November 02, 2023 COURT OF FIRST INSTANCE - ORDERS
Claim No. CFI 041/2021
THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS
IN THE COURT OF FIRST INSTANCE
BETWEEN
(1) ABRAAJ INVESTMENT MANAGEMENT LIMITED (IN OFFICIAL LIQUIDATION)
(2) ABRAAJ CAPITAL LIMITED (IN OFFICIAL LIQUIDATION)
Claimants
and
(1) KPMG LOWER GULF LIMITED
(2) KPMG (A FIRM)
(3) KPMG LLP
Defendants
ORDER WITH REASONS OF JUSTICE WAYNE MARTIN
UPON the application of KPMG Lower Gulf Limited (KPMG LG) (the “First Defendant”) for permission to appeal the Order of Justice Wayne Martin dated 30 November 2021 dismissing the application by KPMG LG for a declaration that the Court has no jurisdiction with respect to the claim against KPMG LG by Abraaj Investment Management Limited (AIML) (the “First Claimant”) (the “Application for Permission”)
AND UPON reviewing all relevant material added onto the Court file
AND UPON reviewing the Rules of the DIFC Courts (the “RDC”)
IT IS HEREBY ORDERED THAT:
1. The Application for Permission is dismissed.
2. KPMG LG shall pay AIML’s costs of the Application for Permission to be assessed by the Registrar in default of agreement between the parties.
Issued by:
Delvin Sumo
Assistant Registrar
Date of issue: 2 November 2023
Time: 1pm
SCHEDULE OF REASONS
Summary
1. By order with reasons dated 3 November 20211 I dismissed an application by the First Defendant, KPMG Lower Gulf Limited (KPMG LG), for a declaration that the Court had no jurisdiction with respect to the claim brought by Abraaj Investment Management Limited (AIML). Although my reasons were lengthy, in essence I concluded that:
(a) AIML had established a number of alternative gateways to jurisdiction with respect to its claim against KPMG LG;
(b) KPMG LG had failed to establish an agreement to exclude the jurisdiction of the Court; and
(c) If KPMG LG had established an agreement to exclude the jurisdiction of the Court, I would have exercised a discretion to decline to give effect to that agreement.
2. KPMG LG applied for permission to appeal from that decision, and filed a skeleton argument in support of that application (the “Application for Permission”). Consideration of the Application for Permission was then stayed for reasons which are not germane to the determination of the application. AIML has now filed a skeleton in opposition to the Application for Permission.
3. After considering the competing contentions of the parties, I have concluded that the Application for Permission must be dismissed with costs, for the reasons which follow.
Background
4. Descriptions of the parties, the nature of the claims made in these proceedings, the competing arguments of the parties with respect to the jurisdiction of the Court to deal with the claim by AIML against KPMG LG and my reasons for concluding that the Court has jurisdiction are all set out in my previous decision. No purpose would be served by restating those matters in these reasons, which should be read in conjunction with my earlier decision
Permission to appeal - principles
5. Permission to appeal may only be given where the Court considers that the appeal would have a real prospect of success or there is some other compelling reason why the appeal should be heard.2 KPMG LG does not contend that there is some other compelling reason why the appeal should be heard, and relies solely upon an assertion that the appeal would have a real prospect of success for the grant of permission.
6. The Court of Appeal will allow an appeal from a decision of the Court at First Instance where the decision of the lower court was wrong or unjust because of a serious procedural or other irregularity in the proceedings in the lower court.3 KPMG LG does not assert that the decision was unjust because of a serious procedural or other irregularity, but asserts that the decision was wrong.
7. It is significant to note that the Rules of the DIFC Courts (the “RDC”) expressly provide that an appeal is an appeal from a decision of the lower court, rather than from the reasons given by the lower court. Accordingly, an appeal will only be allowed if the Court of Appeal concludes that the decision of the lower court, in the sense of the order ultimately made, was wrong.4 Accordingly, even if the Court of the Appeal considers that the reasons given by the lower court are suspect in a number of respects, the appeal will not be allowed unless the Court of Appeal concludes that the order ultimately made was wrong.
8. It follows that before I can grant permission to appeal, I must conclude that the appeal would have a real prospect of success, in the sense that the Court of Appeal will conclude that the Court has no jurisdiction with respect to the claim by AIML against KPMG LG.
The grounds of appeal
9. There are five grounds of appeal. They are conveniently summarised as follows:
Ground 1
The Court erred in rejecting KPMG LG’s contention that clause 44 of the Audit Retainer Agreement excluded the jurisdiction of this Court.
Ground 2
The Court erred in concluding that there was a discretion not to enforce an agreement to exclude the jurisdiction of the Court.
Ground 3
The Court erred in concluding that the Court had jurisdiction pursuant to Article 5(A)(1)(b) of the Judicial Authority Law (the JAL) on the basis that the claim arose out of or related to a contract partly or wholly concluded, finalised or performed within DIFC, or will be performed or is supposed to be performed within DIFC.
