Claim No: CFI 014/2010
THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS
In the name of His Highness Sheikh Mohammad Bin Rashid Al Maktoum, Ruler of Dubai
IN THE COURT OF FIRST INSTANCE
BEFORE JUSTICE SIR DAVID STEEL
(1) NATIONAL BONDS CORPORATION P.J.S.C.
(2) DEYAAR DEVELOPMENT P.J.S.C.
Hearing: 28 October – 7 November 2013
Counsel: Vernon Flynn QC assisted by Tom Montagu-Smith with Hugh Lyons, Mohamed Elghatit, Olivia Rose and Ahmed Hammadi (Hogan Lovells (Middle East) LLP) for the Claimant.
Nicholas Tse assisted by Ravinder Thukral and Roger Kennell (Brown Rudnick LLP) for the First Defendant.
Robin Knowles QC assisted by Khadija Ali (Afridi & Angell) for the Second Defendant.
Judgment: 19 February 2014
JUDGMENT OF JUSTICE SIR DAVID STEEL
Summary of Judgment
|The First Defendant had advanced sums in excess of AED 200 million in regard to the purchase of residential property in the DIFC. The dispute centred on whether the Claimant or the Second Defendant was liable to repay that sum.The primary issues were:
(a) whether negotiations between the Claimant and the Second Defendant had resulted in a concluded transaction;
(b) if so, whether any such transactions should be set aside on the grounds that the Chairman of both the Claimant and the Second Defendant had, in conflict of interest, promoted the interests of the Claimant to the detriment of the Second Defendant.
The Court held:
(a) that as a matter of DIFC law, a contractual agreement for transfer of the Claimant’s interest in the property (known as Sky Gardens) had been reached on 4 December 2008;
(b) that, as a matter of UAE law, there were no grounds for setting aside the transaction since the Chairman of the Claimant and the Second Defendant had not brought about the transaction (whether in breach of any duty of loyalty to the Second Defendant or otherwise). In any event, no allegation of dishonesty had been made which was a necessary ingredient of any application to set aside the transaction on that ground.
This summary is not part of the Judgment and should not be cited as such
1. These proceedings arise out of transactions that took place in 2008 in relation to property known as Sky Gardens which is a residential property situated within the DIFC. The First Defendant (“NBC”) advanced a sum in excess of AED 200 million in regard to the sale and purchase of the property. The dispute centres on whether the Claimant (“Taaleem”) or the Second Defendant (“Deyaar”) is liable to repay that sum.
2. In brief the background is as follows. On 9 June 2008 Amlak Sky Gardens LLC (“ASG”) agreed to purchase the bulk of the residential units in Sky Gardens from First Dubai Real Estate Development KSCC (“First Dubai”) for AED 1,640,376,500. On 7 July 2008 Taaleem, Amlak Finance P.J.S.C the parent company of ASG (“Amlak Finance”) and DIFC Investments LLC (“DIFCI”) entered into a Tripartite Agreement under which Taaleem was granted a 33% interest in the purchased property.
3. Taaleem’s investment was financed by NBC. NBC made two payments to Amlak Finance totalling AED 216,529,698.75. However Taaleem intended to make the investment a short term one and in due course entered into negotiations to sell its entire interest in Sky Gardens to Deyaar. During the course of those negotiations, on 4 December 2008, Deyaar paid Taaleem a “premium” of AED 72,141,913. At the heart of the dispute between the parties was the issue whether this payment was a non-returnable proportion of the purchase price (as contended by Taaleem and NBC) or a deposit returnable at the instance of either party (or at least Deyaar) as contended by Deyaar.
4. On 29 March 2009, ASG and First Dubai entered into a Memorandum of Understanding reducing the proportion of Sky Gardens purchased by ASG by 50%. Thereafter Deyaar made various payments:
(a) On 5 April 2009, a total of AED 54,164,279 to Amlak Finance;
(b) On 9 April 2009, AED 50,000,000 to NBC;
(c) 17 May 2009 AED 9,501,902 to ASG in respect of registration fees for Sky Gardens.
5. On 19 May 2009, Taaleem and Deyaar signed a Memorandum of Understanding (“MOU”) which was backdated to 9 December 2008. Although no party contends that the MOU had contractual effect, its factual significance (and in particular Deyaar’s contention that it represented the state of negotiations on 9 December including its reference to the Premium being refundable) is in dispute.
6. The central issues that arise are:
(a) Whether the negotiations between Taaleem and Deyaar resulted in a concluded transaction by which Taaleem transferred its rights and obligations in respect of Sky Gardens to Deyaar or alternatively Deyaar agreed to purchase that interest.
(b) If so, whether any such transaction should be set aside as a result of irregularities alleged by Deyaar.
7. Taaleem’s case was that as from December 2008, or alternatively by the end of May 2009 at the latest, an agreement had been reached by which Deyaar had purchased or had agreed to purchase Taaleem’s rights and obligations in respect of Sky Gardens.
8. Deyaar denied that any such agreement had been concluded. Alternatively, any such agreement should be set aside on the grounds that, in breach of duty, the transaction had been entered into at the direction of two senior officers of Deyaar in conflict of interest as also being senior officers of both Taaleem and NBC.
9. Taaleem claimed declarations that it was not indebted to NBC in the sum of AED 236,595,031.07 under a Murabaha agreement dated 6 July 2008 and that by virtue of a novation between it, NBC and Deyaar had no interest in Sky Gardens since August 2008 and was not liable for any finance provided by NBC for an interest in that property. Deyaar counterclaimed for orders against Taaleem that it pay AED 183,508,531.40 to Deyaar and a declaration that until payment Taaleem hold the property on trust.
10. The claim was issued on 5 May 2010. However NBC challenged the jurisdiction of the DIFC courts. The application was dismissed by Justice Sir John Chadwick on 23 September 2010 and by the Court of Appeal on 5 May 2011. Following the close of pleadings a further interlocutory skirmish arose as to the admissibility of expert evidence on UAE Law. On 12 May 2013, Justice Sir Anthony Colman handed down a judgment holding that such evidence was admissible before members of the Court (such as myself) who were not qualified in UAE law. Otherwise it is not necessary to recite the procedural history of the case which was in all other respects conventional.
11. To assist the court in resolving these issues, the parties called a number of witnesses of fact:
(a) Taaleem called:
(i) Ziad Azzam, Chief Executive Officer of Taaleem
(ii) Kapil Kapoor, Chief Financial Officer of Taaleem
(b) NBC called:
(i) Mohammed Qazim Al Ali, Deputy Chief Executive Officer of NBC from March 2007 and Chief Executive Officer of NBC from January 2008.
(ii) Omar Subhi Abdelrazeq, Finance Manager of NBC from March 2007 and Executive Director, Finance and Treasury of NBC from June 2009.
(c) Deyaar called:
(i) Abdulla Al Hamli, Director of Deyaar (and Chairman of Deyaar from 1 July 2009).
(ii) Om Shanker Singh, Chief Audit Executive of Deyaar.
12. My impression was that, with one reservation, these witnesses sought to help the Court establish (to the extent that they were involved) an accurate and complete account of the relevant events particularly in the period from July 2008 to June 2009. Importantly Mr Azzam and Mr Kapoor were able to speak with first-hand knowledge of the events. The reservation relates to the evidence of Mr Al Hamli. He had a poor recollection of events which is understandable. To add to this however, he had formed a strong antipathy to a group or “gang” within Deyaar who had not, in his view, had in mind the need for loyalty to the interests of Deyaar in regard to the transaction. This coloured his evidence to such a degree that it undermined my confidence in its reliability.
13. But I remind myself that impressions can be very misleading. These witnesses were dealing with events from some 5 years ago. It is a paradigm case to apply the dictum of Lord Goff in Grace Shipping v. Sharp & Co  1 Lloyds Rep. 207 at 215:
“And it is not to be forgotten that, in the present case, the Judge was faced with the task of assessing the evidence of witnesses about telephone conversations which had taken place over five years before. In such a case, memories may very well be unreliable; and it is of crucial importance for the Judge to have regard to the contemporary documents and to the overall probabilities. In this connection, their Lordships wish to endorse a passage from a judgment of one of their number in Armagas Ltd v. Mundogas S.A. (The Ocean Frost),  1 Lloyd’s Rep. 1, when he said at p.57:-
“Speaking from my own experience, I have found it essential in cases of fraud, when considering the credibility of witnesses, always to test their veracity by reference to the objective facts proved independently of their testimony, in particular by reference to the documents in the case, and also to pay particular regard to their motives and to the overall probabilities. It is frequently very difficult to tell whether a witness is telling the truth or not; and where there is a conflict of evidence such as there was in the present case, reference to the objective facts and documents, to the witnesses’ motives, and to the overall probabilities, can be of very great assistance to a Judge in ascertaining the truth.”
That observation is, in their Lordship’s opinion, equally apposite in a case where the evidence of the witnesses is likely to be unreliable; and it is to be remembered that in commercial cases, such as the present, there is usually a substantial body of contemporary documentary evidence.”
14. Fortunately there was a mass of contemporary documentation. But before setting out the chronology of events as emerges from that material, I should say a word about other witnesses from whom no statement was tendered (let alone oral evidence called).
15. I start with the two people identified by Deyaar as acting in conflict with their interests in Deyaar. The first, Mr Nasser Al Shaikh, played a substantial role in events reflecting the fact that he was Chairman of Deyaar, Chairman of Taaleem and Vice Chairman of NBC (as well as Chairman of Amlak). The other was Mr Buti Al Jumairi, a Director of both Taaleem and Deyaar as well as Chief Financial Officer of NBC.
