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Deyaar Development P.J.S.C. v Taaleem P.J.S.C. & National Bonds Corporation P.J.S.C. [2015] DIFC CA 010

Deyaar Development P.J.S.C. v Taaleem P.J.S.C. & National Bonds Corporation P.J.S.C. [2015] DIFC CA 010

August 18, 2016

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Claim No: CA-010-2015

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 APPEAL

BEFORE THE CHIEF JUSTICE MICHAEL HWANG, JUSTICE SIR RICHARD FIELD AND H.E. JUSTICE OMAR AL MUHAIRI

 

BETWEEN

DEYAAR DEVELOPMENT P.J.S.C.

                                                                  Second Defendant / Appellant

and

 (1)TAALEEM P.J.S.C.

Claimant / First Respondent

(2) NATIONAL BONDS CORPORATION P.J.S.C.

First Defendant / Second Respondent

                                                                                               

Hearing: 22 – 23 May 2016

Counsel: Tom Leech QC (Herbert Smith Freehills LLP) for the Appellant

Vernon Flynn QC (Essex Court Chambers), Tom Montagu-Smith (24 Old Buildings) and Hogan Lovells (Middle East) LLP for the First Respondent

Roger Kennell and Ravinder Thukral (Brown Rudnick LLP) for the Second Respondent

Judgment:18 August 2016


JUDGMENT


Summary of Judgment

This dispute arose out of a tripartite agreement made between Amlak Finance PJSC (“Amlak Finance”), DIFC Investments LLC and Taaleem PJSC (“Taaleem”) for the beneficial ownership of a residential property known as Sky Gardens Tower (“Sky Gardens”). Taaleem’s investment was financed by National Bonds Corporation PJSC (“NBC”), which agreed to pay 33% of the third instalment of the purchase price due on 15 July 2008 on behalf of Taaleem. Taaleem was in negotiations with Deyaar Development PJSC (“Deyaar”) for the sale of its share in Sky Gardens to Deyaar. On 21 October 2008, a Murabaha Agreement was signed between Taaleem and NBC (“Murabaha Agreement“). It was backdated to 6 July 2008. The Murabaha Agreement recorded the sale by NBC to Taaleem of its interest in Sky Gardens. It also provided for a fixed late payment charge of 2%. The Murabaha profit had been calculated at a rate of 5.5% from 6 July 2008 to 31 August 2008 and was recorded as a fixed amount without specifying a time for payment. On 4 December 2008, Deyaar paid a premium sum of AED 72,141,913 to Taaleem by two cheques as a deposit for the acquisition of Taaleem’s share in Sky Gardens.

The main issue focused on whether Taaleem or Deyaar was liable to repay the monies advanced by NBC. Taaleem argued that there was a contract constituting an unconditional transfer of its rights and obligations of its share to Deyaar. Deyaar contended that it did not enter into any legally binding contract with Taaleem.

At the first hearing (“the Liability Hearing”) before Justice Sir David Steel (“the Trial Judge”), the Trial Judge held that there was a contractual agreement for the transfer of Taaleem’s interest to Deyaar. A further hearing (“the Quantum Hearing”) took place to finalise the orders consequent on the decision in the Liability Hearing. In the Second Judgment of Justice Sir David Steel dated 23 March 2015, the Trial Judge found that Taaleem’s obligation to repay NBC the principal monies advanced to finance the purchase of Taaleem’s interest in Sky Gardens, as well as Murabaha profit and late payment charges, were transferred to Deyaar. The Trial Judge found that there were recurring Murabaha profit charges of 5.5% after the end of the Murabaha Agreement on 31 August 2008. The Trial Judge ordered Deyaar to pay NBC outstanding total Murabaha profit charges to the date of the judgment. The total Murabaha profit charges amounted to AED 50,926,992.43.

Deyaar appealed against the payment of the Murabaha profit charges. Deyaar argued that the Trial Judge erred by accepting a new argument advanced by NBC that there was a series of separate and direct contracts between NBC and Deyaar under which Deyaar had to pay a recurring profit charge of 5.5% per annum. Deyaar argued that the recurring profit charge of 5.5% was not a term of the Murabaha Agreement. It also contended that the issue of recurring profit charges as a separate obligation of Deyaar was not pleaded or argued. Accordingly, it was not open for the Trial Judge to find that there were agreements between NBC and Deyaar to pay recurring profit charges post 30 August 2008. It also argued that the Sharia Standards were incorporated into the Murabaha Agreement through Clause 13 in the Murabaha Agreement. To imply a term that recurring Murabaha profit was payable would be inconsistent with the Sharia Standards. Clause 13 stated that the Murabaha Agreement is “governed by the laws of Dubai, UAE to the extent these laws are not inconsistent with the principles of Sharia”. Clause 13 also expressly states in parentheses, “as set out in the Sharia Standards published by the Accounting and Auditing Organisation of Islamic Financial Institutions and/or Islamic High Academy of Organisation of Islamic Conference).” The Clause further states that the principles of Sharia will prevail.

On the other hand, NBC argued that its claim for Murabaha profit was not a new issue of liability because it had claimed for profit charges in its pleadings. It contended that the application of Sharia Standards were irrelevant and that the Sharia Standards were not sufficiently certain and unambiguous for the Court to give effect to them as contractual terms. Furthermore, Deyaar’s former Counsel, Mr Robin Knowles QC, made a concession previously in a 2013 hearing, disclaiming any reliance of the failure to comply with Sharia law (the “Concession”).

The issues to be addressed on appeal were (1) whether NBC was allowed to plead the issue of separate obligations for Deyaar to pay the recurring profit charges of 5.5%, and if so, whether Deyaar had the separate obligation to pay the recurring charges; (2) whether the Sharia Standards were incorporated into the Murabaha Agreement; and (3) whether the Concession made by Mr Robin Knowles QC was relevant.

Chief Justice Michael Hwang (with Justice Sir Richard Field and H.E. Justice Omar Al Muhairi concurring) dismissed the appeal. The Court of Appeal found that NBC had given sufficient notice of the issue of separate obligations to pay recurring Murabaha Profit charges. The issue had been pleaded and argued before the Trial Judge. It also held that, based on the Parties’ communication and conduct, there was a recurring profit of 5.5%. The Court of Appeal also found that, on a true construction of the Murabaha Agreement, the Sharia Standards were incorporated into the Murabaha Agreement as they were sufficiently certain. This was because there was sufficient reference and identification of specific aspects of Sharia law. In the present case, Clause 13 specifically referred to the Sharia Standards published by the Accounting and Auditing Organisation of Islamic Financial Institutions and the Islamic High Academy of Organisation of Islamic Conference. However, it highlighted that any discussion on the Sharia Standards is academic because of the Concession made by former Counsel for Deyaar, Mr Robin Knowles QC. Although the present Counsel for Deyaar, Mr Leech QC, previously applied to withdraw the Concession in the November 2014 Hearing, the Trial Judge refused the application to withdraw the concession. Up to the date of the Appeal Hearing, Deyaar had not made any application to withdraw the Concession. Accordingly, any issues pertaining to Sharia law will not be examined.

Chief Justice Michael Hwang (with Justice Sir Richard Field and H.E. Justice Omar Al Muhairi) unanimously dismissed the appeal. NBC had made four applications in the event that Deyaar’s appeal succeeded. Given that the appeal has been dismissed, the four applications would not be considered.

 This summary is not part of the Judgment and should not be cited as such

ORDER

UPON hearing Counsel for the Appellant and Counsel for the First and Second Respondents on 22 and 23 May 2016

AND UPON reading the submissions and evidence filed and recorded on the Court file

IT IS HEREBY ORDERED THAT:

1.The Appellant’s Appeal is dismissed.

2. Since NBC’s applications are contingent on the success of the Appellant’s Appeal, the applications will not be considered.

3. The Appellant shall pay the First and Second Respondents’ costs of this appeal on the standard basis to be assessed after further submissions on costs.

 

Issued by:

Mark Beer

Registrar

Date of Issue: 18 August 2016

At: 4pm

 

JUDGMENT

CHIEF JUSTICE MICHAEL HWANG:

INTRODUCTION

1.This is an appeal by the Appellant against the Second Judgment of Justice Sir David Steel (the “Trial Judge”) dated 23 March 2015 (the “Second Judgment”). The Second Judgment finalised the orders relating to quantum consequent on the liability findings in the First Judgment of Justice Sir David Steel dated 19 February 2014 (the “First Judgment”).

2. In the First Judgment, the Trial Judge found that the Appellant, the First Respondent and Second Respondent had agreed to transfer to the Appellant all of the First Respondent’s interest, rights and obligations in a residential property, Sky Gardens Tower (“Sky Gardens”), through a novation of the First Respondent’s obligations to repay the Second Respondent.

3. In the Second Judgment, the Trial Judge ruled in favour of the Second Respondent, finding that the Appellant was liable to repay the Second Respondent the principal monies advanced to finance the purchase of the First Respondent’s interest, Murabaha profit and late payment charges.

4. The Trial Judge held that the Appellant was liable to pay the Second Respondent AED 50,926,992.43 for outstanding total Murabaha profit charges to the date of the Second Judgment. The Appellant appealed against this finding.

THE FACTS

5. This dispute arose out of a tripartite agreement made between Amlak Finance PJSC (“Amlak Finance”), DIFC Investments LLC (“DIFCI”) and Taaleem PJSC (“Taaleem”) on 7 July 2008. The tripartite agreement provided that beneficial ownership of Sky Gardens Tower, should be vested in the three parties in shares of 34%, 33% and 33% respectively, and that they should contribute to the same proportions in the purchase price.

6. Taaleem’s investment was financed by National Bonds Corporation PJSC (“NBC“), which had agreed to pay a 33% share (AED 81,198,637) of the third instalment of Taaleem’s share of the purchase price due on 15 July 2008 on behalf of Taaleem. Further instalments of Taaleem’s share of the purchase price were due on 15 September 2008, 15 November 2008, 15 January 2009, 15 March 2009 and 15 May 2009. NBC made two payments to Amlak Finance totalling AED 216,529,698.75.