Ground 4
The Court erred in concluding that the Court had jurisdiction with respect to the claim pursuant to Article 5(A)(1)(c) of the JAL because the claim arose out of related to an incident or transaction which has been wholly or partly performed within DIFC.
Ground 5
The Court erred by concluding that the Court had jurisdiction with respect to the claim pursuant to Article 5(A)(1)(e) of the JAL because the Court has jurisdiction pursuant to RDC 20.7 to join AIML and KPMG LG as parties to the proceedings between Abraaj Capital Limited (ACL) and KPMG LLP.
10. The first two grounds are concerned with the asserted agreement to exclude the jurisdiction of the Court. As the Court of Appeal would only allow an appeal if it concluded that there was an agreement to exclude the Court’s jurisdiction and there was no discretion to decline to enforce that agreement, before I could grant permission to appeal, I would have to conclude that there is a real prospect of success on both grounds.
11. The remaining three grounds are concerned with the three alternative pathways to jurisdiction pursuant to Article 5(A) of the JAL. As the Court of Appeal would only allow an appeal arising from these grounds if it concludes that there is no pathway to jurisdiction under Article 5(A), it follows that I could only grant permission to appeal if satisfied that all three grounds have a real prospect of success.
12. In summary, permission to appeal can only be granted if either grounds 1 and 2 both have a real prospect of success, or all of grounds 3,4 and 5 have a real prospect of success. This is common ground.
Ground 1
13. In order to succeed on ground 1, KPMG LG must establish that clause 44 of the letters which constitute the contract of engagement for the provision of its audit services comprise an agreement to exclude the jurisdiction of the Court which, by implication from Article 5(A)(3) of the JAL, can be enforced by the Court. Clause 44 relevantly provides:
“44. Law and Jurisdiction
The services contract shall be subject to and governed by the laws of the United Arab Emirates and laws of Dubai International Financial Centre, as applicable. All disputes arising from or under the Services Contract shall be subject to the exclusive jurisdiction of the United Arab Emirates Courts or the Courts in the Dubai International Financial Centre, as appropriate.”
14. KPMG LG contends that the words “as appropriate” at the conclusion of the clause should be construed to exclude the jurisdiction of this Court in relation to claims arising under the agreement. I do not consider that contention has a real prospect of success, essentially for the reasons given by AIML in its skeleton.
15. In short, the words of the clause plainly do not, in their nature and ordinary meaning, exclude the jurisdiction of this Court. In order to construe the words “as appropriate” as having that consequence, more is needed. KPMG LG contends that “as appropriate” means that the jurisdiction of this Court is excluded because KPMG LG is not a DIFC entity and is not regulated by the DIFC.
16. As there are no words in clause 44 to that effect, the clause could only be construed in that way on the basis of matters either known (subjectively) to both parties, or, perhaps, which would have been known by reasonable parties in their position at the time the relevant agreements were entered into. The matters upon which KPMG LG relies in this regard are:
(a) The fact that KPMG LG was not authorised by the DFSA to provide services in the DIFC at the time the engagements were entered into; and
(b) KPMG used clause 44 in engagements involving KPMG entities which were DIFC entities and subject to the regulatory regime of the laws of the DIFC and KPMG entities which were not DIFC entities and not subject to the DIFC regulatory regime.
17. I do not consider that there is any real prospect that the Court of Appeal will conclude that the evidence established that both of these matters were known to AIML, or would have been known to a reasonable party in the position of AIML at the time it engaged KPMG LG. In relation to the first matter, KPMG LG relies upon the assertion that the status of KPMG LG as an entity regulated outside the DIFC is a matter of public record. There are two flaws in this contention. First, there was no evidence of that before the Court. Second, the fact that a matter could have been ascertained by a diligent search of a public record somewhere in the UAE does not sustain the conclusion that the contents of that record were either known to AIML or would have been known by a reasonable party in the position of AIML.
18. KPMG LG asserts that the second matter can be inferred from the fact that the engagement letter appeared to be a general letter applicable to engagements within the UAE. However, an indication that the engagement letter might be in more general use does not establish the process of reasoning upon which KPMG LG relies unless AIML also knew, or a reasonable party in AIML’s position would have known, that KPMG operated in the UAE through different entities which were subject to different regulatory regimes, including an entity or entities based in the DIFC and subject to its laws, and entities which were not based in the DIFC and subject to its laws. I do not consider that KPMG LG has any real prospect of establishing these matters on the evidence.
19. Further and in any event, even if, contrary to my view, KPMG LG succeeded in establishing that these matters were either known or should have been known by both parties at the time they entered into their agreements, I do not consider that KPMG LG has a real prospect of establishing that the words “as appropriate”, properly construed, exclude the jurisdiction of this Court.
20. For these reasons, I do not consider that KPMG LG has a real prospect of establishing ground 1 of its proposed appeal.