16. No party ever indicated an intention to call either person as a witness. But Deyaar in their Case Management Information Sheet dated 19 January 2012 did identify a number of witnesses who Deyaar intended to rely upon in addition to Mr Al Hamli and Mr Om Singh namely:-
Khalid Al Hashimi Deyaar Legal Department
Richard Ding General Counsel Deyaar
S. Krishnamurthy Chief Financial Officer Deyaar
Michev Dimitre Strategic Planning Deyaar
As will emerge, they played a significant role (in particular Mr Ding and Mr Krishnamurthy). However, none of these latter witnesses were called (nor any statement served) and no explanation of that decision was furnished.
17. One last word on witnesses. It was nearly common ground that the relevant law for determination of the issue of the existence or otherwise of a sale contract was DIFC law. I say nearly because to the extent that the point was controversial it was accepted that the application of UAE law made no difference of principle. As regards the issue as to whether any sale should be set aside, the relevant law it was agreed was UAE law. In accordance with the decision of Justice Sir Anthony Colman the Court had the benefit of expert evidence in regard to UAE law. In this respect the Court was fortunate to have the assistance of three distinguished legal scholars:
(a) Dr Habib Al Mulla for Taaleem
(b) Mr Ali Al Hashimi for NBC
(c) Mr Mohammad Issa Odeh for Deyaar
All three had written extensive reports but having met in the run-up to the trial they were able to produce a short summary of the points of agreement and disagreement.
18. Having taken a break during the trial to respond to a questionnaire prepared by the parties, the differences of view narrowed further. The experts then gave their oral evidence concurrently. In the result they were close to complete agreement, an outcome for which the Court is both impressed and grateful.
19. The immediate background was that Taaleem (of which both NBC and Amlak Finance were shareholders) having been involved in the setting up and running of schools in the Middle East had accumulated substantial losses and wished to identify and realise profitable short-term investments to improve its balance sheet.
20. The starting point is a MOU dated 1 May 2008 between Amlak Finance and First Dubai. Amlak Finance entered into a commitment to purchase 80% of the Sky Gardens project for AED 1,640,376,500 payable in instalments up to 15 May 2009. Mr Al Shaikh (presumably in his capacity as Chairman of Amlak Finance) sent an email the next day to Mr Alharmi of Amlak Finance and Mr Nizami of NBC:
“As discussed, I’ve closed the deal in Amlak’s name with the intention of having stakes sold down to other entities including [NBC], Deyaar and [Taaleem]. Nevertheless, no matter who is involved in the deal, the building will be retailed with it being presented by Amlak (the exclusive mortgage provider) and will be sold exclusively by Landmark.”
21. In the wake of the MOU and Mr Al Shaikh’s proposal, both NBC and Taaleem were brought into the deal alongside Amlak Finance in equal shares. The background to and the justification for the arrangement so far as Taaleem was concerned was at one stage a matter of some controversy. But it proved to have no direct bearing on the later participation of Deyaar. For the moment it is only necessary to record that on 6 May and 29 May 2008 NBC paid its own and Taaleem’s shares of the down payment of 10% required by the MOU (the balance in the form of a 33% share was paid by Amlak Finance). An SPA was duly concluded on 9 June 2008.
22. It is also of some note that at this stage Landmark Properties LLC (“Landmark”), a real estate broker retained by ASG, was advising that the property should attract a substantial premium. In their email of 12 May 2008 they had proposed a rate of AED 4500 per sq. foot (“a 50% premium over what is currently offered in the area”) plus a further AED 600 per sq. foot to reflect the “makeover by Fendi”.
23. On 16 June 2008, DIFCI replaced NBC as a party to the Sky Gardens transaction. This was prompted by what was regarded as excessive real estate exposure on the part of NBC. This left however the earlier payments made by NBC on its own behalf. Furthermore, as already noted, it had also made payments on behalf of Taaleem, and further payments by NBC in support of post-dated cheques issued by Taaleem were scheduled.
24. On 7 July 2008 (signed 15 July 2008) Amlak Finance, DIFCI and Taaleem entered into a Tripartite Agreement under which it was agreed that the beneficial ownership of Sky Gardens as purchased by ASG should be vested in the three parties in shares of 34%, 33% and 33% respectively, with each party agreeing to be responsible for payment of a corresponding proportion of the purchase price.
25. In accordance with the agreed schedule, NBC agreed to pay the 33% share (AED 81,198,637) of the third instalment due on 15 July 2008 on behalf of Taaleem. Further instalments were due on 15 September and 15 November 2008 and on 15 January, 15 March and 15 May 2009.
26. Preparations were now in hand to ensure that the financing of Taaleem’s interest in Sky Gardens could be structured in a Sharia compliant manner. A Murabaha Agreement between NBC and Taaleem was to be structured as follows:
(a) Madaares to provide NBC with a Promise to Purchase;
(b) NBC to purchase the property on a cash basis from Amlak;
(c) NBC to sell the property to Madaares at a higher price on a deferred basis.
27. Sales of units by Landmark were underway in June 2008 but the response had been “weak” with only 50 units sold. To improve the sales record, plans to take the project onto the international market were put in hand.
28. On 21 August 2008 Mr Giebel was granted a power of attorney to act on behalf of Deyaar. His powers included:
“12. To rent or purchase…real estate which might become part of development projects of or investments for the company and to sell or rent…plots or real estate…provided these actions are within the limit of plans…approved by the board of directors represented by the Chairman.”
29. On 11 September 2008, NBC advanced monies to Taaleem for payment of the next (fourth) instalment. On 21 October 2008, the Murabaha Agreement was executed but covering only the payments made prior to the end of August 2008. No further financing agreement was signed.
30. In September 2008 (already past the August 2008 deadline) Deyaar came into the picture. Initially Deyaar indicated an interest in converting the first three atriums of the Sky Gardens building into hotel apartments, moving pre-sold units elsewhere. Various options were canvassed including outright sale or provision of rented serviced apartments (or a combination of both).
31. The transaction had been initially discussed by the CEOs of Taaleem (Mr Azzam) and Deyaar (Mr Markus Giebel) in late August. The outcome was a proposal on 17 September 2008 that Deyaar would buy Taaleem’s interest in Sky Gardens. The detailed basis of this transaction had been discussed between Mr Azzam and Mr Kapoor of Taaleem and Mr Nasser Al Shaikh. It had been calculated that Taaleem should make an overall profit in the longer term in the region of AED 150 million but given the opportunity to make a quick sale in accordance with its purchase policy, Taaleem agreed to accept a premium of AED 65-70 million which, as Mr Nasser Al Shaikh put it would enable Taaleem to remain “positive” for the purpose of its 2008 accounts. It was the background to and nature of this arrangement which was at the heart of the dispute between the parties.
32. By email dated 20 October 2008 NBC set out the finalised terms of the transaction as follows:
“We are currently in the process of coordinating with the lawyers to put in place the legal documentation required for the transaction, which is structured as follows:
As at 31 August 2008, through Amlak Sky Gardens LLC (the “Legal Owner” or “ASG”), Taaleem (the “Beneficial Owner”) will sell to Deyaar its entire share of 33%, equivalent to approximately 154,664 square ft. (“sq. ft”) in Sky Gardens (the “Building”). (Note that ASG holds a total of approximately 468,679 sq. ft., as per the executed SPA on behalf of the three parties: Taaleem – 33%, DIFC Investments – 33% & Amlak – 34%).
Deyaar will now acquire Taaleem’s stake from ASG at a price of AED 4,001/sq. ft. with the total gross consideration amounting to AED 618.9 million.
Taaleem will be liable to pay for its financing cost to National Bonds Corporation (“NBC”) for instalments paid on its behalf until 31 August 2008, as per a Murabaha financing arrangement.
In addition to this, Deyaar will also be liable to pay NBC a financing cost on the instalment paid in September 2008 (on behalf of Taaleem) since it would have replaced Taaleem after 31 August 2008 as the member of the Tripartite Agreement. This will be done through a new Murabaha agreement between NBC and Deyaar for this period.
Deyaar will thus have acquired Taaleem’s 33% ownership or 154,664 sq. ft. in Sky Gardens from ASG for a total consideration of AED 619.5 million (including the financing cost payable to NBC) as summarised in the table below…”
33. On 21 October 2008 Taaleem signed the Murabaha Agreement but it was back-dated to 6 July 2008. Its function was to record that as from 6 July 2008 NBC had placed its 33% share at the disposal of Taaleem. As regards the proposed new Deyaar deal, Taaleem, as noted above, was anxious to book the profit in its accounts for the year ending 31 August 2008. This had been expressed as an imperative by Mr Nasser Al Shaikh. The major impediment (viewed from an accounting point of view) was the lack of documentation. This needed to be assembled by 31 October 2008.
34. On 30 October 2008 there was a meeting between representatives of Deyaar and NBC. A financial summary of the outcome was set out in an email dated 2 November 2008 which reads as follows:
“With reference to our meeting on Thursday, please find below the details on the consideration payable to Taaleem for their stake in the Sky Gardens tower.
Deyaar Consideration (AED)
Instalments Paid by Taaleem 135,331,061
Share of Buying Commission 5,413,242
Premium to Taaleem 72,141,913
Payable to Taaleem (now) 212,886,217
Remaining Instalments 405,993,184
As you will observe from the above, of the Total Consideration (i.e. approx. AED 619 mil.) for Taaleem’s stake, approximately AED 213 million is payable now. Deyaar can take over the remaining instalments from Taaleem, as discussed…”
35. In the meantime on 31 October 2008 a Journal Voucher of NBC recorded the transfer of the AED 136 million payments made up to 31 August 2008 on behalf of Taaleem from Taaleem to Deyaar.
36. As regards post August 2008 instalments a meeting between NBC and Deyaar on 3 November 2008 led to an agreement that:
(a) a Wakalah would cover the period to 31 November 2008;
(b) NBC would finance the further instalment due on 12 November 2008.
An addendum to the Tripartite Agreement was prepared and forwarded to Deyaar on 2 November 2008. Both NBC and Taaleem chased for signature.
