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CFI 044/2018 Grand Valley General Trading LLC vs GGICO Sunteck Limited & Sunteck Lifestyles Limited

CFI 044/2018 Grand Valley General Trading LLC vs GGICO Sunteck Limited & Sunteck Lifestyles Limited

March 13, 2019

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Claim No. CFI 044-2018

THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS

IN THE COURT OF FIRST INSTANCE

BEFORE H.E. JUSTICE SHAMLAN AL SAWALEHI

BETWEEN

GRAND VALLEY GENERAL TRADING LLC

Claimant/Appellant

and

GGICO SUNTECK LIMITED

Defendant

and

SUNTECK LIFESTYLES LIMITED

Third Party/Respondent


ORDER OF H.E. JUSTICE SHAMLAN AL SAWALEHI


UPON the Claimant’s/Appellant’s (hereafter the “Appellant”) Application for Permission to Appeal dated 17 January 2019 (the “Permission Application”), seeking permission to Appeal the Order of H.E. Justice Shamlan Al Sawalehi dated 27 December 2018 (the “Set Aside Order”)

AND UPON the Appellant’s submissions in support of the Permission Application

AND UPON the Third Party’s/Respondent’s (hereafter the “Respondent’s”) submissions in opposition to the Permission Application

AND UPON reading the documents submitted in the Court file

IT IS HEREBY ORDERED THAT:

1.Permission to Appeal the Order of H.E. Justice Shamlan Al Sawalehi dated 27 December 2018 is denied as there is no compelling reason to grant the Appeal and the Appellant has no real prospect of success.

2. Costs in the case. Should the Respondent not be joined as a party to this case, it may apply for its costs as to this Permission Application, if not agreed, and such Application may be determined by the Registrar of the DIFC Courts.

Issued by:

Ayesha Bin Kalban

Assistant Registrar

Date of Issue: 13 March 2019

At: 1pm

 

SCHEDULE OF REASONS

Procedural History

1.The Claimant/Appellant (hereafter the “Appellant”) filed its claim on 13 June 2018 seeking declarations (1) for the dissolution of GGICO Sunteck Limited (hereafter the “Defendant”) in accordance with Article 295(6) and/or Article 298 of the UAE Federal Law No. 2 of 2015 concerning Commercial Companies, (2) interest on the monies the Appellant contributed to the Defendant, and (3) to be entitled to be paid out of the Defendant’s proceeds upon its dissolution its costs of these proceedings.

2.The Appellant filed a Certificate of Service on 15 July 2018 stating that it had served the Defendant care of Al Tamimi and Company as registered agent, at Al Tamimi’s DIFC office.

3. On 13 August 2018 the Appellant filed a Request for Default Judgment. This request was granted via the Order of Judicial Officer Maha Al Mehairi dated 16 September 2018 (hereafter the “Default Judgment”). On 19 September 2018, Sunteck Lifestyles Limited (hereafter the “Respondent”) being a shareholder, along with the Appellant, in the Defendant company, filed a third-party Application to Set Aside the Default Judgment (hereafter the “Set Aside Application”). Specifically, the Set Aside Application sought an order that:

a. Pursuant to RDC 14.2 and RDC 36.33, the Default Judgment be set aside;

b. Pursuant to RDC 48.22 and RDC 23.13, execution of the Default Judgment is stayed pending final determination of the Set Aside Application; and

c. In the event that the Claim is not dismissed for lack of jurisdiction pursuant to RDC 4.2, the Respondent be joined as a defendant to these proceedings pursuant to RDC 20.11 solely for the purpose of contesting the jurisdiction of the Court and/or seeking dismissal or stay of the Claim pursuant to Article 13 of the DIFC Arbitration Law.

4. The Appellant and the Respondent provided submissions regarding the Set Aside Application in advance of the Hearing of 4 December 2018, at which both the Appellant and Respondent presented their arguments. At no time did the Defendant make any filing or otherwise participate in the proceedings.

5. After the Hearing, I issued the Order of H.E. Justice Shamlan Al Sawalehi dated 27 December 2018, which stated:

“1. The [Set Aside] Application to set aside the Default Judgment of Judicial Officer Maha Al Mehairi dated 16 September 2018 is granted and the Default Judgment is set aside.