7. On 11 September 2008, NBC advanced a further AED 81,198,637 to Taaleem to pay the next instalment of its share of the purchase of the price of Sky Gardens (“the September Instalment”). By this time, Taaleem was in negotiations with Deyaar Development PJSC (“Deyaar”) for the sale of its share in Sky Gardens to Deyaar.

8. On 21 October 2008, a contract (“the Murabaha Agreement“) was made between Taaleem and NBC. It was backdated to 6 July 2008. The Murabaha Agreement was Sharia-compliant and recorded the sale by NBC to Taaleem of its interest in Sky Gardens at a cost price of AED 135,331,061.50 with a fixed profit of AED 1,492,698.62. It also provided for a fixed late payment charge of 2% which amounted to AED 2,736,475. The profit had been calculated at a rate of 5.5% from 6 July 2008 to 31 August 2008 and was recorded as a fixed amount without specifying a time for repayment.

9. On 4 December 2008, Deyaar paid a premium sum of AED 72,141,913 (“the Premium“) to Taaleem by two cheques as a deposit for the acquisition of Taaleem’s share in Sky Gardens.

10. The dispute centred on whether Taaleem or Deyaar was liable to repay the monies advanced by NBC. Taaleem’s position was that a contract constituting an unconditional transfer of its rights and obligations in regard to its share of Sky Gardens was formed when Deyaar paid the Premium on 4 December 2008. Deyaar’s position was that it did not enter into any legally binding contract with Taaleem.

11. From 28 October 2013 to 7 November 2013, a hearing was held before Justice Sir David Steel (“the Trial Judge“) in the Court of First Instance to determine whether the negotiations between Taaleem and Deyaar resulted in a concluded transaction (“the Liability Hearing“).

12. In the First Judgment, the Trial Judge found that there was a contractual agreement for the transfer of Taaleem’s interest in Sky Gardens to Deyaar on 4 December 2008.

13. A further hearing took place from 23 to 24 November 2014 to finalise the orders consequent on the First Judgment, including those related to quantum (“the Quantum Hearing“).

14. In the Second Judgment of Justice Sir David Steel dated 23 March 2015 (“the Second Judgment“), the Trial Judge found that Taaleem’s obligation to repay NBC the principal monies advanced to finance the purchase of Taaleem’s interest in Sky Gardens, as well as Murabaha profit and late payment charges, were transferred to Deyaar.

15. The Trial Judge made the following orders in the Second Judgment (“the Order”):

“IT IS HEREBY ORDERED THAT:

1. On 4 December 2008 the Claimant and the Second Defendant concluded an agreement (“the Agreement”) pursuant to which:

(a) the Claimant’s interest (“the Interest”) in the units in the property known as “Sky Gardens”) (the “Units”, which are listed at Annex A to this order) was transferred to the Second Defendant; and

(b) the Claimant’s obligation to repay the First Defendant the principal monies advanced to finance the purchase of the Interest, as well as Murabaha profit and late payment charges were transferred to the Second Defendant.

2. By virtue of the Agreement:

(a) The Claimant ceased to be the owner of the Interest on 4 December 2008;

(b) The Second Defendant became the owner of the Interest on 4 December 2008; and

(c) The Claimant is not liable to the First Defendant for any finance provided by the First Defendant for the purchase of the Interest, whether under the terms of a Murabaha agreement entered into between the Claimant and the First Defendant and dated 6 July 2008 or at all.

3. The First Defendant’s claim against the Second Defendant for the repayment of the principal monies advanced to or on behalf of the Claimant for the purchase of the Interest in the Units, in addition to Murabaha profit and late payment charges, succeeds and in respect of which the Second Defendant shall, within 14 days, pay to the First Defendant AED 227,379,430.68, which sum is calculated as follows:

(a) Principal advanced on 12 April 2009 (AED 216,529,698.50) less the principal repaid by Second Defendant on 12 April 2009 (AED 42,763,351.60): AED 173,715,963.25

(b) Outstanding total Murabaha profit charges to date of judgment: AED 50,926,992.43

(c) Total late payment charges to date of judgment: AED 2,736,475

4. From the date of judgment, namely 19 February 2014 and until paid in full, the amount of AED 227,379,430.68 shall bear interest at 3% above EIBOR as at the date of the judgment.

5. The First Defendant’s counterclaim against the Claimant is dismissed.

6. The Second Defendant’s counterclaim against the Claimant and the First Defendant is dismissed.

7. The Second Defendant shall pay the Claimant’s and the First Defendant’s costs of the claim and the counterclaims (including the costs of the hearing on 23 and 24 November 2014) on the standard basis to be assessed if not agreed.

8. The Claimant and the First Defendant may make application to the Registrar for the Second Defendant to make interim payments on account of costs.”

16. On 6 April 2015, Deyaar applied for permission to appeal and a stay on the execution of the Order. Deyaar appealed on the following grounds. These grounds were elaborated in Deyaar’s Skeleton Argument dated 6 April 2015 (“Deyaar’s Skeleton Argument”).

(a) Ground 1: The Trial Judge failed to state his reasons for reaching his decision that there was a novation. Deyaar submitted that the assignment/ novation issue was entirely left unanswered in the First and Second Judgment.

(b) Ground 2: The Trial Judge was wrong, as a matter of law, in his conclusion that it was an abuse of process for Deyaar to argue that Amlak Finance, DIFCI and/or NBC had not given their consent to the transfer of Taaleem’s rights and liabilities and thereby accepted a substituted contract with Deyaar on 4 December 2008.

(c) Ground 3: The Trial Judge erred in law in finding that the repayment of the September Instalment was transferred to Deyaar and that Deyaar was liable to NBC in restitution for the September Instalment.

(d) Ground 4: The Trial Judge erred by accepting a new argument advanced by NBC that there was a series of separate and direct contracts between NBC and Deyaar under which Deyaar agreed to pay an additional interest at 5.5% per annum.

17. On 27 April 2015, the Trial Judge dismissed Deyaar’s application for a stay on the execution of the Order.

18. On 3 August 2015, Chief Justice Michael Hwang denied Deyaar permission to appeal against the Second Judgment.

19. The Appellant applied for reconsideration of the order by Chief Justice Michael Hwang dated 3 August 2015. A hearing was held on 7 September 2015.

20. On 18 November 2015, Chief Justice Michael Hwang issued an Order granting the Appellant leave to appeal on Grounds 1 and 4 (“the Order of 18 November 2015”).

21. On 25 November 2015, Taaleem and Deyaar agreed, by way of a consent order, that:

(a) Deyaar’s appeal against paragraphs 1(a), 2, and 5 to 8 of the Order of 23 March 2013 was dismissed.

(b) Deyaar’s appeal against paragraphs 1(b) of the Order was dismissed save as to the extent that the Court of Appeal allowed any appeal against the amount (if any) of the Murabaha profit charges which Deyaar was ordered to pay in paragraph 3(b) of the Order.

22. Accordingly, the only ground of appeal to be determined by the Court of Appeal is Ground 4.

23. On 2 December 2015, NBC filed a Respondent’s Notice. NBC made four applications in the event that Deyaar’s appeal was allowed.

(a) First Application: Application for permission to amend its counterclaim for Murabaha profit. It annexed its Amended Particulars of Counterclaim to its Notice (“NBC’s Draft Counterclaim”);

(b) Second Application: Application for permission to appeal against the amount of Murabaha profit ordered to be paid at paragraph 3(b) of the Order;

(c) Third Application: Application for permission to apply for pre-judgment interest;

(d) Fourth Application: Application for permission to appeal against paragraphs 2(c), 3(b) and 5 of the Order to counterclaim the Murabaha profit from Taaleem.

24. On 16 December 2015, NBC filed its Skeleton Argument for the Appeal (“NBC’s Skeleton Argument”).

25. On 24 April 2016, Deyaar filed its Supplementary Skeleton Argument (“Deyaar’s Supplementary Skeleton Argument”). Taaleem filed its Skeleton Argument (“Taaleem’s Skeleton Argument”).

26. On 8 May 2016, NBC filed its Reply to Skeleton Arguments of Deyaar and Taaleem (“NBC’s Reply to Skeleton Arguments”).

27. On 22 and 23 May 2016, the hearing for the Appeal was held. At the hearing, NBC and Taaleem addressed the Fourth Application in Court. The Court of Appeal stood down the remaining three Applications until after the release of the Judgment of this Appeal.

THE DECISION BELOW

28. This Judgment will only discuss the relevant parts of the Second Judgment relating to Ground 4, which is the only ground of appeal to be determined by the Court of Appeal.

29. At the hearing in the Court of First Instance, NBC’s position was that profit charges were at 5.5% per annum of the amount outstanding at any one time. NBC presented the following arguments.

(a) The rate was to be derived from the lump sum profit figure being the foundation of the profit accrued to 31 August 2008 and included within the sale price as specified in Article 3 of the Murabaha Agreement even though the agreement itself did not specify a profit of 5.5% per annum as such.

(b) An email dated 4 June 2009 from Mr Krishnamurthy of Deyaar to NBC appeared to confirm the correctness of calculations, based on 5.5% as constituting “profit accruals”.

(c) The conduct of the parties established that there were agreements between Deyaar and NBC post 30 August 2008 (albeit unsigned), which contained an agreement for the continuation of an accrual of profit at 5.5%.

30. On the other hand, Deyaar’s position was that the total profit was the specific lump sum profit of AED 1,492,698.62 to be recoverable under the Murabaha agreement and had accordingly been included in the purchase price. AED 1,492,698.62 had been calculated at the rate of 5.5% from 6 July 2008 to 31 August 2008. Deyaar made the following arguments.

(a) There was no provision for payment of any further profit, let alone at 5.5% per annum.

(b) No profit accrued after 31 August 2008 on the outstanding principal and no profit ever accrued on the AED 81 million September Instalment.

(c) The Promise to Purchase and the Murabaha Agreement were subject to “Dubai” law. Accordingly, the principles of Sharia will prevail. This meant that any obligation to pay interest in the form of an un-predetermined amount increasing with time was invalid. There was therefore only an obligation to pay a fixed sum as profit.

31. The Promise to Purchase mentioned in [30(c)] of this Judgment was a written agreement between Taaleem (as Promisor) and NBC (as beneficiary) dated 6 July 2008 to which the draft Murabaha Agreement was attached as Schedule 2. The Trial Judge noted that this agreement was scarcely mentioned at trial and had not been brought to his attention in the context of the profit claim. The relevant parts of this agreement are reproduced below.

