and when those units were completed and handed over. This was expected to occur between the second quarter and the fourth quarter 2014. That is up to the end of next year. He stated that “in order to achieve the handover of the Units, Daman must also meet its payment obligations towards the Contractor in accordance with the Payment Schedule in their contract. The statement concludes:

“As can be seen from the cash flow projections, Daman’s ability to make additional payments is dependent on the completion of the Project, collection of the final payments from the purchasers, and the sale of some other remaining Project assets. No cash is available at this time to make additional payments without disrupting the works and the completion of the Project and the repayment of the bank loan. However, as is evident from the documentation, Daman’s cash flow situation will improve considerably once a certain number of the handovers take place.”


11. Exhibited to a second witness statement of Mr Tahboub were the last six monthly reports to management said to be management accounts, albeit unsigned by the Managing Director and Finance Manager of Daman Investments, together with bank accounts. The latter show that in September 2013 the Defendant was funded by Al Daman Securities to the extent of AED 20 million to enable it to pay out an identical amount to Al Habtoor Leighton, the Contractors. They also show significant payments to the Defendant’s lawyers, no doubt in respect of the current litigation.


12. The general principle underlying this exercise of the Court’s discretion to stay a monetary judgment is set out by Clarke L.J. in the Court of Appeal with regard to CPR 52.7 (the equivalent of RDC 44.5) in the following passage. Having referred to the applicant having adduced insufficient evidence of its financial position he observed:

“It follows that the court has a discretion whether or not to grant a stay. Whether the court should exercise its discretion to grant a stay will depend upon all the circumstances of the case, but the essential question is whether there is a risk of injustice to one or other or both parties if it grants or refuses a stay. In particular, if a stay is refused what are the risks of the appeal being stifled? If a stay is granted and the appeal fails, what are the risks that the respondent will be unable to enforce the judgment? On the other hand, if a stay is refused and the appeal succeeds, and the judgment is enforced in the meantime, what are the risks of the appellant being able to recover any monies paid from the respondent?”


13. In the present case it is therefore necessary to consider both the recoverability of any payment made in satisfaction of the judgment debts if the appeal were ultimately successful and the question whether the Defendant is able to pay the judgment debts as well as whether such payment would prevent the Defendant from pursuing its appeal. These are the key factors going to the justice of the application. Apart from these considerations it is further necessary to consider whether it is expedient to order a stay on any other grounds.


14. As to whether the payment of the judgment debts would give rise to the position that if the appeals were allowed, the money would be irrecoverable, this point arises only with regard to Mr Rohan and Mr and Mrs Pugh for the Defendant has not adduced any evidence going to Mr Cox’s inability to repay, he resides in Dubai. Mr Rohan is resident in Ireland. It is not suggested that judgments of this Court cannot be (by means of conversion into a Dubai judgment) be enforced in the Courts of Ireland and there is no reason to believe that they cannot.


15. With regard to Mr and Mrs Pugh who are resident in England, enforcement of DIFC Courts judgments in accordance with the recently signed Memorandum of Understanding between the DIFC Courts and the English Commercial Court should provide no serious obstacle to recoverability should an appeal be allowed.


16. As to the question of the Defendant’s case on inability to pay, this on analysis is in substance an assertion that in order to proceed to completion and handover of the units it is necessary for the Defendant to continue making regular payments to the Contractor which it would be unable to do if it had first to pay the judgment debts. It is implicit in this submission that, were such payment not made, the Contractor would stop handing over the units to the Defendant, which therefore could not be handed over to the purchasers so as to obtain payment of the final instalments of the purchase price. What in substance the Defendant is really saying is that, given that it is heavily cash flow insolvent, it should be entitled to give priority to payments to the Contractor as well as to the Bank over satisfaction of the judgment debts. In other words, it will somehow find enough money to pay the Contractor but it will not be able to do the same for the Claimants. Further, it is not suggested by the Defendant that its appeals would be stifled due to lack of funds were it to be required to satisfy those judgment debts without further delay.


17. The first objection to this submission is its premise, namely that payment of the judgment debts will prevent regular payment of the Contractor. In reality the Defendant is a special purpose vehicle set up by the investors in Daman Investments which would appear from its website to be in substance a venture capital fund. Against that background the proposition that the investors would stand back and refuse to provide significant additional funding to the Defendant to enable it both to discharge the relatively small amount of the judgment debts and to make the regular payments to the Contractor presents itself to me as far-fetched in the extreme. In the absence of clear and cogent evidence of real inability to obtain additional funding from the investors, I do not consider that the Defendant has discharged the burden of establishing inability to pay.


18. The second objection is that, even if it were established that no such additional funds would be available to the Defendant, it is not the function of an enforcement court such as this to make orders which have the effect of preferring one unsecured debt over another. That can arise if at all only at the stage of winding up. A judgment debtor who is shown to have funds sufficient to discharge a judgment debt cannot be heard to say that it is in the long term interests of the creditors as a whole that payment of the judgment debt should be postponed until other unsecured creditors have been paid.


19. Finally, it is important not to lose sight of the fact that these Claimants have been out of their money for nearly six years — money that has been paid on the assumption, albeit not contractually enforceable, that completion was first anticipated to be 31 July 2009, some three and a half years ago. Having been entitled, as I have held, to terminate their sale and purchase agreements, following inordinate delay, it is now said that the repayment of what they have paid should be yet further delayed — if only for a few months — to enable the judgment debtor to pursue its appeals and in the meantime to pay out the Contractor. If the appeals are dismissed, the payments to the Contractor will be of no benefit whatsoever to the Claimants who will then have no further interest in the completion of the project. To conclude that it would be expedient in such circumstances to postpone until determination of the appeals the Claimants’ entitlement to satisfaction of their judgment debts would, in my view, be wholly inappropriate.


20. These applications for a stay are therefore refused, with costs.

Issued by:
Natasha Bakirci
Assistant Registrar
Date of issue: 15 December 2013
At: 10am


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