37. On 9 November 2008, Taaleem emailed Amlak Finance requesting return of their post-dated cheques including in particular the cheque relating to the November instalment. Following discussions that same day, NBC forwarded draft Murabaha agreements to Deyaar so as to roll over the instalments paid by or on behalf of Taaleem.
38. At this stage Taaleem were still insisting on full documentation on the basis that such would enable it to include the profit in the financial statements. But on 11 November 2008, progress was interrupted when Deyaar, in embarking on due diligence, asked for floor plans, affection plans and other materials. A request for financial information in terms of expected rent, floor entitlement and so on was also made.
39. This was followed by a request list from Deyaar in respect of legal due diligence running over 8 pages dated 13 November 2008. Nonetheless as reported by NBC on 23 November 2008, “Deyaar and Taaleem have agreed in principle.”
40. A further meeting between Deyaar and Taaleem took place on 26 November 2008. Deyaar were to treat the due diligence exercise as on the “fast track.” A site visit for Deyaar was arranged. The outstanding points were summarised in an email from Taaleem dated 26 November 2008:
“As agreed in the meeting the amount for the overall payment can be split in 2 parts (1) AED 72,141,913/- and (2) AED 140,744,304/-. We confirm that we will not deposit the 2nd cheque until Deyaar’s confirmation of completion of structuring of the deal financing with NBC.
Additionally we need a signed copy of the amendment to the Tripartite Agreement that would transfer Taaleem’s share of 33% title in Sky Gardens to Deyaar. This again you would have received through Mr Farid.
Once Deyaar and Taaleem sign we will have to get Amlak and DIFC to sign too which could be time consuming.”
41. On 30 November 2008, Deyaar’s Investment Committee issued a report recommending the acquisition of the 33% interest in Sky Gardens. It appeared to be Deyaar’s position that this report was wrongly dated although it was not clear what was contended to be the genuine date of preparation. More importantly it was contended by Deyaar that the report had never been presented to Deyaar’s board. Whether or not that is correct, as will emerge, it is clear at the very least that at the board meeting on 23 December 2008 the members of the board were being invited to ratify the decision of the Investment Committee.
42The rationale for the investment was summarised in the report as follows:
“Risk mitigation/investment justification
(1) The project is in a premium location (DIFC) characterized with high occupancies due to the high demand and limited supply;
(2) High end project branded with the prestigious Fendi;
(3) Financing secured by NBC up 90% at 6.25% annual rate: no impact on cash flow;
(4) Deyaar has in-house expertise in terms of facility and asset management and a strong leasing management division;
(5) Potential for long term property value appreciation and capital gains realization;
(6) A perfect fit for Deyaar to acquire and build a portfolio of income generation assets.
The acquisition price is AED 619,021,313. Loan to value ratio is 90%. Net income is estimated at AED 24,766,736 in year one and expected to reach AED 48,979,180 by year ten. Acquisition IRR is estimated at an annual rate of 9.0%. Annualized net rental yield is estimated to converge to 7.1% by year 10.”
43. Deyaar made a repeat request to Taaleem in respect of legal due diligence on 1 December 2008 to get the response that the information sought needed to be given by Amlak. On 3 December 2008 a draft amendment to the Tripartite Agreement was forwarded to Deyaar. This was structured as follows:
1. Consent by the original parties to the sale of Taaleem’s share to Deyaar;
2. Agreement by Taaleem to transfer its share to Deyaar so that Deyaar shall “assume in the place of Taaleem all of its rights and obligations under the agreement”;
3. Deyaar to replace Taaleem’s post-dated cheques.
44. On 4 December 2008 Deyaar paid the premium of AED 72,141,913 in two cheques – one for AED 45,000,000 and the other for AED 27,141,913. The “particulars” on the form attached to the cheques described these as a “payment for acquisition of 33 1/3 % share”. Mr Krishnamurthy had asked for a cheque in the total sum adding: “Markus has approved the payment and we will obtain Investment Committee approval for the same as well in due course.” However it appears that Mr Giebel did not have authority to issue cheques in a greater sum than AED 50,000,000, so the premium was divided into two chunks. On receipt Mr Azzam sent an e-mail to Mr Nasser Al Shaikh as follows:
“Just a quick memo to let you know that we have received full payment from Deyaar for the agreed premium amount in connection with the Sky Gardens transactions, giving us a net premium of AED 70 million. We are working closely with the Deyaar team to complete the paperwork which we will need to pass onto KPMG to close the audit accounts for 2007-08.”
45. Various matters remained outstanding and Taaleem continued to press for completion of the documentation for accountancy purposes. The email of 17 December 2008 was typical:
“I hope this finds you well. Just a gentle reminder and request for an update with regards to the sign off on the amendment to tripartite agreement and the KPMG audit confirmation. I would appreciate if you can give provide us with a final date by which your due diligence will be completed. Even though we received the premium payment we cannot approach our auditors KPMG to finalize our audit report until we submit the required documentary evidence that our stake in Sky Gardens was sold to Deyaar on 30 August 2008.”
46. On 23 December 2008, Deyaar held a board meeting. Mr Al Hamli was present. However the Chairman Mr Nasser Al Shaikh was recorded as “absent with apologies”. Following a presentation by the CEO Mr Giebel, the minutes record that the Board “agreed, approved and ratified” a number of items. These included “the investment of the company in the Sky Gardens project in the DIFC subject to due diligence.” The nature of the material before the board at this meeting and scope and meaning of this entry was a matter of controversy. But it is clear that the documents such as they were gave details of the price, the premium and NBC financial input.
47. The next day a meeting took place between Deyaar and Taaleem. At this stage Taaleem was seeking to persuade the Ministry of the Economy to allow a postponement of its AGM until February 2009 due to the delay in the audit for the year ending 31 August 2008. Deyaar confirmed that “legal due diligence” was “on the verge of completion and that the financial due diligence has just been concluded.” The minutes went on:
“S.K. [Krishnamurthy] updated K.K. [Kapoor] on the intention of Deyaar to postpone the booking of the transaction in 2009 due to the imminent loss that will required to be booked in its last quarter ending 31 December 2008, if Deyaar sign off on the takeover of Sky Gardens back dated to 30 August 2008;
K.K. reminded S.K. that Taaleem and Madaares had already booked this transaction on 30 August 2008 after seeking their Chairman’s approval and then submitted the final accounts to its auditors KPMG for signoff. Taaleem’s accounts are only held up pending the submission of required documentation on Sky Gardens with Deyaar;
S.K. mentioned to K.K. that there is a possibility that Deyaar reverses the transaction i.e. Deyaar may not purchase Taaleem’s 33% stake in Sky Gardens Tower;
K.K. emphasised to S.K. the importance of Deyaar’s early conclusion on this transaction to Taaleem/Madaares.”
48. By now the financial crisis was beginning to have a significant impact on the property market in Dubai. This is revealed by a valuation report conducted by Colliers for Amlak Finance in February 2009 which valued the Sky Gardens development as at 31 December 2008 at AED 1,041,240,000. This was a reflection of prevailing rates for residential units in the DIFC in the range of AED 2,000 to 2,780 per sq. ft.
49. The sixth instalment fell due on 15 January 2009. It was not paid. On 28 January 2009 NBC pressed Deyaar to “close the loose ends on the transaction.” Deyaar responded that it should be closed “this week” and an internal email contains a request to Deyaar personnel to achieve that outcome “ASAP.”
50. On 3 February 2009, Deyaar met with Amlak Finance and DIFCI to discuss the “status of the project”. By this stage it was accepted that the current market value was “significantly below original acquisition price”. On 18 February 2009, notably without notice to Taaleem, First Dubai purported to terminate its agreement of 19 June 2008 with ASG by reason of ASG’s default on paying instalments of the purchase price.
51. On 23 February 2009, a meeting between Taaleem, NBC and Deyaar took place at Deyaar’s offices. Mr Azzam’s note of the meeting reads as follows:
“Highlights of the discussion are:
1) There is a strong desire from all parties involved to close the chapter on the Sky Gardens transaction as soon as possible.
2) Deyaar’s CEO, given the expected losses on the transaction, emphasized that they are only doing this transaction as a special favour to Taaleem, but that this cannot in any way affect Deyaar’s financial reports in 2008.
3) He requested that Taaleem consider one of 2 options:
52. Deyaar’s CEO instructed his Legal Counsel to prepare a draft SPA for option a.
The accounting implications of option b. are straight forward; we can only ascertain the implications of option a. once we review the draft SPA.”
4. Deyaar’s legal counsel Mr Ding duly reported on 1 March 2009 as follows:
“The key rules for the transaction are as follows:
Sale of Interest Agreement
a. Deyaar will acquire a 33% beneficial interest from Taaleem at a purchase price of AED XXX [Deyaar Finance to confirm exact number
b. An amount of AED 72,000,000 (seventy two million) will be paid to Taaleem as a non-refundable part payment of the purchase price.
c. The balance of the purchase price will be paid to Taaleem after the satisfaction of conditions. The conditions are completion of due diligence to the satisfaction of Deyaar and the approval of the board of Deyaar on this transaction.
d. The agreement is dated on the day of signing.
e. However, the effective date of the agreement is August 30, 2008 (Effective Date).
f. The AED 72,000,000 will be paid to Taaleem no later than December 31, 2008 and was paid on [date] [Deyaar Finance to confirm].
g. NBC will review the document to ensure that their finance facility matter is addressed correctly.
New Tripartite Agreement
h. A new tripartite agreement will be entered into between Amlak, DIFC Investment, Deyaar and Taaleem – where Taaleem sells its 33% stake to Deyaar and Amlak and DIFC Investment consents to this transaction.”
53. Mr Azzam added two points to this list on the following day namely the need for:
(a) a transfer of liability letter from NBC and Deyaar to the transfer of the loan from Taaleem and Deyaar;
(b) a due diligence completion letter issued by Deyaar to Taaleem.
