Vegie Bar LLC v Emirates National Bank of Dubai Properties LLC  CA 013
Claim No: CA-013-2016
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 JEREMY COOKE AND H.E. JUSTICE ALI AL MADHANI
VEGIE BAR LLC
EMIRATES NATIONAL BANK OF DUBAI PROPERTIES LLC
Hearing: 21 November 2017
Counsel: Roger Bowden of Hamdan Al Shamsi Lawyers and Legal Consultants for the Appellant
Nicholas Carnell assisted by James Baldwin of Taylor Wessing Middle East LLP for the Respondent
Judgment: 18 December 2017
UPON hearing Counsel for the Appellant and Counsel for the Respondent on 21 November 2017
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. The Appellant shall pay the Respondent’s costs of this appeal and the application for security for costs on the standard basis to be assessed if not agreed.
3. The execution of the order for costs is not to be issued until the conclusion of the action or until further order of the Court.
4. All other costs of the Appellant and the Respondent relating to the applications for disclosure of documents and third party disclosure and the appeals relating thereto, are to be costs in the case.
Maha Al Mehairi
Date of Issue: 18 December 2017
JUSTICE SIR JEREMY COOKE:
1.This is an appeal against an order made against the Claimant/ Appellant (“VB”) to furnish security for costs in the sum of US$86,864.50, which represented about half of the security claimed by the Defendant/ Respondent (“ENBDP”). The order was made on 3 October 2016 by H. E Justice Shamlan Al Sawalehi at the same time as he refused to make an order for third party production of documents at the behest of VB. Both limbs of that decision were the subject of appeal and following a hearing on 6 March 2017 this Court required the production of specified limited categories of documents by Union Properties PJSC (“Union”), the DIFC Registrar of Companies (“the ROC”) and the DIFC Registrar of Real Property (“the RORP”). By consent, the order also required the production by ENBDP of a verified list of documents showing communications between it and the two Registrars in relation to the renewal of VB’s Trade Licence and the registration or attempted registration of the lease which VB had entered into with Union on 5 April 2011. The appeal against the order for security for costs was adjourned pending the provision of those documents, on the basis that their production might assist VB in determining whether or not to proceed with the action. Pursuant to that order documents were produced to VB in several batches.
2. Despite such production of documents in response to the order, VB sought more documents from the RORP and ENBDP and applied to the Court. VB was granted an order on 20 September 2017 without a hearing and with no reasons given by the Judge, against which ENBDP sought permission from this Court to appeal, or alternatively a review of the order (depending on whether or not the order was an order of the Court at first instance or the Court of Appeal) and a stay pending determination of the position. A stay was granted in respect of this order on 26 October 2017 pending the decision of this Court on all the outstanding issues, although by this time, the RORP had disclosed further documents.
3. In the light of our decision to dismiss the appeal against the order for security for costs, and with a view to practicality and progressing this matter as speedily and efficiently as possible, we are making an order against ENBD for early disclosure of documents on the standard basis which supersedes the order of 20 September 2017, without determining the applications which arose in relation to that order. Such standard disclosure will be wider than the ambit of disclosure ordered on 20 September.
4. The claim is for specific performance of a lease of two units LP5 and LP6 allegedly concluded by VB with Union but binding on ENBDP by reason of their purchase of the building in which the units were to be built (Limestone House) subject to and made with notice of the leasehold interest of VB, as set out in a Lease Agreement of 5 April 2012. ENBDP has denied that it is bound by any such lease agreement with Union, having purchased multiple units in Limestone House on 11 January 2012 without any such lease being registered by the RORP and without any agreement on its part to purchase the building subject to the lease to VB.
The Reasoning of the Judge on Security for Costs.