2. The [Respondent’s] remaining requests are not determined in this decision.

3. The [Appellant] shall serve the Claim Form on the Defendant pursuant to Part 9 of the RDC or otherwise make an application as to service within 14 days of the issuance of this Order.

4. The [Respondent] may apply to be joined as a defendant in this case within 28 days of the issuance of this Order.

5. Costs in the case. Should the [Respondent] not be joined as a party to this case, it may apply for its costs as to this Application, if not agreed, and such Application may be determined by the Registrar of the DIFC Courts.”

6. The Appellant filed its Appeal Notice and Permission Application on 17 January 2019. The Appellant filed its Grounds of Appeal and Skeleton Arguments on 7 February 2019. The Respondent filed submissions opposing the Permission Application on 28 February 2019.

7. The Appellant indicated its desire to have a hearing in support of its Permission Application, however I deem it appropriate, in accordance with RDC 44.16, to proceed without an oral hearing. While the Appellant has requested one, it has not given sufficient “grounds as to why it would be in the interest of justice” to have a hearing, pursuant to RDC 44.17.

Summary of Arguments

8. In summary, the Appellant cites five grounds for Appeal, making reference to RDC 44.19, which requires that, in granting Permission to Appeal, the Appeal (i) has a real prospect of success; and/or (ii) there is some other compelling reason that the Appeal should be heard.

9. Firstly, the Appellant argues that there is “compelling reason” to grant permission to appeal because that appeal would address certain important questions of law, questions of interest to the wider public. These questions are:

a. What is the proper law of the interest of a joint venture partner in the dissolution of a joint venture commercial company?

b. Does a non-party have standing to set aside a Default Judgment in circumstances where that party seeks to challenge jurisdiction? and

c. What is the appropriate procedure for service where a company’s agent has dual DIFC and non-DIFC addresses?

10. Secondly, the Appellant lists five grounds for Appeal, presumably to fall under the “real prospect of success” heading of RDC 44.19. I will quote extensively from the Appellant’s Grounds for Appeal and Skeleton Arguments so as to provide the most accurate summary of its arguments. The Grounds for Appeal are detailed as follows:

a. Ground 1 – Erroneous assessment of material and adverse interest: “The Judge erred in determining deciding [sic] that the [Respondent] has a material and adverse interest by reason of its 50% shareholding in the Defendant.” The Appellant argues that of the factors listed in the Set Aside Order for consideration in determining whether the Respondent had standing to make the Set Aside Application, the Respondent’s status as a 50% shareholder was the only determining factor. “This was a clear error of law as being a shareholder or a member of the company is not in itself sufficient to show a direct material interest.”

b. Ground 2 – Erroneous analogy with winding up proceedings: “The Judge therefore erred in assessing winding up proceedings as one and the same as Default Judgment in this matter when considering the [Respondent’s] interests were materially and adversely affected.”

c. Ground 3 – Failure to properly consider UAE Federal Commercial Companies Law No.2 of 2015: “The Judge erred in failing to consider and apply the correct governing law as to the [Appellant’s] rights regarding the Defendant, which is a matter of UAE Federal Law as it applies to joint venture companies.” The Appellant argues that “having performed a proper analysis, it is clear that dissolution of the Defendant in this matter would be pursuant to UAE Commercial Companies Law No. 2 of 2015.”

d. Ground 4 – Proper Service: “The Judge erred in referring to questions of proper service, which was a matter for the Defendant to raise. It was not a relevant consideration for the [Respondent’s] application in this matter at all.” “The Judge erred in not considering whether there was a ‘good reason’ on the facts, within the meaning of RDC 9.31 and pursuant to [relevant case law] to deem that if even service was not in strict accordance with RDC Part 9, it had been nonetheless effective via an alternative method and had occurred retroactively on the Defendant on 26 June 2018 by service originally performed by the [Appellant] on the Defendant via Al Tamimi & Company LTD (DIFC entity).”

e. Ground 5 – Erroneous exercise of discretion: “The Judge erred in exercising his discretion to set the Default Judgment aside and has done so on the basis of erroneous and misplaced considerations.” The Judge erred in declining to determine the issue of DIFC Jurisdiction and the issue of the Respondent’s request for joinder. “It was clearly incumbent on the Judge to resolve the issue [of jurisdiction] if it was to be relied on as a basis for setting aside the Default Judgment.” According to the Appellant, the “judge was not therefore entitled to conclude that there was a ‘good reason’ to set aside the Default Judgment in circumstances where he declined to determine the Application as to joinder.”