This coincided with a report from Mr Giebel to Nasser Al Shaikh valuing the portfolio as between US$ 1.6 to 1.7 billion reflecting a 20% drop in real estate values in 2009.
54. On 4 March 2009 Taaleem executed a “Debtors’ Confirmation Request” letter. It was dated 21 January 2009 and was expressed to be based on an audit date of 31 December 2008 on which date ‘an advance’ of AED 72,141,913 had been paid by Deyaar. An earlier version contained an initialled amendment describing the advance as “non-refundable.” This was rejected by Deyaar albeit with a re-assurance that the “non-refundability clause will be clearly reflected in the agreement.”
55. On 15 March 2009, Deyaar forwarded drafts of the SPA (and a new tripartite agreement or “Deed of Accession” as between Taaleem, Deyaar, DIFC and Amlak Finance). The draft deed recited as follows:
“a. Amlak Sky Gardens holds the Property on trust for, and beneficial ownership of the Property is vested in, Taaleem, DIFCI and Amlak Finance, with the interest of each being in proportion to its Equity Ratio.
b. Taaleem intends to transfer all of its interest in the Property to Deyaar (the “Transfer”) with effect on and from the Effective Date.
c. DIFCI and Amlak Finance have consented to the Transfer.
d. The parties have entered into this Deed in order to record the consent of DIFCI and Amlak Finance to the Transfer, to amend the Agreement and to confirm the rights and obligations of the parties.”
The “Effective Date” was defined as 30 August 2008.
56. On 29 March 2009, a Memorandum of Understanding was executed by First Dubai and ASG whereby the size of the interest purchased by ASG and the purchase price was reduced by 50% by way of substitution for the purchase contract that had been terminated on 18 February 2009. This settlement was reported to Deyaar (but notably not Taaleem) on 1 April 2009, together with a call for payment of AED 54,164,279.
57. On 12 April 2009, NBC confirmed in writing that it had no objection to Taaleem assigning its obligations to Deyaar. At the same time Deyaar paid AED 50 million to NBC.
58. On 14 April 2009, Deyaar requested a reduction in the premium to reflect the 50% reduction in the scale of the purchase, a proposal that was immediately rejected. As Mr Azzam put it:
“The premium paid to Taaleem has no relation whatsoever to the size of the deal; it is simply a figure that Taaleem agreed with our Chairman and Markus is fully aware of this fact. Therefore your logic does not apply and the full premium stands intact irrespective of your new agreements with Mazaya.”
The response from Mr Giebel was simply: “Done and agreed” and Mr Krishnamurthy stated: “Thank you for your email and we confirm that the premium paid stands intact.”
59. At this time Deyaar made a series of payments:
(a) 5 April – AED 5,416,428 to Amlak Finance;
(b) 9 April – AED 50,000,000 to NBC as partial repayment of Taaleem’s liability under the Murabaha;
(c) 27 April – AED 48,747,851.40 to Amlak Finance.
On 29 April 2009 an addendum to the Tripartite Agreement was duly executed by Amlak, Taaleem and DIFCI to reflect a reduction of the scale of the purchase by 50%.
60. On 30 April 2009, Deyaar signed an Audit confirmation letter and a Balance Confirmation letter (but which are said by Deyaar to be inaccurate). The former stated as follows:
“1) Taaleem and Deyaar have a mutual understanding that they will sign a Sale and Purchase Agreement (SPA) on 1 July 2009 with the effective date of sale and transfer of the Sky Gardens interest being on 30 August 2008 (Effective Date).
2) As included in the SPA, Deyaar confirms that AED 72,141,913 (Dirhams Seventy Two Million One Hundred and Forty One Thousand Nine Hundred and Thirteen) only has been paid to Taaleem on 10 December 2008 as premium for the sale of the Sky Gardens interest and is non-refundable;
3) Deyaar also confirms that from the Effective Date, all rights, obligations and liabilities of Taaleem related to the Sky Gardens interest will be the responsibility of Deyaar to the extent that such liabilities have arisen on or from the Effective Date;
4) Deyaar also confirms that from the Effective Date all rights, obligations and liability of Taaleem under Taaleem’s Murabaha Agreements with National Bonds Corporation PJSC related to the Sky Gardens interest will be the responsibility of Deyaar and that Deyaar shall consent to an assignment of Taaleem’s Murabaha Agreements with National Bonds Corporation PJSC to reflect the same.”
61. In the accompanying letter from Taaleem countersigned by Mr Giebel on behalf of Deyaar, Deyaar’s understanding is recorded inter alia as follows:
“3) Deyaar understands that the sale of the Sky Gardens interest will be effected by the signing of the SPA on 1 July 2009 with completion of the sale occurring pursuant to the terms of the agreement, and that the initialed agreed form of SPA are final and subject to no further changes or amendments between the date of signing of this confirmation and 1 July 2009. Furthermore Deyaar understands that the transaction will not be reversed and all Conditions (as that term is defined in the SPA) will be met by 1 July 2009…”
62. The Balance Confirmation set out the statement of account “which Deyaar confirms to have taken responsibility for from Taaleem” as follows:
Description of Payment obligations and liabilities
|Payments made by National Bonds Corporation to the Company and or Master Developer for and on behalf of Seller’s share of Project Interest until 31 August 2008||AED 135,331,061,25|
|Seller’s share of payments made post 31 August 2008 to the Company and or the Master Developer by National Bonds Corporation||AED 81,198,636.75|
|Seller’s remaining share of payments outstanding related to Project Interest to the Company and or Master Developer whether due or not||AED 324,794,547.00|
63. In the wake of these documents, on 10 May 2009 the SPA between Taaleem and Deyaar was initialled and stamped by both parties and sent to Deyaar’s lawyers to be held in escrow. On 14 May 2009 Amlak Finance issued a written consent to Taaleem in respect of transferring its rights and obligations relating to Sky Gardens to Deyaar. On 17 May 2009 Deyaar paid AED 9,501,902 to ASG in respect of DIFC registration fees.
64. On 19 May 2009 a meeting between Mr Azzam and Mr Giebel led to the execution of a Memorandum of Understanding between Taaleem and Deyaar back-dated to 9 December 2008. It was not contended by any party that this MOU constituted a binding agreement. However it was very much at the forefront of Deyaar’s case as being an accurate representation of the state of play as at 9 December 2008.
65. It is necessary to set out verbatim several of the clauses:
A. The Seller had prior to the date of this MOU entered into a tripartite agreement (the “Tripartite Agreement”) with Amlak Finance PJSC (“Amlak”) and DIFC Investments LLC (“DIFCI”) wherein the Seller, Amlak and DIFCI had agreed to acquire 911 units in the Sky Gardens Project (the “Units”), located in the DIFC from First Dubai Real Estate Development Company PJSC (“First Dubai”).
B. Pursuant to the terms and conditions of the Tripartite Agreement, it was agreed that:
a) The Units will be registered in a company by the name of Amlak Sky Gardens LLC with the legal owner of 100% of the shares being held by Amlak (“ASG”);
b) The interest of each party in ASG shall be:
1. Amlak – 34%
2. DIFCI – 33%
3. Seller – 33%
c) The parties shall cause to be done all that is needed in order to vest the correct proportion of the Units with each of Amlak, DIFCI and Seller;
d) The Units will be registered in a company by the name of Amlak Sky Gardens LLC with the legal owner of 100% shares being held by Amlak (“ASG”).
C. The Seller and the Purchaser intend to enter into negotiations for the execution of documentation (the “Transaction”) in relation to the Purchaser acquiring the interest of the Seller in the 33% of Units (the “Seller’s Interest”). It is envisaged that such documentation will comprise a sale and purchase agreement (the “Agreement”) and a new agreement between Amlak, DIFCI, Seller and Purchaser assigning to the Purchaser the rights and obligations of the Seller under the Tripartite Agreement.
D. The Parties are entering into this MOU to record their interests in the Transaction.
2.1 The term of this MOU (the “Term”) shall commence on the date of this MOU and automatically terminate (without any further action on the part of either Party) on the earlier of:
(a) 6 months from the date of this MOU (the “Expiry Date”) or
(b) the execution of the Agreement
2.2 Upon the termination of this MOU, no Party shall have any continuing obligation as provided herein to the other, save in respect of the Confidentiality clause.
2.3 The Parties may upon mutual written agreement extend the Expiry Date.
3. THE AGREEMENT
3.1 The Parties agree the following:-
3.1.1 The parties shall execute the Agreement subject to the following conditions precedents having been satisfied;
(a) The Purchaser completing a due diligence on the Units and the Purchaser being satisfied with the results of the due diligence;
(b) the Board of Directors or Investment Committee of the Purchaser having approved the valuation and the due diligence on the Units and the investment into Units and/or ASG;
(c) such other conditions that the Purchaser and/or the Seller may require;
3.1.2 The purchase consideration for the Seller’s interest shall be AED 613,466,158 (“Purchase Price”) of which;
(a) AED 72,141,913 is to be paid by the Purchaser to the Seller as soon as practicable after the date of this MOU as a refundable deposit of the Purchase Price and which is to be refunded without notice in the event that the Agreement is not signed by the Parties by the Expiry Date; and
(b) the balance of the Purchase Price is to be dealt with in accordance with the terms and conditions of the Agreement either as a payment to the Seller and/or and assumption by the Purchaser of the Seller’s liabilities solely in connection with the Seller’s interest.
3.1.4 The Seller shall sell the Seller’s interests with all its pertaining rights and obligations to the Purchaser as at an effective date of August 30, 2008;
4.1 The objective of this MOU is to finalise the following, including by not limited to the terms and conditions of the Agreement, structuring the Transaction and to execute the Agreement on or prior to the Expiry Date
4.2 The Parties undertake to use their reasonable endeavours to achieve this objective. A Party shall not be obliged to take any steps under this clause if in the opinion of that Party, to do so might be prejudicial to it.
