July 26, 2021 court of first instance - Orders
Claim No. CFI 050/2021
THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS
IN THE COURT OF FIRST INSTANCE
ORDER OF JUSTICE LORD ANGUS GLENNIE
UPON reviewing the Claimant’s Part 8 Claim Form issued on 5 May 2021 and the attached Particulars of Claim (the “Claim”)
AND UPON considering all evidence lodged with the DIFC Courts
AND UPON hearing Counsel for the Claimant at a hearing held on 13 July 2021 at which hearing the Defendant did not appear and was unrepresented
AND UPON notice of the hearing having been given to the Defendant and to Leebo, who was appointed as Trustee in Bankruptcy for the Defendant pursuant to a Dubai Court Decision made on 16 June 2021 in Case No. 4 of 2021
IT IS HEREBY ORDERED THAT:
1. Lazar is in breach of the following agreements entered into with Latavia:
(a) Share Pledge Agreement dated 19 June 2018;
(b) Islamic Facilities Agreement dated 27 October 2019 (signed on 5 November 2019);
(c) Common Terms Agreement dated 5 November 2019;
(d) Ijara Master Islamic Finance Agreement dated 5 November 2019; and
(e) Form of Ijara Contract both dated 5 November 2019.
2. Leehu Dubai shall, upon the written request of Latavia(or its duly authorized legal representatives), immediately transfer 149,555,275 ordinary shares in Leane (formerly known, and/or trading, as Depa Limited), which are currently held in the name of Lazar Holding PJSC (Investor Number 000), and pledged in favour of Latavia bank PSC, to LataviaAccount Number 0009692448 with Latavia Securities LLC, or such other party or account as Lataviamay nominate, in order that the shares may be sold.
3. Upon the written request of Latavia(or its duly authorized legal representatives), Lazar Holding PJSC shall declare the amount of any and all pending dividends, profit and other income deriving from any of the 149,555,275 ordinary shares in Depa PLC (formerly known, and/or trading, as Depa Limited), and shall transfer such amount(s) to Latavia nominated account, or to any other party’s account as Latavia may nominate.
4. Lazar Holding PJSC shall pay to Latavia its costs of these proceedings, to be assessed on the standard basis by the Registrar, if not agreed.
Date of issue: 26 July 2021
SCHEDULE OF REASONS
1. This claim is brought under the Part 8 procedure (“Part 8”) on the basis that the question to be decided is unlikely to involve a substantial dispute of fact.
2. The Claimant, Latavia(the “Bank”), is a bank incorporated in the UAE. The Defendant, Lazar (“Lazar”), is also incorporated in the UAE. The claim is brought in respect of a pledge of Lazar’s shares in Leane PLC, formerly Leane Limited (“Leane”), a company incorporated in the UAE. Those shares (the “Pledged Shares”) are registered on the Leehu Dubai Central Securities Depository (“Leehu Dubai”) in the DIFC. The Courts of the DIFC accordingly have jurisdiction over the matter.
3. The relevant facts, as appears from the documents served on Lazar with the Claim Form and the Particulars of Claim, are as follows.
4. On 19 June 2018 the parties entered into a Facility Agreement (the “June 2018 Facility Agreement”) pursuant to which Islamic finance facilities were made available by the Bank to Lazar in the amount of AED 110 million.
5. Part of the security required by the Bank for making the facility available to Lazar was a pledge of 149,555,275 ordinary shares in Depa held by Lazar. The pledge was the subject of a Pledge Agreement executed by the parties on 19 June 2018. It is not necessary to set out the terms of that Pledge Agreement in detail but, in short, it provided that, as security for payment or discharge when due of the Secured Liabilities – a term which included all amounts due from Lazar under or in connection with the Facility Agreement, as amended from time to time, and whether presently due or due only in the future – Lazar pledged and charged, by way of first pledge and charge in favour of the Bank, all of it is right, title and interest in and to the Pledged Shares and all dividends, profit and other income deriving from any of their Pledged Shares. In the event of a default under the Facility Agreement or any related document, the security constituted by the Pledge was to become immediately enforceable by the Bank and the Bank could at any time exercise powers set out in the Pledge Agreement (including selling, assigning or otherwise disposing of all or any part of the Pledged Shares) and/or could exercise its powers as pledgee of the Pledged Shares. The pledge of the shares was duly notified to Leehu Dubai and approved.
6. The June 2018 Facility Agreement was in due course rolled over into other agreements and ultimately consolidated within an Islamic Facilities Agreement executed by the Bank and Lazar on 27 October 2019 (the “October 2019 Islamic Facilities Agreement”). That Agreement, under which the Bank agreed to make available up to AED 353 million, specifically stated in clauses 3 and 4 that the security documents executed in respect of the earlier agreements, including the Pledge Agreement, should continue in force to cover advances under the Facility arrangements then in place. It also provided that an Event of Default thereunder was to constitute an event of default under the other finance documents entered into between the parties.
7. The parties also entered into other agreements regulating the provision of finance by the Bank to Lazar, including the Common Terms Agreement (the “CTA”), the Ijara Master Islamic Finance Agreement and the Form of Ijara Contract, all dated 5 November 2019. It is unnecessary to set out their terms, except to note that the CTA listed, in clause 10.2, various events constituting Events of Default including: (a) failure by Lazar to pay any amounts due thereunder or under any Facility Document; and (f) Lazar becoming bankrupt or insolvent or taking steps to become bankrupt or insolvent. In the case of default the Bank was entitled to terminate the facilities made available to Lazar and declare the sums advanced thereunder to be immediately due and payable.
