April 05, 2022 court of first instance - Orders
Claim No: CFI 055/2020
IN THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS
IN THE COURT OF FIRST INSTANCE
NS INVESTMENTS LIMITED
ORDER WITH REASONS OF JUSTICE ROGER GILES
UPON reviewing the Claimant’s Application No. CFI-055-2020/5 dated 21 December 2021 seeking immediate judgment against the Defendant (the “Immediate Judgment Application”)
AND UPON reviewing the Defendant’s evidence in answer to the Immediate Judgment Application dated 25 January 2022
AND UPON reviewing the Claimant’s evidence in reply dated 8 February 2022
AND UPON the parties’ agreement that the Immediate Judgment Application be dealt with on the papers pursuant to the Consent Order issued on 1 March 2022
AND UPON reviewing the Claimant’s written submissions dated 16 March 2022
AND UPON reviewing the Defendant’s written submissions dated 16 March 2022
AND UPON reviewing the Defendant’s Statement of Costs dated 17 March 2022
IT IS HEREBY ORDERED THAT:
1. The Immediate Judgment Application is dismissed.
2. Costs in the case.
Date of Issue: 5 April 2022
SCHEDULE OF REASONS
1. This is the Claimant’s application for immediate judgment on a claim for money lent. The parties have agreed that the application should be determined on the papers, without an oral hearing. The Claimant relies on the witness statements of Vinay Surana (“Mr Surana”), the last of which is in reply to the witness statement of the Defendant next mentioned; the Defendant relies on his fifth witness statement dated 25 January 2022. I have received written submissions from the parties both dated 16 March 2022.
2. The Claim Form was issued on 28 June 2020, accompanied by Particulars of Claim. The Claimant claimed a declaration that a loan agreement between it and the Defendant was terminated and it was entitled to recover the loan and interest, and repayment of the loan and interest including default interest.
3. The Claim Form and Particulars of Claim were served on the Defendant on 7 July 2020, and on 8 July 2020 a copy of the Particulars of Claim was delivered to his legal representatives in Dubai, Zayed AlShamsi Advocates and Legal Consultants (“AlShamsi”). An Acknowledgement of Service was not filed, but on 9 August 2020 AlShamsi emailed to Clyde & Co (“Clyde”), the Claimant’s legal representatives, a “reply memo” (the “Memo”), copied to the Courts’ Registry. While not in usual form, the Memo responded to the claim, made points plainly intended to be in answer to it, and concluded by asking (amongst other things) that the claim be dismissed. Despite a prompt from the Registry that all “submissions” be filed using the electronic filing facility, the Memo was not e-filed.
4. The time for filing a defence to the claim expired on 20 August 2020. Taking the view that the Defendant had filed neither an Acknowledgement of Service nor a Defence within the time allowed under the Rules, the Claimant applied for default judgment. In the supporting affidavit the submission of the Memo was disclosed, but the Judicial Officer must also have viewed it as not constituting a filed Defence. Default judgment was issued on 1 September 2020
5. By an Application Notice issued on 21 September 2020, the Defendant applied to set aside the default judgment. The materials in support of the application included a “Statement of Defence/Case by the Defendant“ (the “Defence Statement”), advancing substantially the same matters as had been advanced in the Memo. The application came before H.E Justice Ali Al Madhani on 9 December 2020. In reasons issued on 29 April 2021, His Excellency considered in detail the arguments put by the Defendant, identifying four defences but concluding that none provided a real prospect of successfully defending the claim. The application was dismissed.
6. Pursuant to permission subsequently granted by H.E Justice Ali Al Madhani, the Defendant appealed. The appeal was presented on two grounds: first, that the Memo had constituted a filed Defence and the conditions for granting default judgment had not been satisfied, and therefore the judgment must be set aside; and secondly, that the Defendant did have a real prospect of successfully defending the claim and the default judgment should be set aside as a matter of discretion. The appeal was heard on 25 October 2021, and in reasons issued on 18 November 2021 it was upheld on the first ground and the default judgment was set aside. As to the second ground, the Court said:
“49. The Defendant has raised a number of potential defences. For our part, having decided the first ground of appeal in favour of the defendant, with the consequence that the default judgment will be set aside, we would prefer to say nothing about the underlying merits or otherwise of the claim or the defence to it. All points are open to the parties and there can be no issue estoppel arising from the judgment below which has now been set aside.“
7. Questions of amendment then arose. The Claimant did not amend the Particulars of Claim. After some sparring between the parties, by consent there was filed on behalf of the Defendant a Statement of Defence and Counterclaim dated 7 March 2022 (the “Defence”).
