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Mashreq Al Islami Finance Company Pjsc v Mr Babar Rehman [2017] DIFC CFI 016

Mashreq Al Islami Finance Company Pjsc v Mr Babar Rehman [2017] DIFC CFI 016

March 24, 2019

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Claim No. CFI-016-2017

THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS

In the name of His Highness Sheikh Mohammad Bin Rashid Al Maktoum, Ruler of Dubai

IN THE COURT OF FIRST INSTANCE

ON APPEAL FROM THE SMALL CLAIMS TRIBUNAL

BEFORE H.E. JUSTICE OMAR AL MUHAIRI

BETWEEN

MASHREQ AL ISLAMI FINANCE COMPANY PJSC

(formerly AL BADR ISLAMIC FINANCE COMPANY PJSC)

Claimant

  and

MR BABAR REHMAN

                                                                                           Defendant

 

Hearing: 12 March 2019

Counsel: Mr Peter Smith and Mr Jonathan Brooks for the Claimant

Respondent failed to attend

Judgment:  21 March 2019


 JUDGMENT OF H.E. JUSTICE OMAR AL MUHAIRI


UPON reviewing the Claimant’s claim dated 30 March 2017;

UPON the listing of the Trial for this dispute on 12 March 2019;

UPON the non-attendance of the Defendant and of his legal representatives at the Trial;

UPON having reviewed the documents included in the Court file;

UPON having heard counsel for the Claimant at trial;

IT IS HEREBY ORDERED THAT:

1.The Defence is struck out pursuant to Rule 35.14(3) of the Rules of the DIFC Courts.

2. Judgment is hereby entered in favour of the Claimant as against the Defendant in the sum of AED 321,427.12 (the “Judgment Sum”), comprising:

a. AED 4,639.41 in satisfaction of outstanding Advance Rental Payments;

b. AED 152,815.44 in satisfaction of outstanding Ijara fixed rent;

c. AED 159,119.36 in satisfaction of outstanding Ijara variable rent; and

d. AED 4,852.91 in satisfaction of outstanding insurance charges.

3. The Defendant shall pay to the Claimant the Judgment Sum within 28 days of the date of this Judgment.

4. Pursuant to Practice Direction No. 4 of 2017, simple interest on the Judgment Sum shall accrue at a rate of 9% per annum from the date of this Judgment.

5. The Court declares that:

a. The Ijara Agreement dated 19 July 2007 as between the parties was validly terminated by notice on 25 September 2016.

a. The Defendant does not have any interest in the unit located at 1513 Liberty House, Dubai International Financial Centre, Dubai, UAE (the “Unit”).

c. The Claimant is the sole legal and beneficial owner of the Unit.

d. The DIFC Real Property Registrar has the power to and may deregister any and all interests in the name of the Defendant with respect to the Unit from the DIFC Real Property Register.

e. The DIFC Real Property Registrar may issue a new title deed for the Unit in the name of the Claimant alone, omitting any reference to the Defendant.

6. The Defendant shall pay the Claimant’s costs of these proceedings on such a basis and in such specific amount or amounts as this Court shall determine following consideration of the Claimant’s costs submissions to be filed.

Issued By:

Ayesha Bin Kalban

Assistant Registrar

Date of Issue: 24 March 2019

At: 10am

 

JUDGMENT

Procedural Background

1.The Claimant, Mashreq Al Islami Finance Company PJSC (formerly Al Badr Islamic Finance Company PJSC) (hereafter the “Claimant”) filed its Claim on 30 March 2017 seeking declaratory relief regarding the alleged termination of an Ijara Mosufa Agreement (hereafter the “Ijara Agreement”) entered into between the parties for the rental/ownership of a DIFC property located at Unit #1513, Liberty House, DIFC, Dubai (the “Unit”), as well as monetary sums allegedly owed by the Defendant, Mr Babar Rehman (hereafter the “Defendant”).

2. The Claimant subsequently filed for Default Judgment on 26 April 2017 after providing a Certificate of Service on 6 April 2017. The Defendant had not yet participated in the proceedings having been served at an address in Deira, Dubai, according to the Certificate of Service.