5. The learned Judge expressed his reasons in two paragraphs of a two-page judgment in the following terms:
“7. The Court is empowered under RDC 25.100 to make an order for security of costs where it is just to do so and one of the conditions set out in RDC 25.102 applies. I am satisfied that the condition under RDC 25.102(2) applies in the circumstances as the Claimant is a company and its representative conceded during the Case Management Conference that it is no longer trading and would be unable to pay the Defendant’s costs. The Claimant submitted that there was a likelihood that the Claim would be successful and that it would not be liable to pay the Defendant’s costs, however, as with all litigation, it cannot be said with certainty that any party will not become liable to pay the costs of the other.
8. Accordingly, I find that security for costs should be paid into Court, however, not in the full amount being sought. Rather, I deem 50% of the Defendant’s estimated costs to be an appropriate amount in the circumstances. Therefore, the Claimant must pay USD 86,864.50 into Court as security for the Defendant’s costs within 30 days of this Order.”
The Role of the Court of Appeal
6. This Court’s function is one of review of the decision of the Judge at first instance as the terms of RDC 44.27 make clear, unless the Court takes the view that it is in the interest of justice to hold a re-hearing. We do not consider that a rehearing is required, despite the production of documents and the potential for admission of new evidence in the Court of Appeal. The decision made by the Judge was a discretionary decision of case management and that in itself militates against any requirement for a rehearing unless the conditions for review of such a decision are satisfied, as is accepted by VB and its counsel, as set out below. Although this Court made a limited order for production of documents on 23 March 2017, that decision was made for practical reasons, as the Court made clear, rather than because the Judge had necessarily erred in the exercise of his discretionary case management powers. Moreover, the Order that the Judge had made had two distinct limbs, one relating to document production and the other relating to security for costs. VB sought to link the two but they had no necessary connection, being applications from opposing parties which, for sensible case management reasons, were heard at the same time. The order for third party production turned on different criteria from that for the application for security for costs. The Court’s role here therefore is to determine if the judge was wrong in taking the decision he did about security for costs on the material before him. The fact that, on the same occasion as he ordered security for costs, he could (or even should) have made an order for third party production of documents in the terms that this Court later did, is neither here nor there. The two were not inextricably linked and each fell to be viewed in isolation from the other. When he came to make his decision on the application for security for costs, the Judge did not have, and could not have had, before him the materials subsequently produced by the ROC, RORP and ENBD, unless he had decided to adjourn the application for security for costs pending the production of documents. ENBDP was entitled, however, to have its application heard and determined on the basis of the material put before the Court, particularly in the light of the test which fell to be applied, when considering the merits of the claim, since the need for production of documents, in itself, militated against any finding that the test was satisfied.
The Test to be applied when determining applications for Security for Costs.
7. The terms of RDC 25.101 provide that the Court may make an order for security for costs if it is satisfied, having regard to all the circumstances of the case that it is just to make such an order and that (inter alia) one or more of the conditions in Rule 25.102 applies. It was common ground between the parties before the Judge at first instance and before us that one of the criteria set out in RDC 25.102 for an order for security for costs was met, namely that there was reason to believe that VB would be unable to pay ENBDP’s costs if ordered to do so. The only question for the judge was therefore, whether it was just to make such an order. It was accepted by Mr Bowden for VB that the decision was both a discretionary decision and a case management decision and that, in those circumstances it was necessary for him to show that the Judge had erred in principle or law, that he had taken account of matters of which he should not have taken account or had failed to take account of others of which he should have taken account, or was plainly and obviously wrong – that the decision was essentially perverse and one to which no reasonable judge, properly applying his mind, could legitimately come.
8. Despite presenting argument that the impecuniosity of VB could be said to be caused by the actions of ENBDP, there was, as Mr Bowden almost conceded, no evidence that the claim would be stifled by the imposition of the order for security in the amount awarded by the Judge. It was accepted that VB would be able to find such funds, through its alter ego/ shareholder, if necessary by borrowing, even though it, as a corporate body had not been able to trade and had no, or very limited assets. In dialogue with the Court Mr Bowden therefore essentially accepted that his case depended entirely on the merits of VB’s claim and the need to show that it was certain to succeed or almost certain to succeed against ENBDP. However, when the terms of RDC 25.110 are examined, it will be seen that VB had a further hurdle to overcome in the context of an application for security for costs. That Rule provides:
“25.110 Investigation of the merits of the case on an application for security is strongly discouraged. Only in those cases where it can be shown without detailed investigation of evidence or law that the claim is certain or almost certain to succeed or fail will the merits be taken into consideration.”