“2. The sale of the Property in accordance with the terms of this promise shall be on Murabaha basis and at the sale price (“Sale Price”) calculated as follows:

2.1 Amount of total cost (including purchase price in the Offer of the Beneficiary); plus

2.2 Beneficiary’s promised profit calculated at 5.5% p.a. on the amount specified in 2.1 above.”

32. The Trial Judge held that it was common ground that the percentage of 5.5% provided the basis of the profit figure in the Murabaha Agreement, which was signed on 21 October 2008 (and backdated to the date of the Promise to Purchase), albeit only covering payments made by NBC up to the end of August 2008.

33. The issue was whether, in the absence of an executed Murabaha agreement for the period after August 2008, there was in fact a contract on the same terms as previously agreed between NBC and Deyaar, and in particular whether the contract included a provision for profit payments to NBC at the rate of 5.5% per annum on the amount outstanding including the September Instalment.

The applicability of Sharia law

34. The Trial Judge noted that Deyaar had, at the Liability Hearing, disclaimed any reliance on the Parties’ failure to comply with Sharia law (the “Concession”). The Trial Judge noted that this might not preclude arguments based on Sharia law in regard to the invalidity of provisions for accruing profit but, absent any plea in that respect, he did not regard it as open to Deyaar to pursue such an argument. In the Second Judgment, the Trial Judge also stated that he dismissed Deyaar’s application to withdraw the Concession at the Quantum Hearing.

35. The Trial Judge disregarded any arguments based on Sharia law. He reasoned that the Murabaha Agreement was subject to DIFC law and that Sharia law was not a national system of law. The reference to Sharia law was “no more than a reflection of the principles on which NBC acts.” Furthermore, it could not “trump” the law of the jurisdiction. The Trial Judge referred to the case of Shamil Bank of Bahrain DC v Becimco Pharmaceuticals Ltd [2004] 1 WLR 1784 (“Shamil Bank”) in support of his finding.

36. The Trial Judge found that, if no profit accrued after 31 August 2008 on the outstanding principal and no profit accrued on the AED 81 million payment (i.e. the September Instalment), it would be a “surprisingly uncommercial arrangement” as it would involve “very substantial funds being advanced for an indefinite period free of charge.”

Whether the conduct of the parties after 30 August 2008 established agreements between Deyaar and NBC for continuation of an accrual of profit at 5.5%

37. The Trial Judge outlined the legal principles in regard to the formation of a contract as set out in [77] and [78] of the First Judgment. The Trial Judge noted that these legal principles advanced by Taaleem were not challenged by Deyaar and NBC.

38. The Trial Judge relied on the parties’ communications and course of conduct to come to his conclusion that the parties had agreed to a profit of 5.5% after August 2008. In particular, the Trial Judge noted the following events.

(a) In an email dated 29 September 2008 from Taaleem (Mr Kapoor) to NBC, the detailed payment schedule stated “Note that post 31 August 2008, one more instalment of AED 8,198,636.75 has been paid by NBC on behalf of Taaleem and Wakalah charges continue to date.”

(b) In a further email dated 29 September 2008 from Taaleem (Mr Kapoor), Taaleem recorded an agreement for “a cost of financing rate of 5.5%” to apply both pre and post 31 August 2008.

(c) On 6 October 2008, NBC (Mr Sabhi) prepared a calculation of profit at 5.5% both up to 31 August 2008 and from then on. The profit was to be paid under the existing Murabaha to the end of August and under a new Murabaha with Deyaar thereafter.

(d) In an email dated 10 October 2008 from Deyaar (Sakarani) to Taaleem (Mr Kapoor), Deyaar recognised its liability to pay the financing cost and the arrangement as stated in [38(c)].

(e) NBC’s record of a meeting which took place on 3 November 2008 between NBC and Deyaar, noted as follows.

“Sky garden deal, agreed that a Wakalah covering the period from 31 August 08 til 31 November 08 against NBC finance of Taaleem share in Sky Garden which has been purchased by Deyaar, NBC will also finance the next payment amounting to AED 81 million due in 12 Nov which will be covered through 1 month Wakalah renewable in monthly basis, Deyaar is currently evaluating their cash flow to respond in regard to their availability to finance the project and when they can repay NBC.”

(f) In a meeting on 9 November 2008, Deyaar (Mr Krishnamurthy) agreed to enter into three Murabaha agreements with NBC (Mr Sabhi) to cover (a) Taaleem’s liabilities up to 31 August 2008 (b) the September Instalment and (c) the November Instalment. Accordingly, the Trial Judge concluded that Deyaar were to assume liability for repayment of principal and profit of 5.5% until repayment.

(g) On 23 February 2009, NBC (Mr Sabhi) sent Deyaar (Mr Krishnamurthy) the calculation of profit amounts both due and accruing to date. The profit rate was 5.5%. On 29 March 2009, NBC (Mr Sabhi) sent Deyaar (Mr Krishnamurthy) sent details of the profit calculation at the rate of 5.5%.

(h) On 9 April 2009, Deyaar released AED 50 million to NBC which was treated by Deyaar as “partial repayment of the funding provided by NBC to Taaleem.” Subsequent exchanges showed that the sum was payment of AED 42.763 million in principal and AED 7.238 million in profit to 31 December 2009.

(i) By letter dated dated 30 April 2009, Taaleem sent an audit confirmation letter to Deyaar countersigned by Mr Giebel. In summary, the letter confirmed that Deyaar understood that, from the Effective Date (i.e. 30 August 2008), all rights, obligations and liabilities of Taaleem related to the Sky Gardens would be the responsibility of Deyaar to the extent that they had arisen from the Effective Date.

(j) In an email dated 4 June 2009 from Deyaar (Mr Krishnamurthy) to NBC (Mr Al Ali), he identified the “profit accruals” on the Murabaha financing by NBC. The calculations ran through to December 2009.

39. The Trial Judge found that the lump sum payment of AED 1,492,698.62 stated by Deyaar merely reflected the profit due at the rate of 5.5% as at the anticipated date of repayment. He concluded that merely because there were no executed Murabaha agreements after August 2008 did not mean that there was no claim for profit.

40. Accordingly, the Trial Judge found in favour of NBC that the profit charges were at a rate of 5.5% of the amount outstanding at any one time. In [3(b)] of the Order, the Trial Judge ordered Deyaar to pay to NBC, within 14 days, outstanding total Murabaha profit charges (to the date of judgment) of AED 50,926,992.43.

THE PARTIES’ ARGUMENTS ON APPEAL

Deyaar’s (Appellant’s) Arguments

41. Deyaar based its appeal on several grounds.

Recurring profit charge of 5.5% was not a term of the Murabaha Agreement

42. First, it submitted that the Murabaha Agreement provided payment for a strictly fixed profit of AED 1,492,699 and a one-time late payment charge of 2%. The Parties never agreed on the date of repayment. The schedule, which was intended to be annexed to the Murabaha Agreement, was never completed. This was also a finding by the Trial Judge in [22] and [23] of the Second Judgment.

43. The recurring profit charge of 5.5% was not a term of the Murabaha Agreement. Accordingly, Deyaar did not assume any liability to pay the recurring profit charges by virtue of any novation on 4 December 2008 or pursuant to any findings by the Trial Judge.

The issue of separate obligations for Deyaar to pay recurring profit charges of 5.5% was an issue of liability which was not pleaded or argued

44. Second, Deyaar submitted that the Trial Judge had accepted a new argument that there were new agreements between NBC and Deyaar under which Deyaar agreed to pay the recurring profit charges at 5.5% per annum.

45. Deyaar emphasised that it was procedurally unfair for the Trial Judge to decide on this issue as this was not addressed or pleaded by NBC. Deyaar submitted that NBC’s Opening Submissions or Closing Submissions at trial did not include any assertion that there was a series of separate contracts or marshalled the evidence upon which the conclusion was based.

46. Deyaar contended that the issue was never pleaded or advanced at both the Liability and Quantum Hearings. It was also not supported by a witness statement or any signed Statement of Truth. Accordingly, it was not open to the Trial Judge to find that there were agreements between Deyaar and NBC for the period post 30 August 2008 in the absence of an executed Murabaha agreement.

47. Deyaar argued that the subsequent correspondence and dealings between the Parties did not justify an implication of the term that Deyaar pays 5.5% of recurring profit charges, into the Murabaha Agreement. It pointed out that there were no proper or adequate particulars on which the term could be implied.

(a) Article 57 of the Contract Law provides the circumstances in which implied obligations arise. Deyaar submitted that NBC did not rely on Article 57. Article 57 states as follows.

“Implied obligations arise from:

(a) the nature and purpose of the contract;

(b) practices established between the parties and usages;

(c) good faith and fair dealing; and

(d) reasonableness.”

(b) Clause 17 of the Murabaha Agreement also provided that “No amendment to the terms and conditions of this Agreement is valid unless with the written mutual consent of the Parties.”

(c) Article 31 of the Contract Law provides that where a contract in writing contains a clause which requires any modification or termination by agreement to be in writing, the contract may not be otherwise modified or terminated. This is consistent with the common law rule that a term will not be implied into a contract where it contradicts the express terms: Lewison The Interpretation of Contracts (6th ed, 2015).

(d) Accordingly, Deyaar submitted that NBC did not assert that there was a valid amendment to the Murabaha Agreement with the written mutual consent of Taaleem and NBC, or that Clause 17 was satisfied.

(e) The term in which NBC proposed to imply was also inconsistent with the fixed sum payable for late payment in clause 4.2 and with paragraph 4/6 of the Sharia Standards.

Sharia Standards were incorporated into the Murabaha Agreement and the existence of separate agreements were inconsistent with Sharia Standards

48. Third, Deyaar contended that the existence of separate agreements between NBC and Deyaar were inconsistent with the Sharia Standards (published by the Accounting and Auditing Organisation of Islamic Financial Institutions and/or Islamic High Academy of Organisation of Islamic Conference).

49. In Deyaar’s Supplementary Skeleton Argument, Deyaar clarified that the Sharia Standards would be relevant only if the Court gave NBC permission to amend its Draft Counterclaim. In NBC’s Draft Counterclaim, NBC asserted as follows.

