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CFI 037/2017 Ilyas Gaffar Saboowala v (1) Soman Kuniyat Kunjunni Nair (2) Mini Soman Thoruvil Veluthedath (3) RAG Foodstuff Trading LLC

CFI 037/2017 Ilyas Gaffar Saboowala v (1) Soman Kuniyat Kunjunni Nair (2) Mini Soman Thoruvil Veluthedath (3) RAG Foodstuff Trading LLC

February 15, 2018

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Claim No: CFI 037/2017

THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS

IN THE COURT OF FIRST INSTANCE

BEFORE THE DEPUTY CHIEF JUSTICE SIR DAVID STEEL

BETWEEN

ILYAS GAFFAR SABOOWALA

Claimant

and

 

(1) SOMAN KUNIYATH KUNJUNNI NAIR

(2) MINI SOMAN THORUVIL VELUTHEDATH

(3) RAG FOODSTUFF TRADING LLC

Defendants


  ORDER WITH REASONS OF THE DEPUTY CHIEF JUSTICE SIR DAVID STEEL


UPON reviewing the Claimant’s Application No. CFI-037-2017/5 dated 21 December 2017 seeking to amend its Particulars of Claim

AND UPON hearing Counsel for the Claimant and Counsel for the Defendants at a hearing of 30 January 2018

AND UPON reviewing the documents recorded on the Court file

IT IS HEREBY ORDERED THAT:

1.The Claimant’s Application is granted.

2. Costs reserved in the case.

Issued by:

Ayesha Bin Kalban

Assistant Registrar

Date of issue: 15 February 2018

At: 3pm

 

SCHEDULE OF REASONS

1.This is an application by the Claimant to amend the Particulars of Claim. Perhaps the most striking feature of the application is that the parties have spent approaching $200,000 on the application. It is perhaps not surprising that the costs are so high. The pleadings in this case (and in particular the statement of claim) are prolix, confusing and repetitive. They also contain evidential material and argument.

2. The amendments are extensive. Most of them were by way of repetition of the Claimant’s existing case and as such were eventually accepted by the Defendants. The focus of the debate has been on the proposed amendments in paragraphs 60 C, 60 D, 60 E and 61 in the draft wherein advanced a claim for reimbursement of a number of payments on various grounds.

3. The claim arises from an SPA dated 8 February 2016. The underlying provision, which forms on the basis of the bulk of the controversial amendment, is the second numbered Clause 5 of the agreement which contains an indemnity provision in the following terms –

“In the event Sellers breach or is deemed to have breached any of the representations and warranties contained in this agreement, or fails to perform or comply with any of the covenants and obligations set forth in this agreement, Sellers shall refund inter alia subject to the other terms of this Agreement all payments made by the Purchaser under Clause 2 of this Agreement and compensate and hold harmless, indemnify and defend the Purchaser or his nominee and each of its directors, officers, shareholders, attorneys, representatives and agents, from and against any losses suffered, damages incurred or all payments made by the Purchaser under this agreement to the extent such damages arise or result from a breach , omissions or incapability of the Sellers of any such representations or warranties and omissions or violations of any terms or covenant of this agreement and/or failed Due Diligence.”

4. This indemnity provision has to be read against the background of the primary obligation of the agreement, namely the transfer of the shares to RAG by the Defendants in exchange for the prescribed purchase price. Indeed the Claimant sought a mandatory interlocutory judgment in that regard, which was refused by the court.

5. Aside from claim in respect of instalments of the purchase price it is of note that the pleaded case of the Claimant in paragraph 36 alleges:

“Between 11 January 2016 and June 2017 the Claimant injected working capital into RAG of approximately AED 6.8 million.”

The pleading went on to contend (in existing paragraph 61) that the Claimant relied on the indemnity provisions to recover that sum although “the precise amount claimed under this head will be quantified with greater particulars following disclosure.” It is said that an important feature of the proposed amendment is to provide that particulars (albeit of course disclosure has not occurred).