9. For the requirements of that Rule to be satisfied, if the merits are to be taken into account at all, the case must be one where it can be shown without detailed investigation of evidence or law, that the claim is certain or almost certain to succeed (emphasis added). That is a burden that VB was in no position to discharge at the hearing before the Judge, before any order for production of documents and still cannot now discharge, even with the benefit of the considerable volume of documents that have emerged from the ROC, the RORP and ENBDP. As appears below, Mr Bowden, in his argument to the Court, embarked on a detailed investigation of what the evidence and documents purportedly showed in relation to the registration of the relevant lease in circumstances where what took place at the Register of Real Property was shrouded in uncertainty, where the documents were confusing and contradictory and where their legal effect was unclear. Whilst he contended that, one way or another, VB would find a route to success, he acknowledged that the path required amendment to the pleaded claim and raised alternative routes, depending on whether there was registration of the lease with conclusive effect (his primary case), an equitable obligation binding on ENBDP as a result of its conduct or equitable fraud on its part. He said that he did not wish to amend before seeing further documentation, which in itself demonstrated the existence of a requirement for clarification of the position before a definitive view could be taken – and is the reason for the order for early standard disclosure which we are making.
10. It was submitted for VB that the Judge had failed to take account of the merits at all and thus had erred in the exercise of his discretion, which meant that this Court should exercise its discretion de novo, and could take account of all the material made available since the hearing at first instance. We are unable to accept that submission. The terms of paragraph 7 of the Judge’s Schedule of Reasons, albeit brief, show that he did consider the question of merits and came to the conclusion that the likelihood of the claim being successful did not set it apart from other litigation where claimants invariably maintain that they are likely to succeed. Whilst he made no express reference to RDC 25.110, the terms of that Rule had been drawn to his attention in paragraph 13 of the witness statement of Mr Carnell adduced on behalf of ENBDP and it is inconceivable, in the circumstances, that he did not have this in mind. In context, the judge was plainly rejecting the proposition that the claim was certain to succeed or almost certain to succeed, when saying that Counsel’s submission of the likelihood of the claim succeeding with the result that VB would not be liable to pay ENBD’s costs, did not satisfy him that it could be said with any certainty that this would be the position.
11. Furthermore, for the reasons given above, it cannot be said that, at the stage when the Judge was considering the question, he should have had regard to documents not then available. He had to determine the application on the basis of the evidence before him, not on what might become available, should he accede to the application for third party disclosure at the same hearing. He would not have been justified in adjourning the hearing of the application for security for costs pending the provision of documents, because that in itself would indicate that further detailed investigation of facts was needed in order come to a view of the merits which would justify taking them into account for the purpose of determining the application for security for costs. In short, I cannot see how it can legitimately be said that the Judge failed to exercise his discretionary case management powers on the proper basis, erred in law or in principle, took account of irrelevant matters or failed to take account of matters which he should have considered or reached a result which was in any sense perverse.
12. The Judge had a limited amount of evidence before him, which this Court does not need to set out in detail, but it could not be said that, on the evidence before him, the lease had been registered with the RORP. VB had a receipt for filing an application for registration dated 28 May 2012, but there was insufficient material to show that registration of the lease had taken place or that ENBDP had purchased the two units subject to the lease or had done anything which could give rise to an equitable obligation to recognise the lease under Article 31 (h) of the DIFC Law of Real Property 2007.