11. The Respondent filed detailed submissions in response to the Appellant’s Grounds for Appeal. As was to be expected, the Defendant has not made any submissions.

12. The Respondent addressed each of the Appellant’s arguments in turn:

a. Ground 1 – The Respondent argues that the Judge was correct in determining that the Respondent is directly affected by the Default Judgment for a number of reasons, not solely due to its 50% shareholder interest in the Defendant company.

b. Ground 2 – The Respondent argues that the Judge’s persuasive reference to winding-up proceedings is not grounds for appeal.

c. Ground 3 – In reference to the application of UAE Federal Commercial Companies Law No 2 of 2015, the Respondent argues that there is question as to the applicability of this law to this case, as the case was filed in the DIFC. The Appellant does not adequately address this issue. This ground of appeal should be dismissed.

d. Ground 4 – The Respondent argues that because the Appellant has not served the Claim on the Dubai entity of Al Tamimi, the condition in RDC 13.4 has not been satisfied and therefore, the Default Judgment must be set aside. Thus, the Judge’s requirements as to service are not valid ground for appeal.

e. Ground 5 – The Judge’s discretionary “concerns” and “questions” as referred to in the Set Aside Order are enough to satisfy the requirement of “good reason” why the Default Judgment should be set aside. Interfering with this exercise of judicial discretion should be approached with caution. The hearing of the Set Aside Application is not the time for the Judge to conduct a mini-trial and determine all the matters in the claim. Rather, it is important to assess whether a more full and fair hearing of the issues is desirable and in the interest of justice. The Judge in this case used his discretion appropriately and this ground of appeal should be dismissed.

Discussion

13. I will address each of the Appellant’s arguments in turn.

14. First, I do not agree with the Appellant’s assessment that there is “compelling reason” to grant Permission to Appeal so that certain important questions of law can be answered in the interest of the wider public. I will address each of the Appellant’s listed questions of law:

a. What is the proper law of the interest of a joint venture partner in the dissolution of a joint venture commercial company? This question is one that may very well be addressed in these proceedings, however addressing this issues is not necessary in determining the Set Aside Application. As to the Set Aside Application, the Court was merely challenged with determining whether the Respondent had appropriate standing to make the Set Aside Application. Thus, this question of law does not amount to compelling reason to grant this appeal, which relates only to a decision to allow the Respondent the ability to apply to set aside a default judgment. The Set Aside Order does not make any determination as to the “proper law of the interest of a joint venture partner in the dissolution of a joint venture commercial company.”

b. Does a non-party have standing to set aside a Default Judgment in circumstances where that party seeks to challenge jurisdiction? It is quite clear from the Set Aside Order that I have determined that the Respondent does have standing to seek to set aside a default judgment, even when that Respondent has stated that it will seek to challenge jurisdiction if the opportunity is granted. It is important to note that the Respondent must first successfully be joined as a party to the dispute before its jurisdictional challenge will be properly heard. Certainly, a more pertinent question of law will be whether a party can be joined as a defendant to a dispute, given its intention to challenge jurisdiction. However, this was not at issue in the Set Aside Application. As per RDC 36.33, whether a party has standing to seek set aside is based upon that party’s being “directly affected” by the relevant order, not based upon that party’s intended legal strategy in the dispute. Therefore, I do not see this question as one of enough import, especially as regards standing to seek setting aside a default judgment, to qualify as compelling reason to grant an appeal.

c. What is the appropriate procedure for service where a company’s agent has dual DIFC and non-DIFC addresses? In the Appellant’s own case, the issue of service was not appropriately included within the Set Aside Order. In any event, the Set Aside Order was quite clear that the issue of service was not determinative, nor was there any statement that the Appellant’s attempts at service were deemed ineffective. Instead, the Set Aside Order quite plainly invites the Appellant to either serve the Claim again with more careful reference to Part 9 of the RDC or the Appellant was invited to “make an application relevant to service,” which would include an application for retroactive service via alternative method. It is on this invited application that this legal issue may be properly addressed. Considering that the Set Aside Order made no statement that the Appellant’s service attempts were legally inadequate, there is no compelling reason to grant an Appeal to address this issue.