“6. By an agreement between Taaleem and NBC which was partly recorded in writing by way of a Murabaha agreement dated 6 July 2008 and a Promise to Purchase dated 7 July 2008, NBC agreed to finance Taaleem’s purchase of an interest in Sky Gardens (the ‘Agreement to Finance’) pursuant to the Tripartite Agreement dated 7 July 2008…

8. The Agreement to Finance extended beyond instalments due by 31 August 2008 and required Taaleem to pay 5.5% per annum or Murabaha profit on any additional instalments paid by NBC until repayment. Murabaha profit until 30 August 2008 amounted to AED 1,492,698.62.

9. The Agreement to Finance was further evidence by the following correspondence and conduct of the parties between September 2008 and November 2008, set out below at paragraphs 10 to 86…”

50. Deyaar contended that, if the Court implied the term that a recurring Murabaha profit of 5.5% per annum was payable under the Murabaha Agreement, it would be inconsistent with the Sharia Standards. Late payment charges (which increased over time) were expressly forbidden by the Sharia Standards.

51. The paragraphs of the Sharia Principles highlighted by Deyaar were as follows.

“4/6

It is an obligation that both the price of the item and the institution’s profit on the Murabaha to the purchase order transaction be fixed and known to both parties on the signature of the contract of sale. It is not permitted under any circumstances to subject the determination of the price or the profit to unknown variations or variations that are determinable in the future, such as by concluding the sale and making the profit dependent on the rate of LIBOR that will prevail in the future. There is no objection to referring to any other known indicators during the promise stage as a comfort indicator to determine the rate of profit, provided that the determination of the institution’s profit at the time of concluding the Murabaha to the purchase orderer is based on a certain percentage of the cost and is not tied up with LIBOR or a time factor.

4/8

It is permissible to agree on the payment of the price of the item under Murabaha to the purchase orderer by short or long term instalments, and the selling price of the asset becomes a debt and the customer is obligated to pay at the price agreed upon. It is not permitted subsequently to demand any extra payment either in consideration of extra time given for payment or for delay in payment that may be for a reason or no reason.”

52. Deyaar contended that the Sharia Standards were incorporated by reference into the Murabaha Agreement. Full effect had to be given to Clause 13 of the Murabaha Agreement which contained the choice of law clause. The relevant part of Clause 13 provided as follows.

“This Agreement is governed by the laws of Dubai, UAE to the extent these laws are not inconsistent with the principles of Sharia (as set out in the Sharia Standards published by the Accounting and Auditing Organisation of Islamic Financial Institutions and/or Islamic High Academy of Organisation of Islamic Conference) in which case the principles of Sharia will prevail.”

53. Deyaar relied on the doctrine of incorporation, which was expressed in Potter LJ’s judgment at [51] in Shamil Bank (followed in Halpern v Halpern (No 2) [2008] QB 195).

“The doctrine of incorporation can only sensibly operate where the parties have by the terms of their contract sufficiently identified specific “black letter” provisions of a foreign law or an international code or set of rules apt to be incorporated as terms of the relevant contract such as a particular article or articles of the French Civil Code or the Hague Rules. By that method, English law is applied as the governing law to a contract into which the foreign rules have been incorporated. In such a case, in construing and applying those rules, where there is ambiguity or doubt as to their ambit or effect, it may be appropriate for the court to have regard to evidence from experts in foreign law as to the way in which the provisions identified have been interpreted and applied in their “home” jurisdiction. However, that is still only as an end to interpretation by the English court in the course of applying English law and rules of construction to the contract with which it is concerned.”

54. Based on the doctrine of incorporation, Clause 13 expressly incorporated the Sharia Standards, and were a code or defined body of rules which were sufficiently certain and unambiguous.

55. Deyaar also submitted that the Sharia Standards were relevant to the interpretation of the Murabaha Agreement. Accordingly, full effect had to be given to Clause 13 of the Murabaha Agreement. Articles 49 and 53 of the DIFC Contract Law provided guidance as to the interpretation of the Murabaha Agreement.

49. 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…

53. All terms to be given effect

Contract terms shall be interpreted so as to give effect to all the terms rather than to deprive some of them of effect.”

56. To give full effect to Clause 13, the Court could refuse to imply a term into the agreement that interest was payable at 5.5% per annum as it would be “inconsistent with the principles of Sharia”.

57. Further or alternatively, Deyaar submitted that the Trial Judge failed to give any or any adequate weight to the fact that the Sharia Standards were principles upon which NBC acted in entering finance agreements.

Concession made by Mr Robin Knowles QC on behalf of Deyaar

58. Fourth, Deyaar submitted that the Concession made by Mr Robin Knowles QC at trial was not relevant to its argument on Sharia Standards. The Concession was made based on the Murabaha Agreement and not on the “raft of additional matters and documents pleaded in the draft Counterclaim.” This was because this matter involved the application of DIFC law. It therefore did not require the withdrawal of the Concession made.

59. Deyaar argued that, even if a withdrawal of the Concession were required, Deyaar should be permitted to withdraw the Concession as the condition of any grant of permission to amend the Counterclaim and the grant of permission to appeal.

NBC’s (Second Respondent’s) Arguments

60. NBC took the position that the Trial Judge’s decision to allow NBC to claim Murabaha profit at 5.5% per annum from Deyaar should be upheld. NBC provided the following reasons.

NBC’s claim for Murabaha profit was not a new issue of liability

61. First, NBC’s claim for Murabaha profit was not a new issue of liability as it has consistently claimed the annual rate of 5.5% at the first trial, starting with its Defence and Counterclaim dated 15 September 2011 (“NBC’s Defence and Counterclaim”). NBC also repeated its claim in its opening and closing submissions where it set out the financial consequences if Deyaar was liable to pay for continuing profit.

62. NBC submitted that Deyaar did not dispute NBC’s entitlement to the 5.5% per annum Murabaha profit until the November 2014 hearing. If Deyaar had wished to dispute whether there was an agreement for payment of Murabaha profit, Deyaar should have done so in the first part of the trial where issues of liability were determined. NBC had made the following submissions at the first trial.

(a) Deyaar’s repayment of AED 50 million to NBC on 9 April 2009 was payment of part of the principal and part of the Murabaha profit charges of 5.5% per annum.

(b) The agreement was “partly recorded” in the Murabaha Agreement dated 6 July 2008 and, “partly recorded” in a Promise to Purchase dated 7 July 2008. Clauses 1 and 2 of the Promise to Purchase recorded the profit rate of 5.5% per annum.

(c) Deyaar had, by conduct, acknowledged and agreed it was liable for the Murabaha profit at 5.5%. This was also in an email of 4 June 2009 which acknowledged the correctness of Murabaha profit calculations extending beyond 31 August 2008.

(d) Deyaar did not challenge NBC’s submissions on the financial consequences of Deyaar’s liability for Murabaha profit at trial.

63. NBC relied on the following authorities for the proposition that it was not necessary for all the details of a case to have been included in a statement of case.

(a) In Whalley v PF Developments & Anr [2013] EWCA Civ 306, Lewison LJ stated that the purpose of a statement of case is to define issues and warn parties what will be dealt with at trial. The flexibility of modern procedure is that adequate notice of matters can be given under the direction of the court otherwise than through the formal medium of a statement of case.

(b) In McPhilemy v Times Newspapers Ltd [1999] 2 All ER 775, Lord Woolf MR discussed how the need for extensive pleadings including particulars should be reduced by the requirement that witness statements are now exchanged. He highlighted that “what is important is that pleadings should make clear the general nature of the case of the pleader.”

64. NBC clarified that it had never used the words “series of separate and direct contracts” in any of its submissions. In fact, the words were adopted by Deyaar in its Grounds of Appeal and Supporting Skeleton Argument.

65. NBC also re-iterated that the Trial Judge had rejected Deyaar’s argument that the parties’ communications and course of conduct were inadmissible evidence. In particular, the Trial Judge referred to Carmichael v National Power [1999] 1 WLR 2042 (“Carmichael”) in [37] of the Second Judgment for the proposition that, where a contract is not in written form, the Court was entitled to rely on the parties’ understanding of the terms of contract to determine what the terms were. NBC referred to pages 2048 to 2051 of Carmichael where Lord Hoffman explained the rule that the construction of documents is a question of law.

“…it does not apply when the intention of the parties, objectively ascertained, has to be gathered partly from documents but also from oral exchanges and conduct. In the latter case, the terms of the contract are a question of fact. And of course the question of whether the parties intended a document or documents to be the exclusive record of the terms of their agreements is also a question of fact.”

66. Based on the reasoning above, NBC submitted that it had always been its case that it was entitled to additional profit at 5.5%. Deyaar’s only response at trial was to deny that there was an agreement necessary for the novation.

The applicability of Sharia Standards

67. Second, NBC submitted that the application of Sharia Standards was irrelevant. NBC argued that Clause 13 of the Murabaha Agreement did not incorporate the Sharia Standards by reference. Rather, Clause 13 sought to make Sharia principles the prevailing principles in the case of inconsistency.

(a) NBC submitted that, as Clause 13 referred to alternative sets of Sharia Standards, there was no certainty as to which Sharia principles would prevail.

(b) NBC also referred to Shamil Bank where the Court of Appeal held that it would be “unusual and improbable” for the English Court to determine and apply Sharia law in relation to the legality or enforceability of contractual obligations. NBC likened Shamil Bank to Deyaar’s submission to apply the Sharia Standards and contended that Deyaar’s wish to incorporate the Sharia Standards into the Murabaha Agreement as “unusual and improbable”.

68. NBC also submitted that Deyaar’s position on Sharia Standards had been inconsistent.

(a) Between the Liability Hearing and the Quantum Hearing, Deyaar made a “complete reversal of its position” on the relevance of Sharia law. At the Liability Hearing, neither party dealt with any issue of violation of Sharia law. In fact, on 4 September 2013, NBC’s lawyers wrote to Deyaar’s previous lawyers to invite Deyaar to amend its Defence and Counterclaim dated 1 July 2010 (“Deyaar’s Defence and Counterclaim”) if it wished to take a point on Sharia law. Deyaar’s then lawyers replied that “Deyaar does not presently intend to make any application to amend its case.”