12.1 Reliance was placed on an exchange of letters of 18 and 26 December 2016 in which Union, as putative sellers, and ENBDP as putative buyers, proposed terms for the purchase of two Buildings, Index Tower and Limestone House, the latter of which included 96 residential apartments and 25 Retail and Leisure units. The 18 December letter from Union referred to two Master Sales Agreements which were to be signed, one for each of the two projects which would refer to “individual SPAs for each respective residential, retail and commercial unit”, which were to follow the execution of the Master Agreements. The letter of 26 December 2016 from ENBDP constituted a “conditional offer” to purchase both buildings on terms and conditions set out, which included a provision that Union was to assign and transfer the rent on leased properties as from the date of payment of the purchase price for the whole buildings but concluded with a paragraph which stated that “This conditional offer does not constitute an agreement between [Union] and ENDBP to purchase the properties until [Union] fulfil all its rights stated herein including but not limited to transferring the title deed of all properties to ENDBP name, signing the agreed SPA”. No binding contract appears therefore to have been concluded prior to signature of a formal contract.
12.2 Reliance was also placed on the subsequent transfer by Union of cheques for rent made payable to it by VB which were presented 8 months later by ENBDP but which were not met because the account on which they were drawn was dormant.
12.3 No Master Agreement was in evidence but there were individual sale and purchase agreements (SPAs) in evidence, dated 11 January 2012, in respect of the two units LP5 and LP6, which were named Retail Unit 17A and Retail Unit 17 B, and which made no mention of any lease at all.
12.4 The recollection of the alter ego of VB was that ENBDP had written a letter to the ROC to say that, as Landlord, ENBDP consented to the business of VB at the premises and that this was the basis upon which VB’s trade licence was issued.
12.5 A letter from Union dated 15 March 2012 to VB stated that, as discussed in a meeting, the ownership of units LP5 and 6 (Retail shops) was changing and that, as agreed, the outfitting of the units had been postponed until further progress had been made in leasing other parts of Limestone House, cheques for rent had been put on hold and would be replaced in due course and that the lease commencement date and rent commencement date were to be adjusted when further occupancy of the building was achieved. Previously dishonoured cheques were to be paid.
12.6 VB’s skeleton argument contended that, if key documents emerged from the document production sought, its case would be unassailable. VB maintained that it anticipated that the list of retail units attached to the letter of 18 December would show that the relevant units in Limestone House (which had in fact been leased by Union to VB on 5 April 2011), LP5 and LP6, were “leased”, that the Master Sales Agreement would show that the lease was “transferred” to ENBDP and that other evidence from the ROC would show that a trade licence had been granted on the basis of a valid and subsisting lease.
12.7 Union was maintaining in correspondence and meetings that the properties had been sold, subject to the lease to VB.
12.8 “Quite simply”, it was said on VB’s behalf by Counsel, “the case against the Defendant is strong and likely to get stronger”. Furthermore, ENBDP must have documents in its possession which it was not disclosing but would show it had knowledge of the lease when purchasing the buildings.
13. On this basis, with ENBDP contending that, at the time of purchase of the units in January 2012 by ENBDP, there had been no registration of the lease (and the contrary was not suggested), and that the SPAs of the individual units did not disclose the existence of the lease, the Judge at first instance could not have reached the conclusion that the claim was certain or almost certain to succeed. Indeed, it appeared at that stage that any claim that VB had would have been better directed at Union which had agreed to lease, albeit that the commencement date appeared to be up in the air.
14. By the time the matter came back to this Court on the adjourned appeal on 21 November, following the production of documents, VB’s case was stronger, but we cannot say that the test in RDC 25.110 is met. The documents appeared to show that:
14.1 A Strata Management Plan was submitted to the RORP on 1 June 2011.
14.2 The list of retail units attached to the letter of 18 December 2011 did refer to the two units as “leased”.
14.3 The SPAs for the individual units of 11 January 2012 did not refer to any lease of those two units.
14.4 The Strata Management plan was issued for approval for Units 17A and 17B as retail units, not restaurant units on 16 February 2012.
14.5 The only Master Agreement that anyone could produce was dated 1 April 2013 and referred to residential units not retail units at all.