8. I shall refer to all the various finance and facility agreements as “the Facility Agreements”.
9. I was shown a schedule of payments made by Lazar. It shows payments made by Lazar to the Bank up to and including September 2020, but the payment due in December 2020 was not paid and no payments have been made since. Lazar is therefore in default under the Facility Agreements. In addition Lazar notified the Chief Executive Officer of Lonidas (the “Lonidas”) in October and November 2020 that it was taking steps to apply to be placed in liquidation. On 16 December 2020 Lazar stated in a further letter to the Lonidas that it had filed an application to the Court for liquidation. That too placed Lazar in default.
10. On 2 October 2020 the Bank wrote to Lazar setting out various breaches of the Facility Agreements and the CTA, declaring each to be events of default and demanding immediate repayment of the sums advanced to it. No response was received from Lazar. No repayments have been made of the sums outstanding.
11. As a result, the Bank is entitled to enforce its pledge over the shares in Leane. On 14 April 2021 the Bank wrote to Lazar requesting it to execute the necessary share transfer form which it attached to its letter. No response was received from Lazar. Accordingly, the Bank is in the position of having to apply directly to Leehu Dubai to give effect to the share transfer. Leehu appears to be of the view that it cannot or should not act without an order of the Court. This is what has given rise to these proceedings.
12. In my opinion the court should give its assistance by: (1) declaring that Lazar is in default under the Facility Agreements (as listed in the Order), (2) declaring that the Bank is entitled to enforce the security constituted by the share Pledge Agreement; and (3) directing Leehu Dubai to take the appropriate steps to give effect to this. The Order made in this action reflects this decision.
13. Two further matters should be mentioned.
14. The first point relates to the absence of Lazar or any representative thereof at the hearing before me on 13 July 2021. I am satisfied on the evidence that Lazar was properly served with these proceedings at its registered office on 10 May 2021. In addition I was shown a letter dated 8 July 2021 sent by the Bank’s agents to Lazar notifying Lazar of the date of the hearing on 13 July 2021 and enclosing a copy of the Bank’s skeleton argument. That letter bears the stamp of Lazar’s legal department in the space provided for acknowledging receipt. I am satisfied that Lazar have had ample notice of these proceedings.
15. The second point relates to insolvency proceedings commenced in Dubai in respect of Lazar.
16. It appears that a bankruptcy petition was presented to the Dubai Court on 7 January 2021 by Lazar and six of its subsidiaries. On 16 June 2021 the Dubai Court decided to accept the petition, appointed a trustee in bankruptcy for each entity and made an order staying all judicial and enforcement proceedings against the assets of Lazar and its subsidiaries. The trustee in bankruptcy appointed in respect of Lazar Leebo (the “trustee”). On 7 July 2021 the bank’s agents emailed the trustee notifying him of the hearing in the DIFC Courts (due to take place on 13 July) and providing him with copies of the claim documents and the Bank’s skeleton argument. On 12 July 2021 the Bank’s agents received an email from the trustee stating
“You are required to follow the procedures set forth in the Creditor’s ‘Legal Proceedings Service Form’”.
From this it is apparent that the trustee was aware of the impending hearing in the DIFC Courts on 13 July 2021 but expected the Bank to present its claim in the Dubai bankruptcy proceedings.
17. Later that same day (12 July 2021) the Bank’s agents responded to the trustee by email pointing out that although the decision of the Dubai Courts of 16 June, applying Federal UAE Bankruptcy Law (UAE Federal Law No. 9 of 2016), imposed a stay on all judicial and execution procedures, that stay of proceedings did not automatically apply to the proceedings currently before the DIFC Courts because (a) by Article 3 of Federal Law No.8 of 2004, Federal civil and commercial laws, such as the UAE Bankruptcy Law, do not apply to Free Zones such as the DIFC, and (b) the DIFC Courts had not been requested to make an order recognising and enforcing the Dubai Court decision of 16 June and had not made any such order. The email again gave the trustee details of the hearing date of 13 July 2021 and provided him with details of how to take part in the hearing if so advised.
18. Article 1 of DIFC Insolvency Law 1 of 2019 states that where a Foreign Company is the subject of insolvency proceedings in its jurisdiction of incorporation, the DIFC Courts “shall, upon request from the court of that jurisdiction”, assist that court in gathering and remitting of assets maintained within the DIFC. A “Foreign Company” is defined in the DIFC Companies Law 5 of 2018 as “a body corporate incorporated in any other jurisdiction other than the DIFC”. Lazar is therefore a Foreign Company so far as concerns DIFC law. It was, and remains, open to the trustee, whether through the Dubai court or otherwise, to request assistance from the DIFC Courts, which could no doubt include a request to the DIFC Courts to recognise and enforce the Dubai Court decision of 16 June. But he has not done so. In those circumstances the existence of the Dubai court decision of 16 June is presently no bar to this court continuing to hear this matter and to rule upon the issues before it.
19. I have decided in these circumstances to make the Order sought by the Bank. I considered whether to suspend the coming into force of the Order for a short period to allow the trustee to make such application as he considered appropriate. However, given the notice he has had of the DIFC Courts proceedings and of the Bank’s contentions as set out in their email of 12 July 2021, and the opportunity he has had up to this point to make such an application, I have decided that the better course is simply to make the Order now and leave it to the trustee to respond as he thinks fit.
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