(b) At the Quantum Hearing, Deyaar purported to rely on Sharia law but had not provided any expert evidence on the non-compliance with the Sharia Standards. The only expert evidence on Sharia law was found in the expert report of Mr Odeh, Deyaar’s expert. According to NBC, Mr Odeh had only set out the laws that he considered would apply to an “Islamic Investment/ Finance Company” in relation to the question “What are the elements required for a valid Murabaha Agreement?” However, Mr Odeh did not answer the question he posed himself or indicate why he did not consider the requirements to have been met on the facts of the case.

(c) At the opening day of the Liability Hearing, Leading Counsel for Deyaar made the Concession, disclaiming any reliance on Sharia law arguments in support of his case. NBC submitted that the Concession extended to both issues of liability and quantum.

(d) Deyaar had not sought to amend its pleading nor provided any expert evidence on the relevance of Sharia law in relation to quantum. Deyaar could have applied to amend its case before trial but it did not do so.

69. In response to Deyaar’s argument that the Sharia Standards were incorporated as “black letter” provisions, NBC pointed out that Deyaar failed to explain why the Sharia Standards were “a code or defined body of rules which were sufficiently certain and unambiguous for the Court to give effect to them as contractual terms.” It had not produced any expert evidence to identify the authority, intended purpose or relationship of Sharia law applicable to financial institutions. Deyaar had not provided any information on the version being relied on, and how the Sharia Standards had been interpreted by courts or other scholars. While Mr Odeh’s expert report was instructive in identifying certain legal principles and laws which were applicable to an Islamic finance investment company, it failed to explain how those legal principles related to the Sharia Standards.

70. NBC contended that the Sharia Standards were irrelevant and “were no more than a reflection of the principles on which NBC acts.” In support of its argument, NBC referred to the following authorities.

(a) Nethercott & Eisenberg’s Islamic Finance: Law and Practice (2012, OUP), which states that “in the absence of binding legal effect“, Sharia Standards serve as a “useful guide which points to best practices for Islamic Finance Institutions and serve as examples of the application of regulatory rules in an Islamic finance context.”

(b) Shamil Bank and Dubai Islamic Bank PJSC v PSI Energy Holding Company BSC and other [2013] EWHC 3186 (Comm), which held that, in construing an agreement which was governed by English law, religious law could never apply as the applicable law.

(c) NBC also referred to [54] of Shamil Bank which held that the Sharia law was.

“It seems to me that if there was an appropriate alternative construction, namely that favoured by the judge, ie that the words are intended simply to reflect the Islamic religious principles according to which the Bank holds itself out as doing business rather than a system of law intended to “trump” the application of English law as the law to be applied in ascertaining the liability of the parties under the terms of the agreement.”

71. In regard to Deyaar’s argument that the Court could refuse to imply a term into the agreement that interest was payable at 5.5% per annum, NBC argued that there was “no practical difference” between a refusal to imply a term on the ground that it was not compliant with Sharia law and a finding that an express term was not compliant with Sharia law.

72. Furthermore, NBC submitted that, by pointing out that the Sharia Standards were incorporated in the Murabaha agreements, Deyaar would have to rely on the very unsigned Murabaha agreements which it previously disclaimed liability for. This was because the signed Murabaha Agreement only covered the loan of AED 135 million which was due for payment on 31 August 2008. It did not cover the September Instalment of AED 81 million or profit on the full AED 216 million after 31 August 2008.

73. Finally, in relation to Deyaar’s alternative argument that the Trial Judge failed to give sufficient weight to Sharia Standards as principles on which NBC acted in determining whether or not a new series of contracts could be implied, NBC submitted that the issue of Sharia Standards were not before the Trial Judge and Deyaar did not seek to put them before the Trial Judge. Consequently, it was impossible for Deyaar to establish that the Trial Judge failed to give any or sufficient weight to the Sharia Standards. NBC contended that the fact that it proposed, negotiated and agreed to the structure under which it claimed continuing profit was the best evidence that it was entitled to do so. NBC emphasised that the signed Murabaha Agreement was never intended to be the whole contract between NBC and Taaleem, or therefore, between NBC and Deyaar after the novation.

Concession made by Mr Robin Knowles QC on behalf of Deyaar

74. Third, NBC submitted that Deyaar’s Concession disclaiming any reliance on Sharia law extended to all issues in the proceedings, including liability and quantum. Deyaar was required to apply for permission to withdraw the Concession and its application would fail on the principles set out in Worldwide Corp Ltd v Marconi Communications Ltd, Times Law Reports, June 22 1999; Kuwait Airways Corp v Iraqi Airways Corp [2002] EWCA Civ 515.

75. In regard to a situation where one party sought to change its position between trial and appeal, NBC also relied on the following propositions raised in [44] of BT Pensions Scheme Trustees Limited v British Telecommunications PLC [2011] EWHC 2017 (Ch).

“i)   The resiling party has the burden of establishing that the previously forgone point should be raised;

  1. ii) It will be harder to raise a point which has been expressly conceded;

iii)   If taking the point would risk causing prejudice to the other party, in the sense that it might have been deprived of the opportunity of dealing with the case differently in the court below, then it is unlikely that resiling will be allowed. The greater the risk, the less likely it is that it will be allowed;

iv) There is a low threshold risk for these purposes (see “any possibility” in Paramount);

v) The burden of establishing no risk is on the party who wishes to withdraw the concession, and the other party should have the benefit of any doubt in this area.”

76. At the Quantum Hearing, Deyaar made an application to withdraw the Concession. The application was dismissed by the Trial Judge.

77. At the Appeal Hearing, NBC noted that there had been no appeal against the Trial Judge’s refusal to withdraw the Concession. Moreover, Deyaar had not applied to withdraw the Concession.

Taaleem’s (First Respondent’s) Arguments

78. Taaleem took no position on Deyaar’s appeal. However, it opined that Deyaar had misstated the Trial Judge’s conclusions. The Trial Judge’s decision was based on an analysis of the obligations which Taaleem had owed to NBC, but which had subsequently been novated to Deyaar.

79. According to Taaleem, the Trial Judge appeared to have found that the original Murabaha Agreement included a lump sum in respect of profit which crystallised the ongoing obligation to pay profit at 5.5% per annum at particular dates. Accordingly, the sums advanced under the original Murabaha Agreement therefore attracted ongoing profit at 5.5%, and all other finance was provided on the same terms.

THE FOUR APPLICATIONS BY NBC

80. NBC made the following four applications in the event that Deyaar succeeded in its appeal.

(a) First Application: Application for permission to amend its counterclaim for Murabaha profit. It annexed its Amended Particulars of Counterclaim to its Notice;

(b) Second Application: Application for permission to appeal against the amount of Murabaha profit ordered to be paid at paragraph 3(b) of the Order;

(c) Third Application: Application for permission to apply for pre-judgment interest;

(d) Fourth Application: Application for permission to appeal against paragraphs 2(c), 3(b) and 5 of the Order to counterclaim the Murabaha profit from Taaleem.

81. Deyaar took the position that all four applications by NBC should be disallowed. This was because Deyaar and NBC entered into a settlement agreement in relation to all of the claims in the litigation on 14 October 2014 (“the Settlement Agreement”). Deyaar referred to Clause 1.4 of the Settlement Agreement where NBC undertook not to take any further steps in respect of those matters save “any step which NBC may take relating to the Murabaha Profit related to the Second Appeal final conclusion pursuant to Clause 2 of this Agreement”.

82. Both parties entered into the Settlement Agreement before the Court of Appeal granted permission to appeal. Clause 2 of the Settlement Agreement dealt with both eventualities. Clause 2.3 provides as follows:

“2.3   In the event that the DIFC Court of Appeal allows Deyaar permission to appeal against the finding that it is liable to pay the Murabaha Profit to NBC, the parties agree that they will comply with the eventual decision of the Court of Appeal in relation to Deyaar’s liability or otherwise to pay all or part of the Murabaha Profit to NBC as follows…

            …

2.3.2 If the DIFC Court of Appeal determines that Deyaar is not liable to pay the Murabaha Profit, then NBC will not be entitled to any payment from Deyaar in respect of the Murabaha Profit and the related Judgment Interest on the Murabaha Profit, and the DIFC Proceedings and DIFC Enforcement Proceeding shall become null and void and no further claims can be advance.”

83. Accordingly, Deyaar submitted that, if the Court of Appeal determined the appeal in Deyaar’s favour, the DIFC proceedings become “null and void”. NBC was also in breach of Clauses 1.4 and 2.3 by seeking to advance their claims in the four applications.

84. In response, NBC denied that it was in breach of Clauses 1.4 and 2.3 of the Settlement Agreement. NBC took the position that its four applications were steps “relating to the Murabaha profit related to the Second Conclusion” under Clause 1.4. In any event, Deyaar had not complied with the condition precedent set out in Clause 1.4. Additionally, NBC had not breached Clause 2.3 as the Court of Appeal had not determined the outcome of Deyaar’s appeal.

85. Furthermore, NBC argued that Clause 1.5 of the Settlement Agreement provided that the parties were not limited in any way as to how they argued the remainder of the Appeal in respect of and in relation to Murabaha profit.

86. At the Appeal Hearing, it was made plain that the applications by NBC were contingent on the finding that the Court of Appeal allows Deyaar’s appeal. Accordingly, it is unnecessary to recite the nature of these applications.

DISCUSSION

The issues before the Court

87. In this judgment, I will be addressing the following issues.

(a) Issue 1: Whether NBC was allowed to plead the issue of separate obligations for Deyaar to pay recurring profit charges of 5.5%. If so, whether there were separate obligations by Deyaar to pay the recurring profit charges.

(b) Issue 2: Whether Sharia Standards were incorporated into the Murabaha Agreement.

(c) Issue 3: Whether the Concession made by Mr Robin Knowles QC was relevant.

Issue 1: Whether NBC was allowed to plead the issue of separate obligations for Deyaar to pay recurring profit charges of 5.5%.

88. The starting point of this discussion is whether NBC’s claim for recurring profit charges was a new issue of liability which was never pleaded or advanced during the Liability and Quantum Hearings.

89. I disagree with Deyaar’s submission that the issue of separate obligations for Deyaar to pay recurring profit charges of 5.5% was a new issue of liability.