3. Having determined that the requirements of RDC Part 13 were met, Default Judgment was issued on 7 May 2017 via the Order of Judicial Officer Maha Al Merhairi (the “Default Judgment”). The Default Judgment provided the following:

a. The Ijara Agreement dated 19 July 2007 was declared terminated by notice on 25 September 2016.

b. The Defendant was declared not to have any interest in the relevant Unit effective from 25 September 2016.

c. The Claimant was declared the sole legal and beneficial owner of the Unit.

d. The DIFC Real Property Registrar was declared to have relevant authority to deregister any and all interests in the name of the Defendant with respect to the Unit and may issue a new title deed in the name of the Claimant alone.

e. The Defendant was found liable to the Claimant various sums payable within 14 days of issuance of the Default Judgment, to include:

i. AED 161,602.00 being the unpaid rent due under the Ijara Agreement.

ii. Interest at a rate of 2.47% in the sum of AED 7,826.32 as of 26 April 2017 and accruing at a daily rate of AED 10.94 from that day forward.

iii. AED 392,828.62 being the Claimant’s legal costs.

4. It was not until 28 January 2018 that the Defendant filed his Application seeking to set aside the Default Judgment and seeking an order for the production of documents (hereafter the “Set Aside Application”). However, the Defendant did begin participation in the matter on 24 September 2017 by filing for Change of Legal Representative and then on 26 December 2017 by filing a Defence out of time.

5. After submissions from the parties, a Hearing on the Set Aside Application was scheduled for 27 March 2018. The Hearing was adjourned due to the Defendant’s legal representative’s failure to register before the DIFC Courts. After the adjournment, the parties agreed for the Set Aside Application to be determined on the papers. Therefore, I issued the Order of H.E. Justice Omar Al Muhairi dated 5 April 2018, with corresponding Schedule of Reasons issued on 15 April 2018 (hereafter the “Set Aside Order”).

6. The Set Aside Order required that the Default Judgment be set aside based on the Defendant’s real prospect of successfully defending the claim. The Claimant was given 14 days to file its Particulars of Claim and Statement of Case, after which the Defendant was given 28 days to file his Defence.

7. The Claimant filed its Particulars of Claim on 26 April 2018, to which the Defendant responded with his Defence on 31 May 2018. The Claimant then provided a Reply to the Defence on 5 July 2018.

8. The parties met for a Case Management Conference before Judicial Officer Maha Al Mehairi on 30 July 2018. At this time, the parties agreed on a timetable for the remainder of the case, with such schedule reflected in the Case Management Order of Judicial Officer Maha Al Mehairi, dated 19 September 2018. Trial for the matter was scheduled for 10 March 2019 with a duration of 1 day. The Trial was later rescheduled for 12 March 2019. The proceedings progressed with the parties filing various items and requests including document requests and Schedule C to Part 26.

9. The Defendant filed an Application on 6 March 2019 seeking to postpone the Trial due to medical reasons (the “Postponement Application”). The Defendant included with his Postponement Application a medical certificate showing that, due to a fracture in his right shin, he had been recommended with six weeks of bed rest. Due to this diagnosis, the Defendant argued, he could not attend the Trial scheduled for 12 March 2019.

10. Upon review of the Postponement Application, I issued the Order of H.E. Justice Omar Al Muhairi dated 7 March 2019 rejecting the Defendant’s request and confirming that the Trial would go ahead as scheduled on 12 March 2019.

11. On the date of the Trial, 12 March 2019, the Claimant’s counsel attended Court. However, the Defendant and the Defendant’s counsel failed to attend Court at this time. Due to the Defendant’s failure to appear, the Claimant made an oral application pursuant to Rule 35.14(3) of the Rules of the DIFC Courts (hereafter the “RDC”), seeking to strike out the Defence due to the Defendant’s failure to attend (the “Strike Out Application”). I granted the Strike Out Application orally during the Hearing. After the Hearing, the Claimant provided a Draft Order pursuant to its Strike Out Application, as well as a Statement of Costs.