The Loan Agreement
8. The Loan Agreement is a two-page document dated 2 July 2019, with six clauses. It names the Claimant as the Lender and the Defendant as the Borrower and is signed by Nirmal Kumar Sethia (“Mr Sethia”) on behalf of the Claimant and by the Defendant.
9. Clause 1 records that at the request of the Borrower, the Lender lends to the Borrower USD 1,298,977. By paragraph (a) the loan is to be repaid “within 60 days (the “Loan Period’) from the date of drawdown by 3rd September 2019”. By paragraph (b), it is to bear interest at 24% per annum and “in case of default interest will be charged at 36% p.a. (“Default Interest”) from 60 days of the drawdown until actual payment of the loan and any of the outstanding interest”, the Default Interest to be capitalised on a monthly basis. By paragraph (c), the Borrower “undertakes to repay the full loan and interest within the loan period“.
10. Clause 2 provides that in the event of non-observance or breach of any of the terms of the agreement, the Lender has the right to institute proceedings or recover losses from the Borrower “at any time after 60 days of the drawdown”. Clause 3 provides that the agreement “shall be governed by DIFC Courts of Dubai and shall have conclusive jurisdiction in relation to any breach relief declaration interpretation or other matter that arises under or in connection with this Loan Agreement”.
11. Clause 4 gives addresses for service of notices or proceedings, cl 5 provides for giving a security cheque for AED 5 million, and by cl 6 all legal expenses for the preparation of the Loan Agreement and recovery of the loan amount in case of default are payable by the Borrower on demand.
The Particulars of Claim
12. After identification of the parties, the Loan Agreement is pleaded in paragraphs 6 to 9. Paragraph 10 alleges the jurisdiction of the DIFC Courts, and paragraph 11 amounts to alleging that the governing law is DIFC law. It may be noted that jurisdiction is not disputed, and in the Defence paragraph 11 is admitted but with the rider that it “would be appropriate to apply all laws applicable in the UAE, including the laws of Dubai, the DIFC, Abu Dhabi and other federal laws.“ In paragraphs 12 to 14 it is alleged that the Defendant is “in breach of its [sic] obligations under the Loan Agreement and/or in breach of its [sic] obligations under the DIFC Laws“, the breaches then described amounting to failure to repay the loan within 60 days, failure to pay in full the interest of USD 53,691 for the Loan Period (USD 49,595 was paid, leaving USD 4,096 outstanding), and failure to pay any Default Interest.
13. Paragraphs 15 to 18 come down to the allegation that the security cheque was deposited but bounced due to insufficient funds. Irrelevantly, it is added that criminal proceedings were brought against the Defendant, and he was fined.
14. In paragraphs 19 to 25 there is reference to correspondence in which the Claimant sought payment from the Defendant but received no substantive response from the Defendant or AlShamsi. The final demand for payment was on 7 June 2020. Payment was not made, and the proceedings were commenced.
15. Paragraph 26 then alleges that by reason of the Defendant’s conduct and breaches of the Loan Agreement the Claimant is entitled to terminate the Loan Agreement and recover the loan and interest, in accordance with Articles 86 and 90 of the DIFC Contract Law, DIFC Law No. 6 of 2004 (“the Contract Law”). The claims to relief follow, being a claim to a declaration that the Loan Agreement is terminated and the Claimant is entitled to repayment of the loan and accrued interest and claims to repayment of the loan in the amount of USD 1,298,977, to payment of the outstanding interest of USD 4,096 for the Loan Period, and to payment of Default Interest accruing at USD 1,294 per day.
16. There is surplusage and some misconception in the Particulars of Claim. There is no question of terminating the Loan Agreement; on the Claimant’s case, it is a straightforward matter of recovery of money lent, the time for repayment having arrived, and payment of interest in accordance with the parties’ agreement. The Claimant does not need to terminate the Loan Agreement, it needs to enforce it, and Articles 86 (termination for breach) and 90 (restitution on termination) of the Contract Law have no part to play. The pleading is, however, well able to carry the straightforward claim to recover the loan amount and interest.