5. KEY PROVISIONS
During the Term, the Parties will negotiate in good faith with each other on:
5.1.1 The sale and purchase of the Seller’s interest to the Purchaser and any other matter or business connected therewith; and
5.1.2 The terms and conditions of the Agreement to the exclusion of all others.
5.2 Due Diligence
During the Term, the Purchaser is permitted, upon providing reasonable notice to the Seller and subject to the consent of Amlak and DIFCI (such consent to not be unreasonably withheld) to conduct a due diligence investigation on the Units and ASG and to access and review all books and records of the Seller as it may reasonably request with respect to the Units. The due diligence exercise shall take place from the date of this MOU and shall expire on the earlier of:
5.2.1 The Expiry Date; or
5.2.2 The date when the Agreement is executed
Seller agrees and undertakes throughout the term of this MOU to provide to the Purchaser all information it reasonably requests relating to the Units and/or ASG including, but not limited to, the relevant incorporation documents, title deeds, agreements, proposals, marketing strategies, business plan, project management, feasibility and related studies, technical specification and quotations for services (that are in the control and possession of the Seller at the Seller has promptly obtained approval to remove any confidentiality restriction in respect of such information), which shall if possible be provided to the Purchaser upon the signature of this MOU.
6.1 The Parties agree the contents of this MOU and all information provided by one Party to the other Party in connection with this MOU or in the course of the negotiations of the Agreement will be held in strict confidence by each party and its respective officers, employees, agents and professional advisers (being only such advisers bound by a professional duty of confidentiality). Notwithstanding the foregoing, the Parties may disclose the above mentioned information if required by law, rule or regulation or requested by any governmental, judicial or regulatory body. The Purchaser acknowledges that under the terms of the Tripartite Agreement, the Seller is required to notify and seek the consent of Amlak and DIFCI to the potential transfer of Units and/or the Seller’s interest to the Purchaser and hence the Seller is hereby authorised to notify Amlak and DIFCI of the discussions between the Seller and the Purchaser and seek its consent with respect to such potential transfer. Information shall not be considered confidential or proprietary if it is already in the public domain through no fault of the recipient Party.
8. NON-BINDING PROVISIONS AND LIABILITY
8.1 Except for clauses 1, 2, 3.1.2, 5, 6, 8 and 9, both parties acknowledge that this MOU does not constitute an enforceable agreement and is not intended to be legally binding or otherwise to give rise to any enforceable rights or obligations but is merely an expression of the Parties’ current intentions as of the date hereof.
8.2 Both Parties agree and acknowledge that neither party shall be liable to the other for any loss or damage, including without limitation, loss of opportunity, business or profits as a result of or in connection with the failure to execute the Agreement and conclude the transactions contemplated hereby.
9.2 Governing Law
This agreement is governed by the laws of the Emirate of Dubai and the United Arab Emirates. The parties irrevocably submit to exclusive jurisdiction of the Courts of Dubai.”
66. Almost immediately, by a countersigned letter dated 19 May 2009, the expiry date was extended by 3 months until 8 September 2009.
67. An important feature of the background to this MOU was that an investigation by the Government Financial Audit Department (FAD) was underway into Deyaar’s involvement with the Sky Gardens project. On 21 May 2009 Deyaar was asked to provide (in addition to copies of payments to NBC and Amlak) the following documents:
“1. Sky Gardens payments according to Deyaar record from accounting system;
2. Legal opinion of possibility to cancel the project and refund the money back to Deyaar and any losses may be happened to Deyaar toward that;
3. Due diligence with the findings to the board;
4. All valuation report made to Sky Gardens project.”
68. Deyaar furnished the following response:-
“1. Due Diligence – we have not yet completed the documentation because the SPA was to only be signed in July. The plan was to provide the board with an executive summary and due diligence (financial and legal) findings in June for them to consider the transaction. Please note that this is the reason we provided you with the one page executive summary on the project. Once we complete the document, we can provide you a copy if you wish.
2. Amounts paid through Deyaar accounting system – I have asked our Accounting team to provide this. Once I receive this, I will provide it to you.
3. Valuation for the project – I am checking for the valuation with the relevant team members and I will keep you updated. However, in June, we would be required to provide both the valuation and the due diligence to the board for their consideration and if Deyaar is approved to proceed with the transaction.
4. Legal Opinion on cancellation – in my opinion:
a. the MOU states that the parties will negotiate for a period of 6 months. Only in early May (5 months after the MOU), have we reached an agreement on the wording of the SPA and the terms and conditions of the SPA and related agreements. We have initialed these documents.
b. Please note that there is also a document which extends the Expiry Date by 3 months (8 September 2009) because we had agreed that the SPA and related documents will only be formally signed in July 2009. We had signed this letter on the day all initialed SPA and agreements were provided to Al Tamimi for safekeeping.
c. As a result of this, the MOU will automatically expire on 8 September 2009.
d. On the automatic expiry date, the MOU is cancelled without the need of any formality.
e. If there is a requirement to cancel the MOU prior to the automatic expiry date – for example, we do not receive our board approval on the subject, we can stop the actual signing of the SPA and related documents on July 2009, it would be much better, if the parties mutually agree to not proceed with the transaction and to sign a letter to that effect.
f. I we do stop the transaction, then legally, all money that we have paid on this matter must be refunded to Deyaar in full. However, whether all losses that may have arisen will be reimbursed depends on whether they are quantifiable and are direct. This must be read in conjunction with clause 8.2 of the MOU as follows:
“8.2 Both parties agree and acknowledge that neither party shall be liable to the other for any loss or damage, including without limitation, loss of opportunity, business or profits as a result of or in connection with the failure to execute the Agreement and conclude the transactions contemplated hereby.”
g. Please note that there is always a commercial risk in any transaction that if the transaction is stopped without mutual written agreement, the impact of any potential claim must be commercially considered and a business decision be made.”
69. The FAD sent its report to Nasser Al Shaikh at Deyaar on 26 May 2009. In translation its conclusion was as follows:
“1. The CEO of Deyaar Co. has invested in Sky Gardens project by purchasing the share of Taaleem without the approval of the Board of Directors at the amount of AED 72.1 million without evaluating the purchased real estate value at the time of purchase and during the period in which Taaleem has failed to pay its dues to the project’s owner company.
2. The CEO has exceeded the limits of his financial authority and transferred the amount of AED 72.1 million to Ta’aleem Co. without the Board of Directors approval, exceeding his financial authority which was determined at AED 50 million.
3. Deyaar’s Board of Directors has confirmed that the investment in Sky Gardens project should have been after a comprehensive study of the project (due diligence), but despite these facts, the CEO had continued the investment in the project and transferred amounts reaching AED 113 million of the transaction value within April and May 2005 and despite the decrease of the market value of the project in accordance with the evaluation made in February 2009 from AED 3535 per sq. ft. at the time of the first purchase by Amlak Co. to AED 1554 per sq. ft., as Deyaar was fully aware of this fact.
4. The CEO had continued the investment in the said project although the project might have been legally cancelled (as confirmed by the legal consultant of the company) and all amounts paid to be refunded as per the agreement signed with Ta’aleem stating that the amount paid by Deyaar is refundable subject to the approval of the Board of Directors. It also been revealed that the CEO had paid amounts during April and May 2009 despite the acute decrease of the market price of the property as per the evaluation made in February 2009 (before the date of payment) the matter which exposed the company to losses of not less than AED 225 million.”
70. Mr Al Shaikh forwarded a copy of his report to Amlak and NBC with the following comment:-
“I trust that you’re aware of the review done by the Financial Audit Dept. (FAD) on Deyaar’s Sky Gardens transaction. FAD’s final report is attached for your reference.
In your capacity as Chairman of Deyaar’s Board Audit Committee, I request for a review to be done internally validating the contents of the FAD’s report and testing the legal/commercial viability of their recommendation. Given my conflicting status, I chose to step aside previously when it came to this transaction and 2 others – namely Flamingo Creek (with National Bonds) and Nadd Al-Hamar plot (with Amlak) – and left the decision to the management and the board.
As Deyaar, we further need to establish whether this was a purely commercial decision or was based on other intent that someone should be held accountable for. My feeling is that it was commercial given the fact that Deyaar’s Board formed a committee previously to decide on the Nadd Al-Hamar plot – which you were part of – that approved the purchase from Amlak but then stopped by the management team. Should Deyaar had executed this, it would have suffered great losses and I have to give credit to the management for taking the right action at the right time. However, feelings do not account for anything here and only facts will stand.
I’ll appreciate the above being done ASAP as your findings will be shared with the rest of Deyaar’s Board and will form the basis of my response to FAD.”
71. Deyaar prepared a draft response to the questions raised by the FAD. This referred to a presentation to the Board of Directors for their meeting on 23 December 2008 which covered the Sky Gardens transaction as one of the “Points for Ratification” at the level of AED 618 million (together with reference to a supporting document which was not disclosed: there were a number of possibilities as to the identity of this document two of which were (i) the Investment Committee memorandum dated 30 November 2009 or (ii) the record of the purported ratification of payment of the deposit or premium by two cheques).
72. The fact of Board approval was challenged by Mr Al Hamli in an email dated 1 June 2009:
“On 30 November 2008, the Investment Committee of the company (comprising of CEO, CFO and VP Strategy), has made a proposal recommending the purchase of 33% of Sky Gardens Project at DIFC from Amlak. However the Investment Committee in their conclusion mentioned that such investment is subject to board of directors approval.
During the time period between 30 November 2008 (date of Investment Committee proposal) and 23 December 2008 (date of board meeting), the company did not have any other board meeting where the investment details or project details were shared with any member of the board.