The Claimant’s Arguments

12. Firstly, the Claimant has argued that the DIFC Courts have jurisdiction over this dispute as it concerns a property located within the DIFC and the Ijara Agreement was to be partly performed within the DIFC. The Claimant cites Article 5(A)(1)(b) and (c) and Aticle 5(A)(2) of the Judicial Authority Law in support of this argument. Furthermore, the Claimant argues that DIFC Law is the applicable law relevant to this dispute. This follows pursuant to Article 8 of the Law on the Application of Civil and Commercial Laws in the DIFC (DIFC Law No. 3 of 2004), as well as Article 3 of the DIFC Real Property Law (No. 10 of 2018). The Claimant also relies upon Articles 14 and 15 of the DIFC Law Relating to the Application of DIFC Laws (Law No. 10 of 2005).

13. The Claimant contends that the wording contained within the Ijara Agreement, stating that it would be governed by and construed in accordance with the laws of the Emirate of Dubai and the federal laws of the Unite Arab Emirates at clause 18, does not eliminate the applicability of DIFC Law to this dispute.

14. The Claimant articulates the relevant background of the dispute as follows:

a. In July 2007, the Claimant entered into an agreement with the Defendant to finance the purchase of the Unit. The Defendant had already entered into a sale and purchase agreement with the Unit developer and he approached the Claimant for a loan to fund the remaining purchase price after he had paid a deposit of AED 80,424. The purchase price for the Unit was AED 804,232.

b. On 1 July 2007, the Defendant applied to the Claimant’s predecessor company for an Ijara residence finance loan in the amount of AED 723,809, which was 90% of the purchase price, with a loan period of 20 years at a profit rate set at 3.79% plus LIBOR.

c. The parties executed the Ijara Agreement on 23 July 2007. Pursuant to the Ijara Agreement, the Claimant paid the loan amount to the Unit developer and took title over the Unit, promising to lease the Unit to the Defendant for the life of the Ijara Agreement. After full payment from the Defendant of the sums due to the Claimant, the Claimant would return title for the Unit to the Defendant. The Defendant signed an irrevocable standing order for the fixed rental payments for both the first lease period and subsequent lease periods, as defined in the Ijara Agreement. As a result of the Ijara Agreement, the Defendant assigned his rights according to the sale and purchase agreement to the Claimant and the Defendant also provided a security cheque to the Claimant.

d. The Defendant took possession of the Unit in June 2009, which triggered a change in the payments due under the Ijara Agreement. The Defendant’s first delinquent payment was 28 June 2009, being the day of the first fixed rental payment (as opposed to the advanced rental payments). This default triggered the Claimant’s entitlements under clause 7 of the Ijara Agreement.

e. In May 2009, the Claimant attempted to encash the security cheque, however it was returned without payment.

f. The Claimant decided to forbear the defaults, rather than foreclose the Ijara Agreement. For 7 years, the Claimant attempted to receive payment from the Defendant, making numerous and strenuous efforts to do so.

g. By 2016, the Claimant decided to accept the Defendant’s repudiation of the Ijara Agreement by serving upon the Defendant a notice terminating the agreement on 25 September 2016 (hereafter the “Termination Notice”). The Termination Notice was served in accordance with clause 12 of the Ijara Agreement in addition to other methods of service. The Claimant then initiated the current proceedings in March 2017.

15. The Claimant identifies the key issues in the case to be as follows:

a. Has the Defendant failed to make any of the monthly payments due under the Ijara Agreement and for how long have such delayed payments been outstanding?

b. Was the Claimant entitled to serve the Termination Notice because the Defendant had not made all the required monthly rent payments?

c. What costs did the Claimant incur in relation to any payment defaults by the Defendant?

d. Is the Claimant entitled to recover all of the costs claimed from the Defendant under the Ijara Agreement?