90. Lord Hope’s judgment in [49] and [50] of Three Rivers District Counsel v Bank of England (No 3) [2003] 2 AC 1 is useful in guiding the Court as to the balance which needs to be struck between the need for fair notice to be given on the one hand and excessive demands for detail. In [49] and [50], he states as follows.

“49 In my judgment a balance must be struck between the need for fair notice to be given on the one hand and excessive demands for detail on the other. In British Airways Pension Trustees Ltd v Sir Robert McAlpine & Sons Ltd (1994) 72 BLR 26, 33-34 Saville LJ said:

“The basic purpose of pleadings is to enable the opposing party to know what case is being made in sufficient detail to enable that party properly to prepare to answer it. To my mind it seems that in recent years there has been a tendency to forget this basic purpose and to seek particularisation even when it is not really required. This is not only costly in itself, but is calculated to lead to delay and to interlocutory battles in which the parties and the court pore over endless pages of pleadings to see whether or not some particular point has or has not been raised or answered, when in truth each party knows perfectly well what case is made by the other and is able properly to prepare to deal with it.”

50 These observations were made under the old rules. But the same general approach to pleadings under the CPR was indicated by Lord Woolf MR in McPhilemy v Times Newspapers Ltd [1999] 3 All ER 775, 792J-793A:

The need for extensive pleadings including particulars should be reduced by the requirement that witness statements are now exchanged. In the majority of proceedings identification of the documents upon which a party relies, together with copies of that party’s witness statement, will make the detail of the nature of the case the other side has to meet obvious. This reduces the need for particulars in order to avoid being taken by surprise. This does not mean that pleadings are now superfluous. Pleadings are still required to mark out the parameters of the case that is being advanced by each party. In particular they are still critical to identify the issues and the extent of the dispute between the parties. What is important is that the pleadings should make clear the general nature of the case of the pleader. This is true both under the old rules and the new rules.”” (emphasis added)

91. Deyaar referred to the case of Al-Medenni v Mars Ltd [2005] EWCA Civ 1041 (“Al-Medenni”) where the English Court of Appeal found that the trial judge was wrong to find in favour of a Claimant on facts which were not pleaded. Al-Medenni involved a claim of negligence in respect of a workplace accident in which the Claimant was struck on the shoulder by a reel of wrapping paper. The Claimant argued that the reel had fallen as it had been wrongly placed on the machine by the Defendant. The Defendant stated in his witness statement that he did not handle reels of wrapping paper and did not load any reel on the machine. At the trial, the trial judge raised the possibility that it might have been another employee responsible for placing the offending reel on the machine. This was referred to as the “third man theory” in the judgment. The Court of Appeal held that the judge was not entitled to find for the Claimant on the basis of the third man theory. Dyson LJ explained the findings of the Court of Appeal, at [22] to [24], as follows:

“[22] The starting point must always be the pleadings. In Loveridge and Loveridge v Healey [2004] EWCA Civ 173, Lord Philips MR said this at para 23:

“In McPhilemy v Times Newspapers Ltd [1999] 3 Al ER 775 Lord Woolf MR observed:

‘Pleadings are still required to mark out the parameters of the case that is being advanced by each party. In particular they are still critical to identify the issues and the extent of the dispute between the parties.’

It is on the basis of the pleadings that the parties decide what evidence they will need to place before the court and what preparations are necessary before the trial. Where one party advances a case that is inconsistent with his pleadings, it often happens that the other party takes no point on this. Where the departure from the pleadings causes no prejudice, or where for some other reason it is obvious that the court, if asked, will give permission to amend the pleading, the other party may be sensible to take no pleading point. Where, however, departure from a pleading will cause prejudice, it is in the interests of justice that the other party should be entitled to insist that this is no permitted unless the pleading is appropriately amended. That then introduces, in its proper context, the issue of whether or not the party in question should be permitted to advance a case which has not hitherto been pleaded.”

[23] In the present case the claimant’s pleaded case was that Mr Braich and no one else placed the reel on the machine. If the claimant wished to advance the third man theory as an alternative to her primary case, then she had to seek permission to amend her pleadings. It may be that she had sound tactical reasons for not taking this course. To advance such an alternative case was inconsistent with the claimant’s evidence, and might in any event have been interpreted as a sign of weakness. There was no hint of the third man theory in the witness statements, the way in which the case was opened or in the evidence of the claimant’s witnesses. I accept that there was a rather faint-hearted espousal of the theory by Miss Harmer in her closing submissions, but in my judgment it was by then far too late for the claimant to take the point.

[24] As the judge himself recognised, the third man theory was not explored with any of the witnesses. If the defendants had been alerted to the fact that this theory was in play, then they would at least have wished to consider exploring it with some of the witnesses who were called to give evidence. For example, Mr Forester, the Key Operator, might have been asked which employees were on duty at the time of the accident, and whether any of them was employed to move reels of wrapping paper about and place them on the machines. The defendants were also denied the opportunity of considering whether to seek evidence from other witnesses directed to this point.” (emphasis added)

92. In my opinion, the facts of Al-Medenni are distinguishable from the present matter. Unlike in Al-Medenni, NBC had given sufficient notice of the recurring 5.5% profit in its pleadings throughout the proceedings. The following are some instances which clearly show that NBC had claimed continuing profit at 5.5%.

(a) In [108] of NBC’s Defence and Counterclaim, NBC stated as follows.

“Further, the sum of AED 19,530,586 is due and owing to NBC in respect of profit under the Murabaha Agreement until 25 May 2010, and falls to be paid to NBC by Taaleem and/or by Deyaar.”

(b) The sum of AED 19,530,596 stated in [108] was reflected in [103] as the “Profit on Murabaha as at 25-May-2010.

(c) In [110] of NBC’s Defence and Counterclaim, NBC stated as follows.

“Further, and in respect of the period from 26 May 2010 and until the date of assessment, NBC claims further Murabaha profit, and Murabaha late payment charges, alternatively interest within the discretion of the DIFC Court, to be assessed.”

(d) In [222] of NBC’s Opening Submissions dated 13 October 2013, NBC stated as follows:

“On 9 April 2009, Deyaar repaid NBC AED 50,000 as partial repayment of Taaleem’s liability to NBC under the Murabaha agreement. That amount was made up of AED 42.763m in principal and AED 7.237m in Murabaha profit to the end of 2009.” (emphasis added)

(e) In [352] of NBC’s Opening Submissions, NBC stated as follows:

“The profit loss calculation attached showed that Deyaar acknowledged an outstanding principal amount, as at 12 April 2009 (just before Deyaar paid AED 50m), of AED 218,022,397.12 (made up of the payments made by NBC before 31 August 2008 of AED 135,331,061.50 and the September instalment of AED 81,198,647), together with Murabaha profit of AED 7,236,648.44. On 12 April 2009 Deyaar repaid AED 50m, which satisfied the outstanding Murabaha profit and reduced the principal owing by AED 42,763,351.56 to AED 175,259,045.56. The calculation then includes Murabaha profit until the end of 2009. The Murabaha profit until 31 August 2008 of AED 1,492,698.62 had been paid by Taaleem on 26 May.”

(f) In [338] to [339] of NBC’s Closing Submissions, NBC stated as follows:

“338. From 1 September 2008 to 12 April 2009, the outstanding profit of Murabaha profit was AED 7,186,264.75 and is calculated as follows:

DATE

AMOUNT NO OF DAYS PROFIT RATE

PROFIT

  1-Sep-08 12-Apr-09    
1-Sep-08 135,331,061.50 224 5.50% 4,567,886.79
11-Sep-08 81,198,637.00 214 5.50% 2,618,377.97
216,529,698.50   TOTAL 7,186,264.75

339. From 12 April to 7 November 2013 the outstanding amount of Murabaha profit is AED 43,740,727.68 and is calculated as follows:”

DATE

AMOUNT NO OF DAYS PROFIT RATE

PROFIT

  12-Apr-09 7-Nov-13
1-Sep-08 173,715,963.25 1671 5.50% 43,740,727.68
173,715,963.25 TOTAL 43,740,727.68

93. On the other hand, Deyaar had, in its pleadings, repeatedly denied that there was an agreement for the transfer of Taaleem’s right and obligations. In Deyaar’s Defence and Counterclaim, Deyaar stated the following unnumbered paragraph before [25]:

Deyaar’s Primary Case: The Transaction did not reach completion and the rights and liabilities of the parties are governed by a Memorandum of Understanding dated 9 December 2008.”

94. It is clear that, even though Deyaar had repeatedly denied that there was any novation, the Trial Judge did not come up with the suggestion of continuing Murabaha profit of 5.5% himself. It had been repeatedly mentioned in NBC’s pleadings. Accordingly, I find that sufficient notice of the issue had been pleaded and argued before the Trial Judge.

95. I now turn to consider whether there were separate obligations by Deyaar to pay the recurring profit charges.

96. There is no question that 5.5% of profit charges is a term of the Murabaha Agreement. The issue is whether the 5.5% of profit charges continues after 31 August 2008.

97.I agree with the legal principles stated by the Trial Judge in [37] of the Second Judgment, to which none of the Parties objected. In summary, the legal principles stated by the Trial Judge established that subsequent conduct by the Parties may be admissible in determining the terms of a contract.

98. In Carmichael v National Power [1999] 1 WLR 2042 (“Carmichael”), applicants answered an advertisement to act as guides taking parties on tours of power stations. The applicants received letters and returned letters accepting employment “on a casual as required basis”. The issue was whether, based on the letters exchanged between the parties, there was a contract of employment. The House of Lords construed the letters exchanged between the parties and found that there was no obligation on the company to provide casual work nor on the applicants to undertake it.

99. Lord Hoffman stated (at page 2049) that in cases where the intention of the parties has to be gathered partly from documents, but also from oral exchanges and conduct, the terms of a contract are a question of fact. At page 2050, His Lordship explained that the conversations between the parties would have played a part in forming the views of the parties on their respective obligations.

“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. As the Court of Appeal pointed out, the tribunal did not make any specific findings about what was said at the interviews or on any other occasion. But the terms of the engagement must have been discussed and these conversations must have played a part in forming the views of the parties about what their respective obligations were.