14.6 On 15 March 2012, Union told VB that the lease commencement date was to be adjusted.
14.7 The sale to ENBDP of the freehold of the property was registered on 29 March 2012.
14.8 On 30 April 2012, ENBDP wrote to Union to say that the lease to VB would not be honoured by ENBDP because:
14.8.1 Union had confirmed that the units were vacant at the time of handover;
14.8.2 There was a signed agreement between Ritz Carlton and Union preventing retail units selling food and beverage services;
14.8.3 The agreement with VB had not been disclosed to ENBDP prior to acquiring the property.
14.8.4 A 10 years lease with VB was not a lease which ENBDP could “support”.
14. 9 On 28 May 2012 an application for registration of the lease of the two units, signed by ENBDP and VB was submitted to the RORP.
14.10 On 28 May 2012, a receipt was issued for the fees payable by the RORP.
14.11 An internal Excel Spread sheet disclosed by the RORP shows lease registration of the two units on 28 May 2012 as retail units with VB as lessee and ENBDP as landlord, referring to the numbered receipt for the fees. The RORP has referred to this as a “provisional registration” (see below).
14.12 No Certificate of Registration of the Lease was ever issued.
14.13 On 29 May 2012, an internal note at the ROC referred to the lease as registered at the RORP and that a Trade Licence for VB could therefore be issued.
14.14 On 9 June 2012, the annual Trade Licence for VB was issued with effect from 15 March 2012.
14.15 The Strata Management Plan for Limestone House was registered on 2 July 2012. This prohibited food and beverage sales in the two units in question.
14.16. On 28 August 2012 ENBDP sought to bank the transferred cheques for rent but they were returned as the account on which they were drawn was said to be dormant.
14.17. On 14 January 2014, ENBDP gave a standard form indemnity to the RORP in respect of any liability that might arise from registration of the Strata Management Plan for residential units.
14.18. The Title Deed to Limestone House was issued to ENBDP on 9 November 2014 referring to all prior interests registered and recorded in the Real Property Register.
14.19. On 29 April 2015, an internal note at RORP states that the client registered the lease and paid on 28 May 2012, but there was no finance document (the meaning of which is unclear).
14.20. On 31 March 2016, the sale of Limestone House to Zain Capital LLC by ENBDP was registered.
15. There are two documents in the bundle before the Court which reveal the stance now taken by the RORP.
15.1 The first is a letter of 4 June 2017 from the RORP to VB’s lawyers in which the Strata Management Statement is enclosed, which set out the restriction on the use of the units, preventing the sale of food and beverages. The letter notes that no separate plan was attached to the lease registration form of 28 May 2012 (the application for registration) beyond what appeared in the lease itself. The letter states that in 2015 the RORP required the filing of another application for registration of the lease and exchanged correspondence with VB in May 2015 on this subject. No registration was effected as ENBDP would not consent to it. The letter explained that the lease had been “provisionally registered” with RORP prior to completion of the building and that it was not possible to issue final legal title to units within a building until it was complete, subdivided and the strata survey carried out, for the reason that the exact dimensions of off plan units would often not be identical to the finished units. Thus, at the time of the provisional lease registration on 28 May 2012, a record would have been kept of its existence on the register against the unit numbers referred to in the lease. However, when the Strata Management Plans were submitted and the unit numbers had changed in the final plans, VB had been contacted by the RORP to explain that they would need to amend and re-register the lease against the final unit numbers shown in that Plan. The process had not been completed because no Form was completed by the current landlord. “Therefore, please note that your client does not have a current registered lease on the Real Property Register.”