15. Therefore, I will move on to the Appellant’s five stated Grounds of Appeal.

Ground 1 – Erroneous assessment of material and adverse interest

16. The Appellant’s main claim under Ground 1 is that the Set Aside Order determined that the Respondent was materially and adversely affected by the Default Judgment solely based upon the Respondent’s 50% shareholder interest and this qualifies as legal error.

17. The operative language of the Set Aside Order, to which the Appellant cites in its Skeleton Arguments, states “it is clear to me that the [Respondent’s] interest as a 50% shareholder in a company that has now been ordered dissolved without its input and presumably against its wishes qualifies it as being directly affected by the Default judgment. Furthermore, the interest and costs provisions of the Default Judgment may increase the Defendant’s potential liabilities, which has a direct and adverse effect on the [Respondent].” This language makes quite clear that the determining factors were first, the Respondent’s 50% share in the Defendant company, and second, the Default Judgment’s requirements as to interest and costs.

18. Furthermore, paragraph 24 of the Set Aside Order makes clear that the specifics of the Appellant’s Claim, seeking to dissolve a company in which the Respondent is a 50% shareholder, contribute to the Respondent’s material and adverse interest. It is not just that the Respondent is a 50% shareholder, but that the Appellant is seeking to dissolve a company in which the Respondent is a 50% shareholder. These are two separate but related considerations.

19. Thus, it is clear that the determination that the Respondent has a material and adverse interest in the Claim such that it had standing to apply to set aside the Default Judgment was based upon at least three distinct factors: 1) the Respondent’s 50% share in the Defendant company, 2) the costs and interest provisions of the Default Judgment, and 3) the nature of the Claim being for dissolution of a company of which the Respondent owns a 50% share. It is important to note that items 1) and 3) are not the same, as there could be any number of types of claims for which it would be relevant that the Respondent is a 50% shareholder of the Defendant company.

20. Thus, I find that that based on the plain wording of the Set Aside Order, the Appellant has no prospect of success of appealing the Set Aside Order for finding that the Respondent had a material and adverse interest “solely” based upon its 50% shareholder interest in the Defendant company. It is clear that this determination was based on a number of factors of which the Respondent’s 50% shareholder interest was just one.

Ground 2 – Erroneous analogy with winding up proceedings

21. The Appellant argues that “the Judge plainly erred by taking into account an erroneous assessment of what occurs during a winding up order.” I cannot see how this statement, even if taken on its face, would amount to grounds for appeal. The Appellant argues that the Judge treated a winding-up as “one and the same as Default Judgment.” This is clearly not the case based upon the plain language of the Set Aside Order. The Set Aside Order is quite clear in paragraph 23, where I state that I find it “persuasive” that the Respondent would have been heard on an application for winding-up. This is in no way determinative nor is it a legally binding factor. Instead, considering that the Appellant seeks dissolution of a company, the Set Aside Order makes clear that similar interests are at stake between the current proceedings and a winding-up.

22. Mere analogy to another type of legal dispute is not grounds for appeal unless it can be shown that such analogy was in some way determinative or granted undue weight. In this case, I granted winding-up procedures “persuasive” weight, however rightly determined the issue on the basis of the specific Claim before me, one in which the Appellant seeks dissolution of the Defendant company, a company in which the Respondent maintains a 50% shareholder interest.

23. Therefore, the Appellant has no real prospect of success on this ground, as a mere comparison with another type of proceedings is not appealable error.

Ground 3 – Failure to properly consider UAE Federal Commercial Companies Law No. 2 of 2015

24. As to this ground, I find it useful to cite the Appellant’s Skeleton Argument in full:

“14. The Judge erred in failing to consider and apply the correct governing law as to the Applicant’s rights regarding the Defendant, which is a matter of UAE Federal Law as it applies to joint venture companies. In this respect, the rights of a partner/shareholder during the dissolution of a JAFZA joint venture commercial company are limited.

15. Therefore, having performed a proper analysis, it is clear that dissolution of the Defendant in this manner would be pursuant to UAE Commercial Companies Law No. 2 of 2015. Articles 295 and 298 provide for dissolution by a court order and analogous provisions have been construed as not limiting the right of dissolution where there are serious causes to justify the dissolution (such as indebtedness and deadlock.)”