16. The Claimant explains that the Ijara Agreement provided for four periods of payments: (1) Advance Rental Payments due from the formation of the Ijara Agreement until handover of the Unit, (2) First Lease Period payments starting from the handover of the Unit, due on the 28th of the month; (3) revolving lease periods commencing from the end of the First Lease Period; and (4) Fixed Rent payable under the Irrevocable Standing Order and Variable Rent continued at the previous rate of 3.95% plus 1 year EIBOR. The Claimant argues that the Defendant fell into arrears as of 28 June 2009, when he failed to make the payment required of the first lease period. The Defendant made sporadic payments until 17 February 2016, however these payments were not enough to cover the total outstanding due.

17. The Claimant argues that it has carefully calculated the total sums due from the Defendant pursuant to the various schedules of payments, taking into account the payments actually received from the Defendant from 3 September 2007 through 24 March 2016. The Claimant contends that there is no reason to disbelieve the Claimant’s representation of the payments made by the Defendant considering that the Claimant has calculated that the Defendant paid significantly more than the Defendant himself claims.

18. Furthermore, the Claimant argues that the Defendant has not provided a sufficient defence for his failure to make full payment of the amounts due under the Ijara Agreement. The Defendant let the Unit out for rental payments and any loss the Defendant may experience on his rental investment does not excuse his payments to the Claimant. Any attempts to renegotiate the Ijara Agreement by the Defendant also do not excuse him from full payment under the original Agreement.

19. As to the Termination Notice, the Claimant contends that it was served above and beyond the Claimant’s requirements. While the Defendant contends that he did not receive it, the Claimant argues that it was properly served. In any event, the Defendant must have become aware by at least October 2017 when he discovered the ongoing enforcement proceedings. The Claimant is permitted by clause 7.2 of the Ijara Agreement to terminate in the event of the Defendant’s default.

20. As regards the costs incurred by the Claimant as a result of the Defendant’s default, the Claimant cites clause 4.1 of the Ijara Agreement with obliges the Defendant “without prejudice to the [Claimant’s] other rights” to “compensate [the Claimant] for the actual loss suffered” by the Claimant. Considering that the Defendant’s obligations to pay the rental sums and “all other amounts under this Agreement” are agreed to be “absolute and unconditional”, as per clause 4.3, the Claimant’s costs incurred in relation to any payment defaults are calculated by aggregating the sums owed at the date of default, including all principal and profit elements as well as administrative costs.

21. The Claimant also makes arguments to strike out certain of the Defendant’s references to Sharia Law. However, with reference to the Strike Out Application, I will not repeat those arguments here.

The Strike Out Application

22. The Defendant argues that handover of the Unit was delayed by more than eight months. Furthermore, the Defendant argues that he was seriously affected by the financial crisis and he was not able to restructure his Ijara Agreement, in spite of numerous attempts to request such consideration from the Claimant. The Defendant argues that the “Principles of Islamic Finance were not followed in this particular case and despite numerous payments from 2009 to 2016 [the] outstanding amount kept increasing which is unjustified.” The Defendant also contests the Claimant’s presentation of the sums paid and owed by the Defendant. Finally, the Defendant claims he never received the Termination Notice sent by the Claimant.

23. However, I must take note of RDC 35.14 at this time. RDC 35.14 states:

“35.14

The Court may proceed with a trial in the absence of a party but:

(1) if no party attends the trial, it may strike out the whole of the proceedings;

(2) if the claimant does not attend, it may strike out his claim and any defence to counterclaim. The defendant may prove any counterclaim at trial and obtain judgment on his counterclaim and for costs; and

(3) if a defendant does not attend, it may strike out his defence or counterclaim (or both). The claimant may prove his claim at trial and obtain judgment on his claim and for costs.”

24. The Claimant made specific reference to RDC 35.14(3) at the Trial, upon confirmation that the Defendant had failed to attend. I deemed it appropriate to grant the Claimant’s Strike Out Application. In any event, RDC 35.14(3) does not require application from the opposing party. Instead, the Court may act of its own initiative in this regard.