17. The Defence includes a counterclaim; for the present, I refer only to the defence. The defence is rambling and lacks coherence. While from time to time it responds to paragraphs in the Particulars of Claim, for the application it is a matter of ascertaining why it is said the claim must fail.
18. A theme is that the Loan Agreement was part of an oral joint venture agreement between Mr Sethia, a Mr Ziad Baraket, and the Defendant. The joint venture is not clearly explained, and its terms are not at all spelled out, but at one point it is described as a business plan that Mr Sethia would source business opportunities and the Claimant (his company) would provide investment capital to launch the businesses with the Defendant and/or Mr Baraket; it is also said that Mr Sethia would provide the investment capital to launch the businesses if the Defendant or Mr Baraket knew of any suitable business opportunities. Two “deals“ are described, said to be “under the auspices of the oral Joint Venture Agreement“, the CVM deal in 2017–18 and the Zilli deal in 2017–19. The gist of the descriptions is that both deals failed for reasons for which the Defendant blames Mr Sethia.
19. At one point it is said that the “main purpose of the Loan Agreement was to enable the Claimant to fund business opportunities under the Joint Venture Agreement”; at another, that Mr Sethia induced the Defendant to enter into the Loan Agreement “on the basis that Mr Sethia and the Claimant would use these funds to cover the investment costs and expenses of their potential investments under the Joint Venture Agreement“. This is expanded:
“The Loan Agreement was entered into by Mr Sethia to (i) give a false assurance to the Defendant that the funds provided under the Loan Agreement would be provided to the Defendant to cover his expenses/investment contribution under the DefendaAgreement; and to (ii) enable the Claimant and Mr Sethia to engineer the takeover of the Defendant’s Property … which he was renting from the Defendant at that time.”
20. Bearing in mind that the Loan Agreement was in July 2019, whatever part it played in the joint venture agreement was not to do with investment in the CVM deal or the Zilli deal. Later in the defence another explanation is given, again and more specifically linked with the engineering of a take-over of the Defendant’s property. It is said that a condition of Mr Sethia providing investment capital for the joint venture was that the Defendant rent his property in Emirates Hills to Mr Sethia. In December 2015 the Defendant rented the property to Mr Sethia until the end of February 2019, and he then extended the term to 31 July 2020. It is then said:
“In or around the date of the Loan Agreement, Mr Sethia was aware that the Defendant was losing faith in his ability to deliver on his promises and representations. At this point, the Defendant had spent over two years with Mr Sethia and incurred substantial costs and expenses to undertake business activity with Mr Sethia and the Claimant, and needed capital to fund his businesses which had suffered due to Mr Sethia’s representations and conduct. Mr Sethia and the Claimant had failed to pay all the costs and expenses the Defendant had incurred on behalf of the joint venture and lost due to Zilli and CVM deals not materialising. Knowing the effect of damage caused by him, Mr Sethia engineered a transaction with the aim of depriving the Defendant of the Property. Mr Sethia suggested to the Defendant that he would provide financing to the Defendant for their joint venture activities through the Claimant.”
21. The provision of financing was the Loan Agreement, and it is said that Mr Sethia made a number of representations about it, to which I will come. It is alleged, “It is now clear to the Defendant that Mr Sethia through the Claimant had engineered a transaction which would enable Mr Sethia (by using the Claimant’s corporate structure) to take over the ownership of the Property or other available assets of the Defendant.“ This is not further explained; it must be assumed that it means taking over ownership by obtaining judgment for the loan amount and interest and enforcing the judgment against the Defendant’s assets and in particular the property.
22. Four representations are alleged. One is that it was essential that the Claimant enter into the Loan Agreement “because [Mr Sethia’s] trustees in the UK would not otherwise provide funding for the joint venture agreement“. Another is that the drawdown period would be three months (in fact it was two months) “because in that period one of their joint venture related businesses would commence and at that point any payment payable under the Loan Agreement by the Defendant would be either waived or paid through revenues of the new joint venture business entities“. The third is that “in order to satisfy their trustees of Mr Sethia, exorbitant and unenforceable interest rates were to be put in the Loan Agreement with an understanding that no interest would be imposed on the joint venture”. The fourth is that the security cheque was a formality and would not be “encashed”. The narration of the third representations includes:
“The only reason the Defendant signed the Loan Agreement is because Mr Sethia had confirmed to the Defendant that his intention through the Loan Agreement was to help the Defendant cover the costs of the joint venture investments. It is the Defendant’s understanding that the Loan Agreement was merely a vehicle imposed on Mr Sethia by his trustees and hence the loan amount in question was not to be paid back in any event”.