15.2 The second is a 7 page letter of 20 April 2017 from the lawyers for VB addressed to the RORP which is said to set out a record of a meeting with the Registrar on 12 April 2017. That refers to the “registration” of the lease on 28 May 2012 and to the lodgement of the Strata Management Plan in November 2012, the registration of the units in March 2013 to ENBDP as renamed 17A and 17B and to attempts to register the lease to VB in May /June 2015 in their changed unit names, to which ENBDP would not give its consent. Further Union had apparently visited the Registry on several occasions to say that the VB lease was cancelled and supplied (inter alia) the letter of 15 March 2012 in support. The lawyers’ letter stated that “You advised that the registration of the VB lease lapsed in 2015 as a result of the failure to return the completed Registration Form and the statements by Union”. The letter went on to state the lawyers’ view that the conflict between the Lease and the Strata Management Plan as to the use of the units was apparent and that the Strata Management Plan should not have been registered. Further the letter referred to the RORP saying that it had drawn the attention of the “interested parties” to that conflict. The lawyers expressed their inability to reconcile the continuing registration of the Lease until 2015 if the Strata Management Plan had been registered in 2012. The RORP was asked to confirm the record of the meeting in the letter but has not apparently done so.
16. The above history has only been pieced together following a detailed investigation of facts and is in itself incomplete. The related history and documents reveals the need for a full investigation in order to understand what occurred and the rights of the parties in the circumstances. The Court has no direct evidence from ENBDP, from Union or from the RORP. Was there actual registration of the Lease on 28 May 2012 or not? What if anything is meant by “provisional registration”. Is that registration within the meaning of the law or not? If it is, what impact does that have in the light of the registration of the sale on 29 March 2012, following the SPAs of 1 January 2012 and how does the registration of the Strata Management Plan, after 28 May 2012, with its inconsistent provisions, affect the situation? How do the provisions of Articles 23,25 and 29 of the DIFC Real Property Law apply in relation to priority of registration and conclusive evidence and effect? How does Article 30 apply in those circumstances where constructive notice is ineffective and it is registration which matters, or does Article 31(h) come into play because of ENBDP’s participation in the application to register on 28 May? Did ENBDP so conduct itself that it is subject to an equitable obligation in respect of the lease and if so, as from when? Was there equitable fraud on the part of ENBDP in transferring the property to Zain Properties LLC? Factual evidence is needed for the Court to come to any clear conclusion on the merits and, in particular, where unpleaded allegations of equitable obligations or equitable fraud are involved. Mr Bowden began his submissions by saying that VB would amend its pleading, but frankly stated that he did not know what form the amendments might take, because he wished to see further documents to clarify the position. In these circumstances, it cannot be said that the claim against ENBDP, as it stands, is certain or almost certain to succeed without detailed investigation of evidence or law. The Court has conducted a detailed investigation on the available material and there remains uncertainty both as to facts and law and as to the party or parties on whom any liability might devolve. What occurred at the Registry of Real Property lies at the heart of this case and the true history and its effect remains to be determined.
17. The appeal against the order for security for costs must therefore be dismissed. Security as ordered by the Judge at first instance is to be provided in a form reasonably satisfactory to ENBDP within 30 days of the date of this Order and judgment, failing which the action will be stayed.
18. VB appears to have done everything it could to obtain the lease to which Union agreed but exactly where the fault, if any, lies is unclear. In order to progress the matter as efficiently as possible, we are ordering ENBDP to make standard disclosure of documents at this stage prior to, rather than after amendment of the Particulars of Claim, since to do otherwise would almost certainly give rise to a series of amendments and unnecessary work and expense. The investigation necessary for such disclosure should begin at once and the disclosure should be given within 35 days of the date of this Order, provided that VB has provided security as ordered.
19. As to the costs incurred thus far, having heard the submissions of the parties we order that:
19.1 VB pay ENBDP their costs of the application for security for costs and the appeal in relation thereto, such costs to be on the standard basis and assessed by the Registrar, if not agreed. Execution of the order for costs is not to issue until the conclusion of the action or until further order of the Court.
19.2 All other costs of VB and ENBDP relating to the applications for disclosure of documents and third party disclosure and the appeals relating thereto, are to be costs in the case.
CHIEF JUSTICE MICHAEL HWANG:
- I agree with the abovementioned judgment and have nothing further to add.
H.E. JUSTICE ALI AL MADHANI:
- I agree with the judgment and have nothing further to add.
Maha Al Mehairi
Date of Issue: 18 December 2017