25. With reference to RDC 35.14(3), I find it appropriate in this circumstance to grant the Claimant’s Strike Out Application, to strike out the Defendant’s defence, and to proceed on the basis of the Claimant’s oral and written submissions only. This is appropriate in the circumstances considering that the Defendant was fully aware of the Trial schedule and still failed to attend or to send his legal representatives.

Discussion

26. Given that the Defence has been struck out in full, the relevant assessment required in this matter is limited to a determination of whether the Claimant has proven its case by a preponderance of the evidence. While the Defence has been struck out, it is not assumed that the Claimant will be successful on its case. Instead, the Claimant must still have proven its claims in its oral and written submissions.

27. Firstly, I find that the DIFC Courts have jurisdiction over this dispute and that DIFC Law governs the matter, as per the Claimant’s arguments. Even had I considered the Defence, the Defendant makes no objection to these preliminary issues.

28. I find it undisputed that the Claimant and Defendant entered into the Ijara Agreement as detailed by the Claimant. This is a valid agreement, the terms of which governed the relationship between the parties. I find that the Claimant has proven that the Defendant went into default as early as June 2009, but that the Defendant continued to make sporadic and insufficient payments until February 2016. I find that the Claimant has proven these facts with adequate documentation, including detailed and seemingly accurate reports of the Defendant’s history of payments.

29. I find that the Claimant’s has proven that its reading of the terms of the Ijara Agreement to allow full payment through termination in the case of a default is a legally acceptable reading of those terms. Specifically, the Claimant’s interpretation of clauses 7.2, 4.1, 4.3 is acceptable and valid in the circumstances. Thus, the Defendant is responsible for the outstanding sums as defined and calculated by the Claimant, in order to fulfill his obligations under the Ijara Agreement.

30. Finally, the Termination Notice is deemed to have been validly served on the Defendant, as per the Claimant’s evidence. Thus, the Termination Notice was effective to terminate the Ijara Agreement as of 25 September 2016. Pursuant to that valid termination, the Defendant does not have any interest in the Unit such that the Claimant is the sole legal and beneficial owner of the Unit.

31. The DIFC Real Property Registrar is thus enabled and empowered to deregister any and all interests in the name of the Defendant with respect to the Unit from the DIFC Real Property Register. As such, the DIFC Real Property Registrar is enabled and empowered to issue a new title deed for the Unit in the name of the Claimant alone, omitting any reference to the Defendant.

32. As to the specific sums owed by the Defendant to the Claimant, the Claimant has submitted that the total judgment sum is AED 321,427.12, based upon the Defendant’s history of payments and the schedule of payments required in the Ijara Agreement. The Claimant’s calculations are deemed valid based upon a preponderance of the evidence, and I therefore find in favour of the Claimant as against the Defendant in the sum of AED 321,427.12 (hereafter the “Judgment Sum”), comprising:

a. AED 4,639.41 in satisfaction of outstanding Advance Rental Payments;

b. AED 152,815.44 in satisfaction of outstanding Ijara fixed rent;

c. AED 159,119.36 in satisfaction of outstanding Ijara variable rent; and

d. AED 4,852.91 in satisfaction of outstanding insurance charges.

33. Finally, pursuant to Practice Direction No. 4 of 2017, simple interest on the Judgment Sum shall accrue at a rate of 9% per annum from the date of this order.

34. In summary, the Claimant has submitted plentiful proof that its Claim is valid based on its reading of the Ijara Agreement. The Claimant’s calculations, based upon detailed payment records, have been shown to be valid. As the Claimant’s reading of the Agreement is legally permissible and as there is no valid defence entered into the Court record, I find for the Claimant based upon a preponderance of the evidence.

Costs

35. The Defendant shall pay the Claimant’s costs of these proceedings on such a basis and in such specific amount or amounts as this Court shall determine following consideration of the Claimant’s costs submissions to be filed.

Conclusion

36. In sum, the Claimant’s claims are granted in full with the Defendant responsible for the Claimant’s costs of these proceedings.

 

Issued by:

Ayesha Bin Kalban

Assistant Registrar

Date of issue: 24 March 2019

Time: 10am

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