23. The understanding that the loan amount was not to be repaid is asserted as the Defendant’s understanding, but can find a basis in the second representation and its reference to waiver or payment through joint venture revenues. It is later alleged more definitely that the Defendant entered into the Loan Agreement “as a result of Mr Sethia’s promises and representations” and “[i]n view of the foregoing facts and necessary context to the Loan Agreement … under the Join Venture Agreement the amount provided to the Defendant under the Loan Agreement was not to be paid back by the Defendant to the Claimant“.
24. A number of observations may be made at this point. First, entry into the Loan Agreement is not denied, nor is the amount claimed as repayment of the loan amount disputed. Complaints made in the Memo and the Defence Statement that sums paid by the Defendant had not been accounted for are not maintained – the amounts paid made up the USD 49,495 credited against the interest payable. Secondly, the complaints made in the Memo and the Defence Statement that the interest in the Loan Agreement was usurious and for that reason could not be recovered are also not maintained; rather, it is now said that it was represented that no interest would be charged at all. If interest is to be charged, there is no dispute over quantum (but see  below). Thirdly, while sometimes the Loan Agreement is referred to as if providing funds to the joint venture, that does not make sense; the loan is to the Defendant, his assertion of a design to deprive him of his property requires that it be a loan to him, and the better understanding of the Defendant’s position is that set out at  above, that the loan was to put the Defendant in funds because he was out of pocket from his involvement in the joint venture and needed funds for his own businesses or for future involvement in the joint venture. Fourthly, although not well pleaded the gravamen of the defence is that the Defendant would not be required to repay the principal or to pay any interest (nor would the cheque be presented for payment).
25. By Rules of the DIFC Courts (RDC) 24.1, the Court may give immediate judgment against a defendant if it considers that the defendant has no real prospect of successfully defending the claim and there is no other compelling reason why the case should be disposed of at trial. The principles on which the Court acts are well established, and it is sufficient to refer, without setting the passages out, to GFH Capital Ltd v Haigh  DIFC CFI 020 (10 November 2016) at  endorsed in the Court of Appeal in Saif Saeed Sulaiman Mohammed Al Mazrouie v Bankmed (SAL)  DIFC CA 011 (2 January 2020) at . In summary for present purposes, the Court must consider whether the defendant has a “realistic“ as opposed to a “fanciful“ prospect of success, meaning one that carries some degree of conviction and is not merely arguable as opposed to one that is entirely without substance; a mini-trial without disclosure and oral evidence should be avoided, and the Court should not attempt to resolve the conflicts of fact which are normally resolved by a trial process, although it may be clear that there is no real substance in factual assertions in which case immediate judgment may be given; and the Court must take into account not only the evidence before it in the application, but also the evidence that can reasonably be expected to be available at trial.
26. The applicant for immediate judgment carries the legal burden of proof, although if a claimant discharges that burden by adducing evidence which establishes an entitlement to judgment, the defendant carries the burden of adducing evidence to show that it has a real prospect of successfully defending the claim or there is some other reason why the proceedings should go to trial: see Barclays Bank Plc v Shetty  DIFC CFI 061 (4 May 2021) at .
27. In the present case the Claimant has adduced evidence of the Loan Agreement, and evidence that (or it is not disputed) the loan was advanced and (other than the USD 49,495) neither the principal has been repaid nor interest has been paid. The Defendant has the evidential burden of showing that he has a real prospect of making out the defence that he would not be required to repay the principal or pay any interest.
28. The fifth witness statement of the Defendant puts the Loan Agreement as part of the joint venture agreement in similar fashion to the Defence. It includes stating in the same or similar words to those in the Defence the matters described in -  above. It is verified by a statement of truth. There is therefore evidence to support the defence that the Defendant would not be required to repay the principal or to pay any interest. Unless it is clear that there is no substance in the Defendant’s factual assertions in this respect, there is a realistic (in the relevant sense) prospect of success in defending the claim.