I can confirm myself that in the 23 December 2008 board meeting this item was not discussed in any form or detail. I have also checked the same with other board members (Mr Kalifa Al Zafeen and Mr Abdullah Lootah) who has confirmed that the same. It seems that the name of the project (sparing any other details) came to the attention of the board on 23 December 2008, merely in the form of ratification of the decision taken by the Investment Committee of the company. You will agree that a project of this size should not be presented for approval nor ratification in the manner it was done.
Moreover, even though the minutes of the board meeting dated 23 December 2008 mention that the board has agreed, ratified and approved the decision of the company to invest in the Sky Gardens project, this was subject to further due diligence. As such no supporting documents related to the ‘due diligence’ were subsequently submitted to the board.
In my opinion the investment in the said project is not approved by the BOD based on the fact that the project was not discussed in any detail during the 23 December 2008 meeting or during any time since the investment proposal was formulated.”
73. On 10 June 2009 Mr Giebel prepared a memorandum setting out the rationale for the Sky Gardens investment:
“Many reasons were leading to the investment decision:
1. Board approval (appendix 1) and board presentation (appendix 2) show the authorization for the investment.
2. Board presentation outlining the strategy to move into income producing assets was presented mentioning specifically the Sky Gardens transaction in line with the strategy (appendix 3).
3. Deyaar does not have income producing assets (assets to rent). This opportunity was approved within the overall Deyaar strategy and as an individual investment.
4. A yield of 10% was calculated, and approved by the investment committee.
5. It was the assumption that DIFC rentals will more secure (even in times of crisis) – the country in the country approach in combination with a captive clientele was a strong value preposition.
6. Minimum cash to be invested – financing was already in place.
7. DIFC was a 33% partner – Deyaar has another 2 million square foot to be delivered within the DIFC and wanted to manifest the relationship with DIFC.
8. One of the few “ready properties” within the DIFC – early mover advantage.
9. Property was “Fendi” branded – the strategy to only have a limited space branded but receive an uplift of the total tower was a compelling argument.
Investment approvals were given by the board through:
1. Signed Board Minutes approving the investment (appendix 1)
2. Board presentation and the Ratification of “Board approval for investment in: a) Sky Gardens – AED 618 million” (appendix 2)
3. Board presentation showing the strategy and the investment of Sky Gardens within the strategy (appendix 3)
Reasons for proposal of non-reversal of deal:
1. After the impact of the crisis and the impact of the crisis on DIFC was evident, a reversal was considered to be the wrong strategy as Taaleem would have become insolvent and Deyaar would have not been able to recover the investment.
2. Therefore, Deyaar engaged in a negotiation process to limit the overall exposure (was successfully limited to only 50% of the investment).
3. Deyaar has – even in these difficult times – an income producing asset which created revenues and cash for the company this year.
Reasons for splitting the payments in two cheques:
1. Payments to Taaleem were split in two cheques of AED 45,000,000 and AED 27,141,913 due to urgency of payments and secure the deal.
2. Subsequently, this transaction was ratified through an internal memo on 27/04/2009 (appendix 4).”
74. On 1 July 2009, Nasser Al Shaikh resigned as Chairman of Deyaar and was replaced by Mr Al Hamli. On 8 July 2009 the deadline for signing the SPA and Deed of Accession passed without the execution of either document. By 17 August 2009, Deyaar confirmed that it would not be making any payment in respect of the Sky Gardens transaction pending a decision of the board.
75. The board met on 27 August 2009 under the Chairmanship of Mr Al Hamli. As regards Sky Gardens the board instructed Mr Giebel either to “reverse” the transaction or proceed, but to obtain a refund of the premium paid to Taaleem. By this time Deyaar’s position as expressed in emails to Taaleem was to the effect that once the MOU expired the transaction reversed automatically. In purported recognition of this, Deyaar extended the expiry date to 8 September 2009, a date which again passed without completion of the documentation.
76. The threshold issue is whether negotiations between Taaleem and Deyaar for the acquisition by Deyaar of Taaleem’s rights and obligations in respect of Sky Gardens led to a legally binding agreement under which Deyaar assumed or agreed to acquire such rights and obligations (including Taaleem’s obligation to repay NBC in respect of the financing it had provided to Taaleem to purchase its interest in Sky Gardens). It is common ground that this issue can be determined by reference to DIFC law since it is not suggested by any party that the application of UAE law would give rise to a different result.
77. The relevant legal principles were summarised in the written closing on behalf of Taaleem by Mr Vernon Flynn QC and Mr Tom Montagu-Smith. These were neither challenged nor supplemented by NBC or Taaleem and I gratefully adopt a revised version of the summary for the purpose of this judgment.
Formation of contracts
1. In relation to the formation of a contract, DIFC law is similar to English law. Certain common law principles are expressly recorded in the legislation. Articles 14 to 34 of the Contract Law deal with contract creation. Thus pursuant to Article 15:
“A proposal for concluding a contract constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance.”
Likewise pursuant to Article 19:
“(1) A statement made by or other conduct of the offeree indicating assent to an offer is an acceptance…”
Also to be noted are Article 26:
“Where in the course of negotiations one of the parties insists that the contract is not concluded until there is agreement on specific matters or in a specific form, no contract is concluded before agreement is reached on those matters or in that form.”
“(1) If the parties intend to conclude a contract, the fact that they intentionally leave a term to be agreed upon in further negotiations… does not prevent a contract from coming into existence.”
and Article 35:
“A contract is concluded, modified or terminated by the mere agreement of the parties, without any further requirements.”
2. These provisions mirror closely the effect of English law. The general principles are found in the judgment of Lord Clarke JSC in RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH & Co  UKSC 14;  1 WLR 753, p. 771G:
“The general principles are not in doubt. Whether there is a binding contract between the parties and, if so, upon what terms depends upon what they have agreed. It depends not upon their subjective state of mind, but upon consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations. Even if certain terms of economic or other significance to the parties have not been finalised, an objective appraisal of their words and conduct may lead to the conclusion that they did not intend agreement of such terms to be a precondition to a concluded and legally binding agreement.”
3. The Supreme Court in RTS gave specific approval to the decision in Pagnan SpA v Feed Products Ltd.  2 Lloyd’s Rep 601. There it was agreed that, although certain significant terms had not been agreed, neither party intended agreement of those terms to be a precondition to a concluded agreement. In his judgment in the Court of Appeal in Pagnan, Lloyd LJ (with whom O’Connor LJ and Stocker LJ agreed) summarised the relevant principles in this way at p 619:
“(1) In order to determine whether a contract has been concluded in the course of correspondence, one must first look to the correspondence as a whole…(2) Even if the parties have reached agreement on all the terms of the proposed contract, nevertheless they may intend that the contract shall not become binding until some further condition has been fulfilled. That is the ordinary ‘subject to contract’ case. (3) Alternatively, they may intend that the contract shall not become binding until some further terms have been agreed… (4) Conversely, the parties may intend to be bound forthwith even though there are further terms still to be agreed or some further formality to be fulfilled… (5) If the parties fail to reach agreement on such further terms, the existing contract is not invalidated unless the failure to reach agreement on such further terms renders the contract as a whole unworkable or void for uncertainty. (6) It is sometimes said that the parties must agree on the essential terms and it is only matters of details which can be left over. This may be misleading, since the word ‘essential’ in that context is ambiguous. If by ‘essential’ one means a term without which the contract cannot be enforced then the statement is true: the law cannot enforce an incomplete contract. If by ‘essential’ one means a term which the parties have agreed to be essential for the formation of a binding contract, then the statement is tautologous. If by ‘essential’ one means only a term which the court regards as important as opposed to a term which the court regards as less important or a matter of detail, the statement is untrue. It is for the parties to decide whether they wish to be bound and if so, by what terms, whether important or unimportant. It is the parties who are, in the memorable phrase coined by the judge [at p 611] ‘the masters of their contractual fate’. Of course the more important the term is the less likely it is that the parties will have left it for future decision. But there is no legal obstacle which stands in the way of the parties agreeing to be bound now while deferring important matters to be agreed later. It happens every day when parties enter into so-called ‘heads of agreement’.”
4. The fact that parties continue to negotiate after a contract is concluded does not alter the binding nature of that agreement. RTS Flexible Systems at ; Chitty, §2-029. The parties may intend to go on to agree the implementation of the contract (Chitty, §2-029) or to record the terms of what has been agreed (Chitty, §2-136). Per Andrew Smith J. in Bear Stearns Bank plc v Forum Global Equity Ltd  EWHC 1576 (COMM) AT :
“The proper approach is, I think, to ask how a reasonable man, versed in the business, would have understood the exchanges between the parties. Nor is there any legal reason that the parties should not conclude a contract while intending later to reduce their contract to writing and expecting that the written document should contain more detailed definition of the parties’ commitment than had previously been agreed.”
5. The fact that payment is made is “a very relevant factor” in deciding whether a binding contract is made: RTS Flexible Systems at .
6. The test for whether a contract is concluded is objective in English law. However, even in English law, where the Court is determining the terms of a contract which is not written, the parties’ understanding of those terms is some evidence of what the terms actually are. In Carmichael v National Power  1 WLR 2042 at 2050H – 2051C, Lord Hoffman said:
“In a case in which the terms of the contract are based upon conduct and conversations as well as letters, most people would find it very hard to understand why the tribunal should have to disregard the fact that Mr Lovatt and Mrs Carmichael both agreed that the C.E.G.B. were under no obligation to provide work and the applicants under no obligation to perform it. It is, I think, pedantic to describe such evidence as mere subjective belief. In the case of a contract which is based partly upon oral exchanges and conduct, a party may have a clear understanding of what was agreed without necessarily being able to remember the precise conversation or action which gave rise to that belief…
The evidence of a party as to what terms he understood to have been agreed is some evidence tending to show that those terms, in an objective sense, were agreed. Of course the tribunal may reject such evidence and conclude that the party misunderstood the effect of what was being said and done. But when both parties are agreed about what they understood their mutual obligations (or lack of them) to be, it is a strong thing to exclude their evidence from consideration. Evidence of subsequent conduct, which would be inadmissible to construe a purely written contract (see Whitworth Street Estates (Manchester) Ltd v James Miller and Partners B Ltd.  A. C. 583) may be relevant on similar grounds, namely that it shows what the parties thought they had agreed. It may of course also be admissible for the same purposes as it would be if the contract had been in writing, namely to support an argument that the terms have been varied or enlarged or to found an estoppel.”