6. Proposed paragraph 60 C 4sets out the amounts of some 10 payments made to RAG “by or otherwise incurred by the Claimant.” The bulk of them were in fact paid by Farmex, a company owned by the Claimant’s brother “by way of loan to the Claimant.” The Claimant has, it is suggested, repaid Farmex AED 6 million of those loans. Some of the other payments are said to have been made by the First Defendant but repaid from funds of the Claimant. Yet others were made by Shri Sita Rice Mill (presumably to the First Defendant) but repaid from the Claimant’s funds.  A further head of claim is said to be made up of “monies paid by the Claimant to Farmex to ensure supply of goods to the Company.”

7. This is but a rough summary of the claim for an indemnity. It is a matter of some concern that apart from the assertion in the Claimant’s witness statement there is no documentary evidence of the making of any loans by Farmex let alone of the terms on which they were made nor is there any witness statement from the Claimant’s brother. But in any event, it does not appear to be alleged that the loans (or any repayments) were made under the terms of the SPA.

8. Before turning to the contention advanced by the Defendants that these amendments should not be permitted because there is no prospect of the monies paid by the Claimant to the company (whether directly or by way of loan from Farmex) being found by the court to be a legitimate basis for an indemnity claim under Clause 5, I should revert to the Particulars of Claim as amended to identify the other claims that are advanced. I do this primarily on the basis that it is said by the Claimant that the need for him and his brother to bail out the company arose from lack of cooperation from the First Defendant.

9. Paragraphs 9 and 16 of the Particulars of Claim refer to Clause 2.4 of the SPA, which requires the Defendant to fully co-operate with the Claimant in the due diligence exercise which was the run up to instalments 4 and 5 of the purchase price. Various complaints as to lack of co-operation are pleaded in paragraphs 32 and 34, although it is not remotely clear whether relief under clause 2.4 is claimed as a consequence. In paragraph 52 and following, the Claimant contends that in September 2016 the Defendant stopped signing cheques and locked the Claimant out of RAG’s accounting system. These actions are said to justify the award of triple damages. These complaints are repeated in paragraph 57 which purports to set out the Defendants’ breaches of the SPA. However, no reference is made to Clause 3 (xvi) of the SPA which is said to require full cooperation in respect of signing cheques.

10. In contrast, Paragraph 61 A claims, by way of damages, the profits that would have been made by the company in the event of appropriate cooperation under Clause 3(xvi) of the SPA, but notably this is not expressed as justifying recovery of any of the payments relied upon in the content of the indemnity provision. This is said to flow (as alleged in para 60 B) from the Defendants’ “fundamental non-performance of the SPA” in the form of failure to mediate and use the police to remove the Claimant from the offices. The paragraph concludes by contending that [sic]“in the alternative the claimant by his conduct accepted the defendant’s renunciation of the SPA” whereby “in that event” the Claimant was entitled to be indemnified under clause 5. To call this confusing if not incoherent is an understatement.

11. It is now appropriate to focus on Clause 5. As an indemnity provision it is in relatively standard form in two parts. The first part requires the sellers to refund payments made by the purchaser by way of the purchase price under clause 2 when in breach of the agreement. This is not relied upon. The second part requires the sellers to indemnify the purchasers (and its officers) in respect of losses sustained by reason of the sellers breach, together with payments made by the purchaser under the agreement. Whilst the clause may be broader than furnishing protection against third party liability, it would not appear to be concerned with payments made outside the scope of the agreement.

12. As already noted, the sums which form the heads of claim in the proposed amendment are in large part and not payments under the SPA, but are advances made by Farmex to RAG by way of loan and payments by the purchaser in the conduct of RAG’s business. If that analysis was correct, they may not amount to claims which can be pursued under the indemnity. Indeed they may not be claims falling within the jurisdiction of this Court. It is only in respect of claims arising from the SPA that the parties have opted into the jurisdiction of the DIFC Courts.

13. That all said, the difficulty facing the Claimant is that the pleading as a whole is largely incoherent. The whole of the pleaded case must be reformulated to deal with some of the difficulties outlined in this judgment. The amended formulation must be expressed in a form in compliance with the Rules of the DIFC Courts and be supported by appropriate evidentiary material.

14. I reserve the issue of costs.

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