Ground 2
21. In order to establish ground 2, KPMG LG would have to establish that the decision of the Court of Appeal in Al Khorafi v Bank Sarasin-Alpen (NE) Ltd5 was wrong.
22. Essentially for the reasons given by AIML in its skeleton, I do not consider this ground has a real prospect of success. The ground turns upon the proper construction of Article 5(A)(3) of the JAL. There is no express provision within that Article relating to the enforcement of agreements to exclude the jurisdiction of the Court. Rather, the availability of enforcement arises by implication or inference from the terms of the Article. I do not think that there is any real prospect of persuading the Court of Appeal that the implied power to enforce agreements to exclude the jurisdiction of the Court is, in fact, an obligation to enforce such agreements in all circumstances such that the Court has no discretion to decline to enforce an agreement in any circumstances whatever.
Ground 3
23. Ground 3 challenges the conclusion that the Court has jurisdiction to deal with the claim under Article 5(A)(1)(b) because the claim arose from contracts which were:
(i) partly concluded or finalised within the DIFC;
(ii) partly performed in the DIFC; or
(iii) supposed to be performed partly within the DIFC.
24. KPMG LG does not challenge the factual findings which sustained those conclusions. Rather, KPMG LG contends that:
(a) “partly concluded” within DIFC does not include a contract executed within the DIFC and then sent to another party outside the DIFC; and
(b) the essential service to be provided under the engagements was an audit letter, and the audit letters were to be issued by KPMG LG from outside the DIFC; and
(c) the relevant enquiry is as to whether there is a contractual provision requiring performance within the DIFC.
25. I do not consider that any of these contentions have a reasonable prospect of success. The proposition that a contract executed within the DIFC and then sent to another party elsewhere is partly concluded within the DIFC accords with the natural and ordinary means of the words used in the Article, and is consistent with the evident purpose of the Article, which is confer exclusive jurisdiction where there is a relevant connection with the DIFC.
26. The proposition that performance of the services pursuant to the audit engagement is limited to the transmission of an audit letter was not raised at first instance and is, with respect, untenable. The audit letter is simply the culmination of the process of audit, which is the essential service to be provided pursuant to the engagement.
27. The proposition that a contract will only be “supposed” to be performed within DIFC if there is a contractual requirement to that effect places a constraint upon the language of the Article which is not justified by its terms. The contract required KPMG LG to audit AIML. AIML was based in the DIFC. For the reasons given in my earlier decision, the parties must be taken to have supposed that at least some of the audit services would be performed within DIFC.
28. For the reasons given in the earlier decision, the evidence clearly establishes that the relevant agreements were partly concluded in the DIFC, and the audit services provided pursuant to the agreements were provided party within the DIFC, as the parties contemplated.
29. Ground 3 has no real prospect of success.
Ground 4
30. Ground 4 challenges the conclusion that the Court has jurisdiction under Article 5(A)(1)(c) of the JAL which confers jurisdiction upon the Court to hear claims arising out of or relating to any incident or transaction which has been wholly or partly performed within DIFC.
31. KPMG LG relies upon the arguments advanced in support of ground 3 to support ground 4.6 However, those grounds, which depend upon propositions relating to the conclusion of contracts, the essential nature of the service to be provided under the contract, and the particular terms of the contractual provisions have no corresponding application to the jurisdiction conferred upon the Court under Article 5(A)(1)(c). That jurisdiction depends, as a matter of fact upon whether a transaction has been wholly or partly performed within DIFC irrespective of the precise terms of the contract relating to the transaction.
32. As noted, KPMG LG does not challenge the findings of fact, which were to the effect that KPMG LG provided audit services to AIML within the DIFC.
33. For these reasons, I do not consider that ground 4 has any real prospect of success.
Ground 5
34. Ground 5 challenges the conclusion that the Court has jurisdiction pursuant to the pathway identified in Nest Investment Holdings Lebanon S.A.L v Deloitte & Touche (m.e.),7 through the combined operation of Article 5(A)(1)(e) and RDC 20.7. KPMG LG contends that while RDC 20.7 authorises the joinder of a party to an existing claim if the conditions of the Rule are satisfied, it does not authorise the joinder of another discrete claim between parties other than the parties to the existing proceedings.
35. I consider that there is some force in this argument, which would have a real prospect of success. However, as already noted, success on this ground alone would not result in the appeal being upheld, unless grounds 3 and 4 were also upheld. As I have concluded that neither of those grounds has any real prospect of success, it follows that my conclusion that this ground has a real prospect of success does not sustain the grant of permission to appeal.
Summary and Conclusion
36. For the reasons given, I have concluded that only one of the five grounds of appeal has any real prospect of success. As the success of that ground alone would not result in the success of the appeal, it follows that KPMG LG has failed to establish a real prospect of success in the appeal, and the Application for Permission to appeal must be refused.
Costs
37. There is no reason why costs should not follow the event. KPMG LG should pay AIML’s costs of the Application for Permission to appeal to be assessed by the Registrar of the Court unless agreed.