7. By similar logic, the parties’ understandings are relevant to determine: (a) whether a contract was concluded or was “subject to contract”; and (b) whether any such understanding was waived.
Determining the terms of a contract
8. The subjective intention of the parties has a place in deciding the terms of a contract under DIFC law. Article 49 of the Contract Law provides:
“Intention of the parties
(1) A contract shall be interpreted according to the common intention of the parties.
(2) If such an intention cannot be established, the contract shall be interpreted according to the meaning that reasonable persons of the same kind as the parties would give to it in the same circumstances.”
9. Under Article 50:
“Interpretation of statements and other conduct
(1) The statements and other conduct of a party shall be interpreted according to that party’s intention if the other party knew or could not have been unaware of that intention.
(2) If Article 50(1) is not applicable, such statements and other conduct shall be interpreted according to the meaning that a reasonable person of the same kind as the other party would give to it in the same circumstances.”
10. Article 51 makes clear that, in determining the terms of the contract, the Court must have regards to all the circumstances, including preliminary negotiations (Article 51(a)), the parties’ conduct after the contract is concluded (Article 51(c)) and the nature and purpose of the contract (Article 51(d)).
78. The scope of this threshold issue narrowed significantly during the course of the hearing. Taaleem had opened their case on the basis that a contract was concluded at some stage between December 2008 and May 2009. As finally presented, Taaleem’s case was that a contract constituting an unconditional transfer of its rights and obligations in regard to its share of Sky Gardens came into existence when Deyaar paid the premium on 4 December 2008, such being a non-refundable proportion of the agreed consideration.
79. Deyaar’s position was that the parties worked towards a legally binding SPA but never achieved that goal which it was contended would only arise if the SPA that was initialled and stamped was in fact signed. It was a fundamental feature of this argument that the terms upon which the premium was paid were recorded in the MOU of 19 May 2009. This, it was contended, demonstrated that it was paid not because of any concluded contract of sale. Accordingly it was submitted (as the MOU was said to record):
(a) that the premium was refundable at the instance of Deyaar with no obligation to take any further steps in regard to the transaction unless and until the SPA was fully executed;
(b) that the transaction was in any event conditional on Deyaar board approval and satisfactory completion of due diligence (neither of which it was alleged had been accomplished).
80.It is convenient to start discussions by reference to the significance or otherwise of the MOU signed on 19 May 2009. The first problem with the MOU is that its express terms are in large part wholly inconsistent with the position it is said to record as at 9 December 2008:
(a) It recited that there was an intention to enter into negotiations when negotiations had in fact been underway for some months;
(b) It recited that the parties envisaged a sale and purchase agreement, when in fact the parties were contemplating an amendment to the Tripartite Agreement;
(c) Clause 3.1.2 provided for the premium to be paid as soon as possible when in fact it had already been paid;
(d) Clause 3.1.2 designated the premium as a refundable deposit when there had been no suggestion that it was refundable at the time of payment. Indeed even when the proposal to categorise the deposit as refundable was made in March 2009 an assurance was given by Deyaar that “the non-refundability clause will be clearly reflected in the agreement”;
(e) Likewise Clause 3.1.1 recorded a “condition precedent” to the execution of any agreement that Deyaar had conducted due diligence to its satisfaction. The suggestion that any concluded agreement was subject to due diligence was not raised until February 2009. Furthermore the due diligence process appears to have been completed or nearly completed in early December.
81. On a broader view, any contention that the MOU reflected the state of play as at 9 December 2008 faces the further difficulty that such a structure would be commercially bizarre. It would have granted Deyaar an option to execute an SPA within 6 months terminable by withdrawal of the premium. By definition this would prevent Taaleem from obtaining any value from the transaction in the form of boosting its 2008 accounts. Indeed it would constitute a liability not an asset. On the other side of the coin, Deyaar would have been dependent on Taaleem’s solvency if claiming a refund yet in the same breath asserting concerns about Taaleem’s financial standing.
82. Equally extraordinary is the provision relating to due diligence. Clause 5.2 allows for a due diligence exercise prior to the expiry date. But it is clause 3.1 which renders satisfaction in regard to the outcome of the exercise a condition precedent. Yet Clause 8 declares that the MOU is not an enforceable agreement save as regards some clauses. Notably Clause 3.1 is expressly not legally binding.
83. In any event I accept the submission made on behalf of Taaleem that the whole concept of an option only exercisable following the completion of due diligence is inconsistent with the contemporary documents. The transaction was to proceed by way of an amendment to the Tripartite Agreement, a final draft of which was available by 20 November 2008. This made provision for a transfer of Taaleem’s interest against payment. The payment of the premium was recorded as “payment for acquisition” in Deyaar’s accounts and as “payment for sale” in Taaleem’s receipt.
84. No contemporary point was taken by Deyaar that the transaction was subject to board approval. As regards due diligence it is clear that Deyaar were undertaking some form of due diligence (being well advanced if not complete by early December 2008) but, as noted already, there was no suggestion that the successful accomplishment of the process was a condition.
85. The question of due diligence re-emerged in February 2009 when Deyaar were reported to have suggested an option for execution of an SPA with an effective date of 30 August 2008 against a non-refundable deposit “subject to due diligence.” The suggestion contained the rather strange proposition:
“Taaleem can take this SPA to its auditors and if acceptable still book the transaction back-dated using the argument that any subjectivity on the deal today does not exist as the sale was indeed completed successfully in Feb 2009.”
86. This led to a proposal from Deyaar’s legal department on 1 March 2009 that the balance of the purchase would be paid on completion of due diligence and approval by the board. This in turn encouraged Taaleem to seek permission to report to their auditors that “due diligence is now complete and the Board of Directors’ approval at Deyaar is also obtained in 2009.” The answer from Deyaar was a recommendation to focus on the non-refundable AED 72 million.
87. On 2 March 2009, Taaleem proposed an amendment to the proposed “Rule book” so as “to make the proposed Sale of Interest Agreement watertight” that there be a due diligence completion letter. I accept Taaleem’s proposition that this demonstrates that Taaleem was content to allow these conditions to be introduced at this stage only if Deyaar was to confirm immediately that they had already been satisfied. In the result, these new conditions were included but only in form.
88. The final feature which renders Deyaar’s case on the MOU impossible to reconcile with the evidence is its inconsistency with the conduct of the parties in the wake of the chosen date of 9 December 2009. After paying the premium, Deyaar went on to make payments of AED 114 million to third parties in respect of Sky Gardens. In Deyaar’s case these would have constituted voluntary payments by way of reduction of Taaleem’s obligations.
89. Yet it was common ground between the experts that recovery of such payments (if the transaction was not concluded) could only be sought as a matter of law if either they had been requested by Taaleem or completed by necessity or custom. Taking at face value Deyaar’s concern that Taaleem might not be good for the premium, it is inconceivable that Deyaar would have volunteered a further AED 114 million. In reality Deyaar recognised its responsibility in lieu of Taaleem to make the payments. Indeed by 21 April 2009 Deyaar issued a balance confirmation in the sum of AED 218,022,396.22.
90. The explanation for the impossibility of reconciling the terms of the MOU with the state of affairs 5 months earlier is that the MOU was never intended to be an accurate record. It was created in the face of the investigation by the Financial Audit Department which reported on 26 May 2009. Its origin was a telephone call from Mr Giebel to Mr Azzam leading to a meeting between them on 19 May 2009. Mr Azzam’s understanding of the motive behind the execution of the document as contained in the oral evidence was as follows:
“What was foremost in my mind when I was signing the document is the purpose that this document was intended to serve and in my mind, it intended to serve one single purpose and that is to address a discrepancy, sort of an absence of documentation that was identified by the FAD. It was very important for Mr Giebel and Mr Ding, who was involved in the drafting, I believe, of the MOU that certain realities had to be included in the MOU. Whether those realities were an accurate reflection of the picture on 9 December or not, was not the most pressing thing, certainly not in my mind and I can’t speak on their behalf.
If on 19 May, Mr Giebel had come to me and said draft an MOU. We need an MOU. Because there is this gap. Go ahead and draft it: I would have drafted it differently. So there are certain clauses in there and I referred you to the ones that I had the most issue with, that I believe were inaccurate, certainly inaccurate to what was an agreed sort of verbal situation at the time concerning the non-refundability of the 72 million, et cetera. But, you know, in the end, I accepted to sign the MOU because only in this format I was led to believe by Mr. Giebel it will be acceptable to FAD”.
(Transcript, Day 2, p 92, line 24 – p 94, line 13)
91. By this time the SPA had been initialled, stamped and placed in escrow. It follows, in my judgment, that Taaleem is correct to submit that the MOU was enacted not to record history but to re-write it. In particular its purpose was to provide an explanation for the premium which was inaccurate. Mr Azzam understandably tried to help Deyaar (faced as it was by an investigation by the FAD) by signing this backdated document which had no contractual effect and which did not reflect the terms in which the premium had been paid.
92. For good measure all the witnesses were agreed that a binding transaction had been concluded. Indeed notably Mr Al Hamli’s complaint was that Mr Giebel and Mr Krishnamurthy had entered into the transaction as he saw it behind his back. As he put it in regard to when he became Chairman: “The game is over by that time. Everything is done.” Such explains the reference to the need to establish a “reversal” of the transaction rather than rely on any proposition that there was no transaction to reverse.