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 Ltd. [1970] 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.” (emphasis added)

100. In RTS Flexible Systems Ltd v Molkerei Alois Muller Gmbh & Co [2010] UKSC 14; [2010] 1 WLR 753, the English Supreme Court held that the unequivocal conduct of the parties led to the conclusion that a binding agreement was made. Lord Clarke JSC explained (at page 771) that whether there was a binding contract between the parties depends on what was communicated between the parties by words or conduct.

“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 a 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.”

101. According to Articles 49 to 51 of the Contract Law (DIFC Law No. 6 of 2004), regard must be given to the conduct of the parties subsequent to the conclusion of the contract to understand the common intention of the parties. Articles 49 to 51 provide as follows.

“49. 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.

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.

51. Relevant circumstances

In applying Articles 49 and 50, regard shall be had to all the circumstances, including:

(a) preliminary negotiations between the parties;

(b) practices which the parties have established between themselves;

(c) the conduct of the parties subsequent to the conclusion of the contract;

(d) the nature and purpose of the contract;

(e) the meaning commonly given to terms and expressions in the trade concerned; and

(f)   usages.”

102. The Parties’ conduct, as described by the Trial Judge in [40] of the Second Judgment, demonstrated that there was a common intention of 5.5% of continuing Murabaha profit. It is worthwhile to repeat [40] of that Judgment below.

“40. Notable events in the subsequent chronology were as follows:

(a) On 29 September 2008, Taaleem notified NBC of the detailed payment schedule.

The e-mail from Mr Kapoor stated:

“Once we have the Wakalah charges included in this for about 50 days then we should add AED 70 million to this figure and that should be the acquisition cost of Deyaar…

Note that post 31 August 2008, one more instalment of AED 8,198,636.75 has been paid by NBC on behalf of Taaleem and Wakalah charges continue to date.”

(b) The same day an agreement for “a cost of financing rate of 5.5%” was recorded in a further e-mail from Mr Kapoor. This was to apply both pre and post 31 August.

(c) On 6 October 2008, NBC (Mr Sabhi) prepared a calculation of profit at 5.5% both up to 31 August and from then on. That profit was to be paid under the existing Murabaha to end of August and under a new Murabaha with Deyaar thereafter.

This arrangement and Deyaar’s recognition of its liability to pay “a financing cost” was recognised in an e-mail from Deyaar (Sakarani) to Taaleem (Kapoor) dated 10 October 2008.

(d) The attached table included “profit” on the AED 81 million instalment from 11 September to 31 October 2008 at 5.5%. It also recorded the financing cost as at 31 August 2008 at AED 1,492,699 (which itself was based on 5.5% p.a.). Post that date Deyaar was to be responsible for financing costs having replaced Taaleem: see Mr Sakarani’s e-mail of 20 October.

(e) On 3 November 2008, there was a meeting between Deyaar and NBC. NBC’s record of that meeting stated:

“The following issues have been discussed:

The overall relation with Deyaar in regard to Sky courts project and the handover process, agreed to speed up the process and complete hand over by early next week.

Sky garden deal, agreed that a wakalah covering the period from 31 August 08 till 31 November 08 against NBC finance of Taaleem share in Sky Garden which has been purchased by Deyaar, NBC will also finance the next payment amounting to AED 81 Million due in 12 Nov which will be covered through 1 month Wakalah renewable in monthly basis, Deyaar is currently evaluating their cash flow to respond in regard to their availability to finance the project and when they can repay NBC.”

(f)   On 9 November 2008 NBC (Sabhi) met with Deyaar (Krishnamurthy). The latter agreed to enter into three Murabaha agreements to cover (a) Taaleem’s liabilities up to 31 August (b) the September instalment and (c) the November instalment. It followed that Deyaar were to assume liability for repayment of principal but also profit at 5.5% until repayment.

(g) In the result on 23 February 2009, NBC (Sabhi) sent to Deyaar (Krishnamurthy) the calculation of profit amounts both due and accruing to date. The profit rate was 5.5%. Similarly on 29 March 2009 NBC (Sabhi) sent to Taaleem (Kapoor) details of the then profit calculation at a rate of 5.5% p.a.

(h) On 9 April 2009 Deyaar released AED 50 million to NBC which was treated by Deyaar as “partial repayment of the funding provided by NBC to Taaleem.” Subsequent exchanges made it plain that this represented payment of AED 42.763 million in principal and AED 7.237 million in profit to 31 December 2009.

(i)   By letter dated 30 April 2009 (although possibly drawn up later in June), Taaleem sent an audit confirmation letter to Deyaar countersigned by Mr Giebel which stated inter alia:

“(1) In connection with the audit, Deyaar Development PJSC (Deyaar) would confirm to Taaleem PJSC (Taaleem) that the acquisition of Taaleem PJSC’s (Taaleem) beneficial interest in certain property at Sky Gardens Towers, located at Dubai International Financial Centre, Dubai, UAE (Sky Gardens Interest) is deemed effective on and from August 30, 2008.

(2) Taaleem and Deyaar 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). The agreed form of the SPA and the Disclosure Letter, initialled by Deyaar and Taaleem is attached as an appendix to this letter.

(3) Deyaar understands that the sale of 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 that agreement, and that the initialled agreed form of the SPA is 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;

(4) As included in the SPA, Deyaar agrees 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;

(5) Deyaar also understands 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 they have a arisen on or from the Effective Date;

(6) Deyaar also confirms that from the Effective Date any 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;

(7) Deyaar also confirms that the other partners (being DIFC Investments LLC and Amlak Finance PJSC as well as Amlak Sky Gardens LLC) are aware of this acquisition. The attached Deed of Accession is being circulated to all partners for their review. Once negotiations are completed between all partners and the form of the Deed is agreed to, it will be signed by the other partners in due course.”

(j) On 4 June 2009, Deyaar (Krishnamurthy) sent an e-mail to NBC (Al Ali) identifying the “profit accruals” on the Murabaha financing by NBC. The calculations ran through to December 2009 and form the basis of NBC’s claim.”

103. I should note also that [32]-[34] of the First Judgment state:

“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…”

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.

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

TOTAL                                     618,879,400

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…””

104. Most importantly, on 9 April 2009, Deyaar made a payment of AED 50 million which constituted payment of AED 42.763 million in principal and AED 7.237 million in profit to 31 December 2009. In making this payment, Deyaar paid for the Murabaha profit beyond what was in the Murabaha Agreement when it paid AED 50 million.

105. At the Appeal Hearing on 22 May 2016, Counsel for Deyaar, Mr Leech QC, confirmed that Deyaar assumed all of Taaleem’s obligations with regard to financing. However, he argued that there was no agreement between Taaleem and NBC regarding payment after August 2008. The transcript of the Appeal Hearing stated as follows.

“CHAIRMAN: Can I ask you, is it your case or do you accept the argument that, to use Justice Field’s terminology, your clients took the package and the package was whatever had been agreed between Taaleem and NBC with regard to financing. So the package includes the post August 2008 payments due, if indeed they were agreed between Taaleem and NBC.

MR LEECH: If they had been agreed between Taaleem and NBC then we would accept that. But that was not the case that was being advanced, and nor could it be advanced.”

106. Not only were the terms of the financing agreement agreed between Taaleem and NBC, but they were also agreed between NBC and Deyaar, as the facts narrated in the two judgments of the Trial Judge clearly indicate.

107. In my view, it is clear that, through novation, Deyaar assumed all of Taaleem’s liabilities and obligations to NBC. From the Parties’ communications and conduct, there was a common intention for the recurring 5.5% of Murabaha profit. Accordingly, I find that the Trial Judge did not err in finding that Deyaar was liable to pay NBC the recurring profit of 5.5%.

Issue 2: Whether Sharia Standards were incorporated into the Murabaha Agreement.

108. The main clause in contention is Clause 13 of the Murabaha Agreement which states that the Murabaha Agreement is “governed by the laws of Dubai, UAE to the extent these laws are not inconsistent with the principles of Sharia”. Clause 13 also expressly states in parentheses, “(as set out in the Sharia Standards published by the Accounting and Auditing Organisation of Islamic Financial Institutions and/or Islamic High Academy of Organisation of Islamic Conference).” The clause further states that the principles of Sharia will prevail.

109. At a prior hearing, NBC had challenged that UAE law was the governing law of the Murabaha Agreement. In National Bonds Corporation v Taaleem PJSC and Deyaar Development PJSC [CA-001-2011] (11 May 2011), the DIFC Court of Appeal held that the governing law of the Murabaha Agreement was DIFC law.

110. The main issue is whether, on a true construction of the Murabaha Agreement, the Sharia Standards have been incorporated therein.

111. The Shamil Bank case is useful in guiding the Court as to the applicability of Sharia law in an agreement. In Shamil Bank, there was a governing law clause in each of the financing agreements between a bank and two Bangladeshi pharmaceutical companies. The governing law clause stated “Subject to the principles of the Glorious Sharia’a, this agreement shall be governed by and construed in accordance with the laws of England.” The two pharmaceutical companies which were the defendants, argued that the agreements were only enforceable insofar as they were valid both in accordance with the principles of Sharia and in accordance with English law. They contended that the agreements did not comply with Sharia law because they were in truth disguised loans at interest. The English Court of Appeal held that the general reference in the clauses to principles of Sharia afforded no reference to, or identification of, the aspects of Sharia law which were intended to be incorporated into the contract. Accordingly, Sharia law was not incorporated into the financing agreements and references to Sharia law only reflected the Islamic religious principles upon which the bank held itself out as doing business.

112. Potter LJ’s judgment (at [50]) in Shamil Bank discussed the doctrine of incorporation which was explained in Dicey & Morris, 13th ed, Vol 2.

“In that respect, he seeks to rely upon the passage in Dicey & Morris, 13th ed, vol 2, p 1226, para 32–086, which expounds the distinction between reference to a foreign law as a choice of law to govern the contract (or part of a contract) on the one hand and incorporation of some provisions of a foreign law as a term or terms of the contract in question. While observing that it is sometimes difficult to draw the distinction in practice, it is there stated that:

“32–086 … It is open to the parties to an English contract to agree, e g that the liability of an agent to his principal shall be determined in accordance with the relevant articles of the French Civil Code. In such a case the foreign law becomes a source of law upon which the governing law may draw. The effect is not to make French law the governing law of the contract but rather to incorporate the French articles as contractual terms into an English contract. This is a convenient ‘shorthand’ alternative to setting out the French articles verbatim. The court will then have to construe the English contract, ‘Treading into it as if they were written into it the words’ of the French statute.

