September 21, 2022 COURT OF FIRST INSTANCE - ORDERS
Claim No. CFI 012/2022
THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS
IN THE COURT OF FIRST INSTANCE
FOUR PRINCIPLES MANAGEMENT CONSULTING FZ LLC
RED SEA INTERNATIONAL COMPANY
ORDER OF JUSTICE WAYNE MARTIN
UPON the Default Judgment of H.E. Justice Maha Al Mheiri dated 9 May 2022 (the “Default Judgment”)
AND UPON the Defendant filing Application No. CFI-012-2022/1 dated 31 May 2022 seeking to vary the Default Judgment (the “Application”)
AND UPON the Defendant filing Application No. CFI-012-2022/2 dated 7June 2022 seeking to stay the Default Judgment (the “Stay Application” and together the “Two Applications”))
AND UPON hearing Counsel for the Claimant and Counsel for the Defendant at the hearing on 13 September
IT IS HEREBY ORDERED THAT:
1. The Defendant shall pay the Claimant the amount of USD 1,462,639 by 14 October 2022 in partial satisfaction of the judgment sum.
2. In the event that payment is made in accordance with Order 1, the Application is granted and the judgment is varied to provide that judgment is entered in the following amounts;
(i) USD 1,414,095 in respect of the debt due to the Claimant
(ii) USD 8,656 in respect of interest due on the debt up until the date upon which judgment was initially entered
(iii) USD 39,888 in respect of the Claimant’s costs up until the date upon which judgment was initially entered.
3. In the event that payment is not made in accordance with Order 1 the Two Applications are dismissed.
4. The Defendant shall pay to the Claimant the costs of the Two Applications fixed in the amount of AED 115,000 by 14 October 2022.
5. There shall be liberty to apply, and that liberty will encompass any representations which the Defendant wishes to make in relation to the date by which payment should be made, given that the Defendant’s representatives were unable to obtain instructions on that matter.
6. If payment is made in accordance with Order 1, there shall be no order as to the Stay Application at this time.
Ayesha Bin Kalban
Date of issue: 21 September 2022
1. This is an application pursuant to Rule 14.2 (1) of the Rules of the DIFC Courts to vary a default judgment entered against the Defendant pursuant to Part 13 of the Rules on 9 May 2022. The application is brought entirely on the basis that the Defendant has established that it has a real prospect of successfully defending the Claim in part – namely that part of the Claim which asserts that the Claimant is entitled to be paid a success fee. It has been established in this Court that the same principle is applied in an application to set aside a default judgment on this ground as in the Courts of England and Wales - namely that a “real prospect of success” means a ‘realistic’ rather than a ‘fanciful’ prospect of success. Thus, an applicant seeking to set aside a default judgment must establish something more than merely establishing an arguable case.1
2. Rule 14.3 of the DIFC Courts (the “RDC”) is also relevant as it provides that in considering whether to set aside or vary a judgment entered under part 13, the matters to which the court must have regard include whether the person seeking to set aside the judgment made an application to do so promptly. The wording of that provision, augmented by authority, focuses attention upon the promptness with which the application to set aside the judgment was made. It therefore does not include delay during the period during which no acknowledgement of service was filed, and which resulted in the entry of the default judgment. It follows that the relevant period to which the court must have regard in this case is the period between the entry of judgment on 9 May 2022 but more particularly, the time at which the Defendant became aware of the entry of judgment, which occurred on 18 May 2022, and the time at which the application to vary the judgment was made on 31 May 2022. That is a period of 13 days. However, within that period, on 27 May 2022, which was 9 days after-notice of the judgment came to the Defendant’s attention, a necessary preparatory step to the making of the application was taken by lodging an acknowledgment of service. The relevant period of delay was therefore a period of 9 days. In my view the application was made promptly in all the circumstances and so RDC14.3 provides no impediment to the success of the Defendant’s application.
3. The application proceeds on the basis that there is no defence to the claim to the extent of the amount of what is describe as the base fee for the provision of management advisory services by the Claimant, which is an amount of USD 1,414,095. Rather, the Defendant asserts that a realistic defence has been established to that part of the claim which comprises a success fee in the amount of USD 623,594. However, it is significant (and I will return to this) that the Defendant has not paid the admitted sum. No explanation has been provided to the court for the failure to pay the sum, nor has any proposal been provided in evidence before the court so as to demonstrate a plan or proposal for payment of the undisputed sum.
4. The evidence establishes that the success fee due under the contract was payable if certain key performance indicators were met following the provision of services by the Claimant, The Defendant asserts that they were not met. The four relevant key performance indicators were agreed by the project steering committee, which was the contractual mechanism by which the KPIs were to be set. Daily output was to be increased by 100%, productivity was to be increased by 67%, Overall, stock coverage was to be reduced by 30%, and manufacturing costs were to be reduced by 20%.