93. Further support for Taaleem’s position is to be derived from the amendment to the transaction so as to reduce the sale to 50% followed by the attempt to reduce the premium likewise. These negotiations were conducted by Deyaar without reference to Taaleem’s management, an approach only consistent with a completed transfer.
94. I conclude that Taaleem (and NBC) have made out their case that a contract of sale or at least transfer was concluded in December 2008. This conclusion makes it unnecessary to consider whether, if the transaction was conditional, those conditions were met. Since the point was addressed in some detail I will express my view briefly.
95. As regards board approval, the relevant meeting is that of 23 December 2008, the minutes of which expressly recorded the board’s approval “subject to due diligence.” It is clear that where the board wanted a transaction brought back before making a final decision it would minute the requirement.
96. Despite Mr Hamli’s assertion that the board received no material relating to the Sky Gardens’ transaction and that they were in no position to grant approval, the disclosed documentation reveals that a pack relating to Sky Gardens was indeed supplied to the board. This documentation is now incomplete but it is probable that the missing items are in the possession of Deyaar. In the circumstances it is appropriate to draw the inference that full disclosure was in fact made to the board. The position was that board approval was granted on the basis that management would complete the due diligence exercise.
97. As regards due diligence, this was commenced in November 2008. There was little or no indication by December that the exercise was incomplete let alone unsatisfactory from Deyaar’s management’s perspective. Indeed both in May and June 2009, Deyaar confirmed that due diligence had been completed.
98. In summary therefore the position is, in my judgment, that, as stated by Mr Azzam, there was a concluded agreement for transfer of Taaleem’s interest in Sky Gardens to Deyaar on 4 December 2008:
(a) An amendment to the Tripartite Agreement to that effect had been prepared;
(b) The price and other essential terms had been agreed;
(c) There was no challenge to the authority of those involved in the transaction;
(d) It had been approved by Deyaar’s Investment Committee;
(e) A premium of AED 72 million was paid being a non-returnable proportion of the total purchase price;
(f) This payment enabled Taaleem to arrange to include the payment in their accounts subject only to completion of documentation;
(g) In the aftermath of the agreement Deyaar made a series of further payments in relation to the transaction;
(h) There were no conditions to the transfer;
(i) The transaction was accepted to be irreversible.
Deyaar’s alternative case
99. Deyaar seek to set aside this transaction on the broad grounds that Mr Nasser Al Sheikh as Chairman of both Taaleem and Deyaar allowed himself in that position of potential conflict to promote the interests of Taaleem to the detriment of Deyaar.
100. This is a much narrower case than initially advanced but it faces a formidable threshold difficulty. Deyaar made it clear from the outset of the hearing that it did not advance any allegation of dishonesty or fraud. However there can be no doubt in my judgment that the experts were all agreed that knowledge of a director’s breach of duty in concluding a contract is insufficient justification for setting aside the contract. It is also necessary to establish (a) fraud or dishonesty against the director concerned; and (b) dishonesty and collusion with that behaviour by the counterparty: see Article 187 of the Civil Code.
101. Such was the clear evidence of Dr Al Mulla and Mr Al Hashimi. Mr Odeh made reference to Articles 129 and 208 of the UAE Civil Code and in doing so indicated some reluctance to accept the need for both dishonesty and collusion. Article 129(c) provides that: “There must be a lawful cause for the obligations arising out of the contract.” and Article 208 provides that: “A contract shall not be valid if it does not contain a lawful benefit to the contracting parties.”
102. To the extent that Mr Odeh was contending that these provisions were engaged I see no difficulty. As he put it, compliance needed to be established. But I was wholly unpersuaded that Article 129 required more than that the subject matter of the contract be lawful (which it was) or that Article 208 required more than that the “consideration” or benefit transferred under the agreement be lawful (which it was).
103. Mr Odeh also prayed in aid Article 246 of the Civil Code as giving rise to a duty of good faith in regard to the creation of a contract. But the clear wording of the article restricts its ambit to performance of a contract, a proposition to which Mr Odeh in due course agreed.
104. In closing Deyaar sought to avoid the implications of its concession that dishonest collusion was not alleged by contending that a serious breach of duty met the requirement of “fraud”. But there was no basis for this submission and, if there had been, it would fall foul of the concession. Deyaar were left in the somewhat unhappy position of contending that, if UAE law did not furnish relief in these circumstances, it ought to. But there is no room in a civil law jurisdiction with a civil code to develop the law in the manner suggested even if otherwise thought justified.
105. Again this conclusion renders it unnecessary to consider whether Deyaar has made its case out on the facts, namely that Taaleem was aware that Mr Al Shaikh was in breach of his duties to Deyaar in bringing about the transaction since it was by way of advancing the interests of Taaleem at the expense of and without regard to Deyaar. But since the point was canvassed at some length I will briefly explain my views.
106. As I see it, there are numerous difficulties with the proposition:-
(a) First, whilst Mr Al Shaikh was involved in the purchase by Taaleem of an interest in Sky Gardens at below market price, it was only later when sales to individual purchasers proved disappointing that he suggested that Deyaar might buy out the interest;
(b) This led to negotiations between Mr Giebel and Mr Azzam, the outcome being an agreement on a price which constituted a substantial discount on the market price which was attractive to both sides – Deyaar because it paid a reduced price and Taaleem because it obtained a quick turnover leading hopefully to the inclusion of the (reduced) profit in the August 2008 accounts;
(c) Mr Al Shaikh played no part in those negotiations or at any time thereafter. The suggestion that Deyaar had been lined up as a buyer from the outset was not supported by the evidence;
(d) Equally there was no evidence that a ‘gang’ including Mr Giebel and Mr Shaikh forced through the transaction without regard to Deyaar’s interests. Indeed it is difficult to see how Mr Al Shaikh pushed through the transaction at the board meeting in December 2008 (whether by way of informed consent or not) when he was not even present;
(e) There is no basis for saying that Mr Giebel was not acting independently of Mr Al Shaikh. He clearly had authority to conclude the transaction. In due course he explained the rationale for his decision to invest in Sky Gardens in his memorandum of 9 August 2009 which was accepted to be genuine;
(f) In short, the case that the transaction was brought about by Mr Al Shaikh is not made out.
107. All this matters not. Even if the transaction was avoidable, Deyaar ratified it – Deyaar treated the property as its own in 2009 and indeed took no steps to terminate it until service of its Defence in June 2010.
108. I leave it to the parties to prepare an appropriate order in the light of this judgment which should also deal with the manner of resolving all outstanding matters including quantum, interest and costs.
109. I would like however to add a postscript in regard to skeleton arguments. The First Defendant had somewhat of a back seat role in this case since its principal interest was to recover the advances made by it either from the Second Defendant or the Claimant. Nonetheless, its initial skeleton ran to 637 paragraphs over 170 pages – being four times longer than the Claimant’s and twenty times longer than the Second Defendant’s. This imbalance was repeated in closing submissions where the First Defendant furnished a “memorial” running to 390 paragraphs over 71 pages (as compared with 200 paragraphs over 38 pages from the Claimant and 120 paragraphs over 25 pages from the Second Defendant).
110. This brings to mind the observations of Toulson LJ (as he then was) in Midgulf International Ltd v. Groupe Chimique Tunisien  EWCA Civ 66 at paragraph 72:
“125. Practitioners who ignore practice directions on skeleton arguments (see CPR 52PD paras 5.10 “Each point should be stated as concisely as the nature of the case allows”) and do so without the imposition of any formal penalty are well advised to note the risk of the court’s negative reaction to unnecessarily long written submissions. The skeleton argument procedure was introduced to assist the court, as well as the parties, by improving preparation for, and the efficiency of, adversarial oral hearings, which remain central to this court’s public role.
126. We remind practitioners that skeleton arguments should not be prepared as verbatim scripts to be read out in public or as footnoted theses to be read in private. Good skeleton arguments are tools with practical uses: an agenda for the hearing, a summary of the main points, propositions and arguments to be developed orally, a useful way of noting citations and references, a convenient place for making cross references, a time-saving means of avoiding unnecessary dictation to the court and laborious and pointless note-taking by the court.
127. Skeleton arguments are aids to oral advocacy. They are not written briefs which are used in some jurisdictions as substitutes for oral advocacy. An unintended and unfortunate side effect of the growth in written advocacy (written opening and closing submissions and “speaking notes”, as well as skeleton arguments) has been that too many practitioners, at increased cost to their clients and diminishing assistance to the court, burden their opponents and the court with written briefs. They are anything but brief. The result is that there is no real saving of legal costs, or of precious hearing, reading and writing time. As has happened in this case, the opponent’s skeleton argument becomes longer and the judgment reflecting the lengthy written submissions tends to be longer than is really necessary to explain to the parties why they have won or lost an appeal.
128. The skeletal nature of written advocacy is in danger of being overlooked. In some cases we are weighed down by the skeleton arguments and when we dare to complain about the time they take up, we are sometimes told that we can read them “in our own time” after the hearing. In our judgment, this is not what appellate advocacy is about, or ought to be about, in this court.”
111. These observations were reinforced in two later decisions of the English Court of Appeal namely Khader v. Aziz  1 WLR 2673 and Standard Bank PLC v. Via Mat Int Ltd  EWCA Civ 490. (In that respect it is difficult to resist drawing attention to the short judgment of Aikens LJ in the latter case.)
112. It is of the utmost importance to the efficient and economic conduct of litigation in the DIFC Courts that skeleton arguments (as well as, I would add, pleadings and witness statements) are kept within manageable bounds. They should concentrate on the issues without quoting extensively from the documentation. The skeletons should identify the essential elements of the party’s submissions so as to help the court understand the arguments. Long and complex skeletons impose an unacceptable burden on the court which is already expected to pre-read a large amount of material. In any event, the shorter the skeleton, I would hazard the view that the more persuasive it is likely to be.
Date of Issue: 19 February 2014
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