“32–087. It often happens that statutes governing the liability of a sea carrier, such as the former Harter Act in the United States, or statutes implementing the Hague Rules… are thus ‘incorporated’ in a contract governed by a law other than that of which the statute forms part. The statute then operates not as a statute but as a set of contractual terms agreed upon between the parties. The parties may make an express choice of one law (e g English law) and then incorporate the terms of a foreign statute. In such a case the incorporation of the foreign statute would only have effect as a matter of contract.”

113. Potter LJ found that the general reference to principles of Sharia affords no reference to, or identification of, the aspects of Sharia law which were intended to be incorporated. The reference to “the principles of… Sharia” stood unqualified as a reference to the body of Sharia law generally. Accordingly, the words simply intended to reflect the Islamic religious principles of Sharia and were not intended to “trump” the application of English law. Potter LJ explained his reasoning at [52] to [54].

“[52] The general reference to principles of Sharia in this case affords no reference to, or identification of, those aspects of Sharia law which are intended to be incorporated into the contract, let alone the terms in which they are framed. It is plainly insufficient for the defendants to contend that the basic rules of the Sharia applicable in this case are not controversial. Such “basic rules” are neither referred to nor identified. Thus the reference to the “principles of… Sharia” stands unqualified as a reference to the body of Sharia law generally. As such, they are inevitably repugnant to the choice of English law as the law of the contract and render the clause self-contradictory and therefore meaningless.

[53] In these circumstances, having rightly conceded that English law is the governing law of the contract, Mr Hacker is left with little room for manoeuvre, save to assert that the court should accept his submission on the basis that otherwise the proviso to the governing law clause would be mere surplusage.

[54] I do not agree. It seems to me that there is an appropriate alternative construction, namely that favoured by the judge, i e that the words are intended simply to reflect the Islamic religious principles according to which the bank holds itself out as doing business rather than a system of law intended to “trump” the application of English law as the law to be applied in ascertaining the liability of the parties under the terms of the agreement. English law is a law commonly adopted internationally as the governing law for banking and commercial contracts, having a well known and well developed jurisprudence in that respect which is not open to doubt or disputation on the basis of religious or philosophical principle. I share the judge’s view that, having chosen English law as the governing law, it would be both unusual and improbable for the parties to intend that the English  court should proceed to determine and apply the Sharia in relation to the legality or enforceability of the obligations clearly set out in the contract.” (emphasis added)

114. In Halpern v Halpern (Nos 1 & 2) [2007] EWCA Civ 291 (“Halpern”), the English Court of Appeal followed Shamil Bank. Waller LJ commented that the necessity to identify “black letter” provisions was another way of saying that there must be certainty about what is being incorporated. In His Lordship’s opinion at [33], the “principles of Glorious Sharia’a” seemed to be a “very uncertain phrase” because there can be different schools of thought as to what Sharia law lays down.

115. The present matter can be distinguished from Shamil Bank. Unlike in Shamil Bank where the clause in the financing agreements states “Subject to the principles of the Glorious Sharia’a”, the clause in the Murabaha Agreement in the present matter expressly identified the particular Sharia Standards which were to be incorporated in the Murabaha Agreement. Clause 13 reads as follows.

“This Agreement is governed by the laws of Dubai, UAE to the extent these laws are not inconsistent with the principles of Sharia (as set out in the Sharia Standards published by the Accounting and Auditing Organisation of Islamic Financial Institutions and/or Islamic High Academy of Organisation of Islamic Conference) in which case the principles of Sharia will prevail.” (emphasis added)

116. Accordingly, it is clear that the Sharia Standards published by the Accounting and Auditing Organisation of Islamic Financial Institutions belong to one such “school of thought” as mentioned by Waller LH in Halpern. There is sufficient reference and identification of specific aspects of Sharia law which were intended to be incorporated into the contract. In my view, it is clear that the Sharia Standards published by the Accounting and Auditing Organisation of Islamic Financial Institutions have beenincorporated in the Murabaha Agreement.

117. However, any discussion about the Sharia Standards would be academic in light of the Concession which is discussed under Issue 3 below.

Issue 3: Whether the Concession made by Mr Robin Knowles QC was relevant.

118. At the hearing on 28 October 2013, former leading Counsel for Deyaar, Mr Robin Knowles QC (“Mr Knowles QC”) made a concession regarding the “Murabaha transaction”. The “Murabaha transaction” was a term used by Mr Knowles QC to refer to the Murabaha Agreement. The relevant paragraph at page 138 of the transcript for the hearing dated 28 October 2013 stated as follows:

“The position of Deyaar in this regard is it makes no difference. So that although Deyaar have said UAE law, just as Mr Flynn’s clients have said DIFC law, I am content either way. There is no difference, in my submission, on that issue.

For practical purposes, we can approach it by reference to DIFC law or even English law for that matter.

Secondly, there is the Murabaha transaction and I think the question was raised, perhaps it was Mr Tse, as to where a number of observations about the very real defects that can be seen on a critical analysis of the Murabaha go. (sic)

In my submission, I will not be saying that any defect in relation to the Murabaha is decisive of an issue in the present case. I note that very responsibly, in my submission, the expert for Deyaar in particular has drawn attention to a number of defects, and that’s perfectly proper of him to do so. Indeed, a number of other points could be made as well, but they do not matter for the purpose of this trial. I hope it’s helpful for me to say that as well…”  (emphasis added)

119. In my view, the Concession made by Mr Robin Knowles QC dealt with all issues relating to the Murabaha Agreement, including any arguments based on Sharia law in relation to issues on quantum. This is clear from Mr Knowles QC’s words: “Indeed, a number of other points could be made as well, but they do not matter for the purpose of this trial.

120. In fact, at the Quantum Hearing, Deyaar’s Leading Counsel, Mr Leech QC also acknowledged the width of the Concession. In the transcript of the hearing dated 24 November 2014, Mr Leech QC said as follows:

“I accept what my learned friends say about the width of the concession. I am not going to ask you to construe the concession narrowly but I do say that I am entitled to ask you to allow me to withdraw the concession and to argue what is a simple point of law on that. I think that is all I have to say in…”

121. If Mr Knowles QC had intended to limit the Concession to specific issues, he should have raised it at the October 2013 hearing.

122. Additionally, the issue of Sharia law was first mentioned on 22 August 2013, when expert reports on UAE law were exchanged. It is also clear that NBC’s lawyers wrote to Deyaar’s previous lawyers, Afridi & Angell, to invite them explain the relevance of Sharia law to the case in a letter dated 4 September 2013. NBC also wrote a letter on 10 September 2013, inviting Deyaar to apply to amend its Defence and Counterclaim if it wished to take a point of Sharia law. However, on 25 September 2013, Deyaar’s previous lawyers replied NBC’s lawyers that it “does not presently intend to make any application to amend its case”. This demonstrated that Deyaar had numerous opportunities to raise the issue of Sharia law but clearly had not taken any steps towards it. (Described in more detail in [62] of this Judgment.)

123. I note that Mr Leech QC applied to withdraw the Concession at that same hearing but the Trial Judge had refused the application. At [18] of the Second Judgment, the Trial Judge stated as follows:

“…(For completeness sake I should add that Deyaar sought to advance an argument during the hearing in the context of specific performance that the Murabaha agreement was invalid as a matter of Sharia law. This has been expressly disclaimed at the trial and I refused an application to withdraw the concession)…”

124. The withdrawal of Concessions is a matter of procedural law in the DIFC Courts. In Investment Group Private Limited v Standard Chartered Bank [CA-004-2015] (19 November 2015), this Court relied on the propositions relating to the withdrawal of a concession as formulated by Mann J in BT Pension Scheme Trustees Limited v British Telecommunications Plc, Secretary of State for Business, Innovation and Skills [2011] EWHC 2071 (Ch). The propositions at [44] of Mann J’s judgment were as follows:

“(i) The resiling party has the burden of establishing that the previously forgone point should be raised;

(ii) It will be harder to raise a point which has been expressly conceded;

(iii) If taking the point would risk causing prejudice to the other party, in the sense that it might have been deprived of the opportunity of dealing with the case differently in the court below, then it is unlikely that resiling will be allowed. The greater the risk, the less likely it is that it will be allowed;

(iv) There is a low threshold risk for these purposes (see “any possibility” in Paramount);

(v) The burden of establishing no risk is on the party who wishes to withdraw the concession, and the other party should have the benefit of any doubt in this area.”

125. The decision of the Trial Judge to refuse the application was a matter of his own discretion upon his assessment of the matter based on the relevant principles.

126. In the present matter, none of the parties had the opportunity to present their arguments on Sharia law. As highlighted in NBC’s Skeleton Argument, none of the experts were cross-examined and the parties’ submissions did not address it. Even if Deyaar had applied to withdraw the Concession at this Appeal Hearing, it is clear that the parties would suffer great prejudice if its application were to be allowed. Deyaar should not be allowed to raise the issue of violation of Sharia law now.

127. Moreover, up to the date of this Appeal Hearing, there were no further applications made by Deyaar to withdraw the Concession. Deyaar should therefore be held to its Concession and any issues pertaining to Sharia law will not be examined.

128. Accordingly, the Concession made by Mr Knowles QC still stands.

Conclusion and Costs

129. For the reasons set out above, I would dismiss the Appellant’s appeal.

130. Since NBC’s Four Applications are contingent on the success of the Appellant’s appeal, these Four Applications will not be considered.

131. As the Appellant has been unsuccessful in this appeal, it shall pay the First and Second Respondents’ costs of this appeal on the standard basis to be assessed after further submissions on costs.

JUSTICE SIR RICHARD FIELD:

132. I agree.

H.E. JUSTICE OMAR AL MUHAIRI:

133. I agree with the judgment and have nothing further to add.

Issued by:

                                                                                                Mark Beer

                                                                                                Registrar

                                                                                                Date of Issue: 18 August 2016

      At: 4pm