5. There are different tables and figures within the evidence in which the Claimant asserts its performance in relation to those key performance indicators. In one of those tables, it is asserted that the daily output increased by 131.4% thereby exceeding the relevant KPI, that productivity increased by 82.1% thereby again exceeding the relevant KPI, that overall stock coverage reduced by 49.5%, which too exceeded the relevant KPI requirement and lastly that manufacturing costs were in fact reduced by 32.3%, which again exceeded the relevant KPI requirement. There is other evidence before the court in which different figures have been identified by the Claimant based on different periods of calculation. However, all the calculations produced by the Claimants show that all KPIs were exceeded.
6. The Defendant asserts that there is a realistic defence to the claim made in respect of the component of the overall claim which represents the success fee on three grounds:
a) First, the Defendant argues that the figures upon which the Claimant relies do not conform with the contract because inconsistent time periods have been adopted and the periods which have been adopted for the purpose of comparison following the provision of the Claimant’s service are not in fact comparable. According to the Defendant, the baseline figure has been taken from a period of 9 months of data whereas the figures with respect to performance after the provision of management services by the Claimant has been taken from a much shorter period being a period which the Defendant asserts has been selected by the Claimant to show an achievement of success which may have not been justified had a different or longer period been taken.
b) Second, the Defendant also suggests in this context that the comparisons are inapt because some of the periods which are compared had only one shift of work whilst others had two shifts. Comparisons without accounting for differential shifts are not relevant, according to the Defendant. Additionally, the Defendant argues that the comparisons did not comply with the contract because they failed to differentiate between work undertaken performing new jobs (that is new building work) as compared with work undertaken with respect to renovation work. It is submitted that this is not comparing ‘apples with apples’ because renovation requires less labour and materials whereas new jobs require more labour and materials. Thus, unless data identifies which of those different types of work was undertaken, a valid comparison is not being undertaken.
c) Third, the Defendant also submits that there was no sign off by the steering committee, which was the only agency under the agreement which could sign off on the achievement of the KPIs. To that effect, it is said that Mr. Lewis McDonough, the Chief Operating Officer of the Defendant, lacked the authority to sign off in relation to achievement of the KPIs, notwithstanding that he was the Chief Operating Officer. The argument focuses upon the key role of the steering committee under the terms of the contract.
By way of a general proposition, the Defendant also makes reference to the data contained in the Defendant’s annual report which is said to not be consistent with the much-improved performance one would infer from the assertions made by the Claimant with respect to achievement of the KPIs.
7. On the other hand, the Defendant acknowledges that there was a document in which Mr. McDonough purported to certify that the KPIs had been achieved. References are also made to evidence which shows that figures, which show achievement of the KPIs, were presented to the steering committee. However, there is no evidence before the court to show what the steering committee made of or did (if anything) in relation with those figures.
8. There is also evidence before the court in the form of a promotional video in which various officers of the Defendant participated and in which they extolled the virtues of the services provided by the Claimant at considerable length and in glowing terms.
9. Therefore, there is undoubtedly evidence which undermines the propositions which the Defendant advances. However, the Defendant argues that the relevant staff of the Defendant, including Mr. McDonough, exceeded their authority and by implication, failed to properly analyse the data in order to ascertain whether the KPIs were in fact met.
10. It is unnecessary for me to review any of the documents or arguments presented before the court at any greater length than this because this is an interlocutory application. If the application succeeds these matters will be canvassed at much greater length in a substantive hearing which will take place in due course. It is sufficient for me to observe that having read all of the evidence carefully and having listened carefully to all the arguments of counsel, I am satisfied, but by a relatively narrow margin, that the Defendant has established a ‘realistic’ and not ‘fanciful’ prospect of success in relation to that part of the claim which relates to the success fee.
11. However, the narrow breadth of the margin by which this has been established is relevant to the exercise of the discretion conferred expressly by Rule 14.2 in relation to the imposition of conditions upon the setting aside or variation of a judgment. That discretion comes to be exercised in circumstances in which the Defendant concedes that an amount in excess of USD 1.4 million has been outstanding and due and owing to the Claimant for a very substantial period. Notwithstanding that admission, no payment has been made nor any offer of payment nor any proposal for payment made to the Claimant. Rather the Defendant proposes to incur costs in form of legal services and to cause the Claimant to incur costs in the form of legal services litigating the question of whether the success fee is due and payable.
12. It seems to me that this is not an appropriate course, given that the Defendant comes to this court seeking the indulgence of the court in the form of setting aside or varying a judgment to enable it to defend the claim in part so far as it relates to the success fee. In my view, the appropriate exercise of the discretion in this case is to impose a condition upon the Defendant in return for that indulgence.