25. It may be the case that the Appellant’s assessment of the applicable law is correct, although as noted in the Set Aside Order, I have some question as to this. In any event, an assessment under this particular law was not required in order to determine the Respondent’s Set Aside Application. It is possible that the Appellant’s arguments above will be determinative on the merits of this dispute, however in the set aside portion, the task was simply to determine whether there was good reason to set aside the Default Judgment.

26. It is possible that the Appellant means to argue that proper consideration of the UAE Law would determine that there was no good reason to set aside, although that is not clear from the face of the Appellant’s argument. Still, had I determined that UAE Law was applicable and that the rights of shareholders during dissolution of a JAFZA joint venture company are limited, this would not have changed the outcome of the Set Aside Order. These are all issues to be discussed and determined in the merits of the dispute, not at the set aside stage. My task at set aside was to determine whether there was good reason to set aside the Default Judgment and allow the Appellant, and potentially the Respondent, to further argue these issues at trial.

27. Therefore, even if I had considered the UAE law as the Appellant suggests, the outcome of the Set Aside Order would remain the same. The issues of UAE law need to be further argued and even if the Respondent has limited rights under the law, there was still good reason to set aside the Default Judgment. The Appellant has no real prospect of success on this ground.

Ground 4 – Proper service

28. At the outset I will note that the Set Aside Order makes no determination as to the legal adequacy of the Appellant’s service on the Defendant. Had the service been deemed legally deficient, then the Default Judgment would have been set aside under the mandatory provisions of RDC 14.1, not the discretionary provisions of RDC 14.2(2)(a). The Set Aside Order notes that it is for the Defendant to make such arguments. Instead, upon an assessment of the elements required for valid Default Judgment, I could not ignore potential issues regarding service that came to my attention.

29. In the Appellant’s own words, “There is genuine and significant ambiguity around which Al Tamimi Entity acted, for which purpose, at which time.” Thus, I found it prudent and appropriate to invite the Appellant to take one of two courses of action. First, the Appellant was invited to serve the Defendant again, paying close attention to the requirements of RDC Part 9. Second, the Appellant was invited to make an application as to service.

30. While the Appellant argues that I should have retroactively granted an application for service via an alternative method, an application that was never made, I found it more prudent to invite the Appellant to make such an application that could be properly scrutinized and assessed. The Appellant has made no such application.

31. The Appellant has no prospect of success in appealing the Set Aside Order on the issue of service. As regards service, I made a discretionary decision pursuant to my case management powers to remedy the issue of service, a “genuine” issue in the Appellant’s own words, via either re-service or via an additional application where the issues could be properly pleaded. Should the Appellant have made its Alternative Service Application and been denied, this issue may stand on different ground. Instead, I must dismiss this ground for Appeal as the Appellant has no real prospect of success on this ground.

Ground 5 – Erroneous exercise of discretion

32. The Appellant argues that the Judge erred in exercising his discretion to set the Default Judgment aside. The Appellant argues that, in listing items like question as to the DIFC Courts’ jurisdiction over the matter and the Respondent’s potential to be joined as part of the “good reason” for setting aside the Default Judgment, it was required that such issues be determined within the Set Aside Order.

33. In determining an Application to Set Aside a Default Judgment under RDC 14.2(2)(a), the analysis is discretionary based on whether the Judge finds “good reason” to set aside. It is not required that the Judge determine the various issues of the case or perform a mini-trial without the benefit of full and fair pleadings. Instead, the Judge is tasked to exercise a fairly broad discretion to determine whether there is “good reason” that further pleadings on the matter should be allowed, in spite of a prior granting of Default Judgment. In this case, I determined that there was “good reason” based on a number of considerations that will be relevant at a trial or in further applications. It was not required that I determine all of those issues at this stage. Instead, it is clear that a reasonable Judge could and likely would make the same decision on the basis of the facts before the Court.

34. Therefore, I find there is no prospect of success on this ground for appeal.

Costs

35. I find it appropriate to assign costs of this Permission Application to the case, with parties able to make further submissions on costs at the appropriate time. Should the Respondent fail to be joined in the case, it may apply for costs relevant to this Application with such application to be determined by the DIFC Courts’ Registrar.

Conclusion

36. In sum, the Appellant’s Application for Permission to Appeal is denied.

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