13. The appropriate condition to impose is the prompt payment of the component of the Claimant’s claim which is not contested together with the other components of the judgment in relation to interest and costs which are referable to the uncontested component of the claim. The figures taken from the draft order prepared by the Defendant appeared to be accurate and they are to the effect that component of the claim which is not in contest is the amount of USD 1,414,095. The component of the interest referable to that proportion of the claim is USD 8656, and the proportion of the costs for which judgment was entered which bears the same proportion to the total claim which the base fee portion of the claim bears to the total claim is of USD 39,888. Those figures total the amount of USD 1,462,639. In my view any relief granted to the Defendant in the form of variation to the judgment that has been entered should only be granted if, and when payment of that amount is made. The Defendant should be put on terms as to the date by which the payment should be made. I believe a period of about 30 days is appropriate and I will therefore direct that any relief is only to be granted in the event that payment is made by the Defendant to the Claimant of the amount of USD 1,462,639 by no later than 14 October 2022. Therefore, the position is that the orders will be made to the effect that if payment of that amount is not made by 14 October 2022, then each of the Two Applications that are made by the Defendant will be dismissed.
14. On the other hand, if the payment of the specified amount is made by the Claimant to the Defendant by the 14 October 2022, then the orders sought by the Defendant will come into effect.
15. Before referring to those orders, I will refer to the Claimant’s submission that in addition to conditioning the grant of any relief upon payment of the uncontested portion of the claim, relief should also be conditioned upon payment into court of the contested portion of the claim. I have considered that submission carefully. However, having found that there is a ‘realistic’ and not ‘fanciful’ defence to that portion of the claim and taking into account the fact that the period of the delay was not substantial, it does not seem to me that this is one of those cases in which security for the contested portion of the claim should be ordered as a condition of the grant of what is effectively leave to defend. Thus, while I have considered part of that submission carefully and while it was properly made, on balance, I do not think this is one of those cases in which security should be posted for the contentious portion of the claim. I think it is sufficient to impose a condition with respect to payment of the contested portion of the claim in the terms being which I have enunciated.
16. If the Defendant makes the payment of the specified amount by the 14 October 2022, orders will be made essentially along the lines of the draft order filed in support of the Application to vary the judgment. That is to say that the judgment will be varied so that it is restricted to the portion of the original judgment which reflects the uncontested components of the judgment, which are the base fee, the portion of the original judgment which relates to the interest in respect of that component and the portion of the original judgment which relates to costs.
17. There will also be liberty to apply, and that liberty will encompass any representations which the Defendant wishes to make in relation to the date by which payment should be made, given that the Defendant’s representatives were unable to obtain instructions on that matter. I should make clear that given the period of substantial delay in making the payment up until today and in light of the submissions made by the Claimant on that topic, I will not be easily persuaded that an extension of time beyond 14 October 2022, should be granted to enable payment of the uncontested portion of the claim to be made.
18. No orders have been made on the Stay Application at the moment, but there has been an undertaking given not to proceed to enforce. It does not seem appropriate in the current circumstances, that this undertaking should continue in relation to the uncontested portion of the judgment. Thus, the undertaking should only be taken as applying to the portion of the judgment which is in contention which is the amount of USD 623,594. Consequently, the Claimant should be at liberty to take enforcement action in respect of the balance of the judgment should it wish to do so.
19. In regard to costs, the Defendant approached the court essentially seeking an indulgence- necessitated because of the Defendant’s failure to comply with the requirements of the rules of court in relation to filing an acknowledgment of service in a timely fashion. The outcome of the Stay Application is also relevant to the exercise of the discretion with respect to costs. The Defendant has had a measure of success but not complete success in the sense that the Defendant’s capacity to vary the judgment is conditioned upon the Defendant doing something that it has shown no inclination to do until now- which is to pay the uncontested amount of the judgment. Therefore, to that extent, I believe that the Claimant has had a measure of success in this application in the sense that it remains to be seen whether the judgment will in fact be varied. Indeed, it will only be varied if the Defendant makes the payment of USD 1,462,639 by no later than the 14 October 2022 and if this payment is made the Claimant will have achieved a very substantial measure of success in very real terms.
20. Viewed as a matter of substance rather than form, the Claimant has been substantially successful, and taking into account that the Defendant is effectively seeking an indulgence from the court, costs should be in favour of the Claimant. Questions of the amount of costs properly allowed are matters of impression rather than science and based on the impression I have of the amount of work properly incurred in responding to these Two Applications and preparing the matter for hearing, I think that Defendant should pay the Claimant’s costs of responding to these two applications in the sum of AED 115,000. This will be payable by 14 October 2022.
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