29. In his third witness statement, in reply to that of the Defendant, Mr Surana says that any allegations of an oral joint venture agreement between the Claimant and the Defendant “are irrelevant, unverified, unsupported and strongly denied“, and that the representations by Mr Sethia alleged by the Defendant “are unverified, unsupported, fabricated and strongly denied“. There is, however, no evidence from Mr Sethia, and beyond the denials in Mr Surana’s third witness statement no evidence putting forward the Claimant’s account of an involvement or absence of involvement between Mr Sethia and the Defendant or how the Loan Agreement came about. There is no attempt to show lack of substance in the Defendant’s factual assertions by giving such an account, supported by documentary material inconsistent with the Defendant”s account. The bald denials do not show lack of substance in the Defendant’s factual assertions – rather, they indicates a factual enquiry to be made at a trial.
30. There are other matters to be taken into account.
(a) The Defendant made payments to the Claimant, being the USD 49,595 earlier mentioned. The transfer advices identified the payments as “towards interest”. The fact of payment was relied on by the Defendant: in the Memo these payments were referred to as “sums on the loan account” and in the Defence Statement they were referred to as “sums of the loan amount”, with the complaint that they had not been accounted for. This is not consistent with the defence that interest is not payable.
(b) Neither the Memo nor the Defence Statement included an assertion that the loan was not repayable, or that interest was not payable. The Memo included, rather Delphically, that “[t]he plaintiff has submitted to the defendant the loan that is the subject of the arbitration case before you to compensate for some of the losses that the defendant lost as a result of false promises and deceit inflicted by its manager”, and claimed to set off damages and losses incurred by the Defendant “as a result of the false promises made by the claimant’s representative”. The Defence Statement asserted an entitlement to set off various amounts in relation to the CVM and Zilli deals and the renting of the property to Mr Sethia, and the relief claimed was appointment of an accounting expert “to ascertain the amount paid by the Defendant towards the Loan amount and also ascertain the amount which the defendant is entitled to set off owing to the deceit of the claimant“. This recognised that the loan amount was payable, and is also inconsistent with the defence.
(c) It may be thought inherently not credible that a loan would be made on terms that it need not be repaid and no interest would be payable. On the other hand, the Defendant’s evidence includes a possible explanation, that repayment was expected from joint venture revenues and interest was to be foregone because Mr Sethia’s intention was “ to help the Defendant cover the costs of the joint venture investment“ (see  above).
31. I note that the Claimant’s submissions include that the Defendant “effectively admitted the debt“, when the Claimant sought to enforce the default judgment in the Dubai Courts and the Defendant “acknowledged to the court that the sums were owing, offered to make a payment of AED 1,390,000 into court and made submissions that he intended to settle the judgment debt over a period of 36 months“. However, there is no evidence of these matters before me, and I cannot have regard to them.
32. One would expect it to have been prominent in the Memo or the Defence Statement that the Loan Agreement was entered into on the basis of no repayment and no payment of interest, and I have considerable suspicions of the Defendant’s evidence. But I have concluded that giving effect to my suspicions would not be in accordance with the principles applicable to immediate judgment. I do not think it can be said that there is clearly no substance in what the Defendant says, and this application is not an occasion for unravelling the circumstances in which the Loan Agreement was entered into and determining whether it was on a no recourse basis. Accordingly, the Immediate Judgment Application must be dismissed.
33. The Claimant’s submissions included reference to the conclusion of H.E Justice Ali Al Madhani, in the application to set aside the default judgment, that none of the four defences had a real prospect of success. As the Court of Appeal pointed out, there is no issue estoppel. In any event, as appears above the defence as now put forward was not before His Excellency. My decision of this application is arrived at independently of His Excellency’s decision.
34. In his fifth witness statement, the Defendant also contends that the interest in the Loan Agreement was usurious and therefore irrecoverable. That is not part of the defence in the Defence, no doubt because it is inconsistent with the case that interest was not payable at all. I therefore say nothing of it.
35. It is unnecessary to address the counterclaim, part of the Defence, for whether it provides a defence by way of set-off. An issue is whether the complaints made, if making out a cause or causes of action, give a cause or causes of action against the Claimant as distinct from Mr Sethia. That may well arise in the course of the case management next mentioned.
36. The pleading of the Defence is manifestly unsatisfactory, and the proceedings should not be allowed to progress towards a trial as it stands. If the Claimant had not consented to the filing of the Defence, but had taken issue with its lack of coherence, it is difficult to see that it could have been permitted to be filed. A case management hearing should be convened at which, if necessary by robust inquisition, the Defendant is required to re-plead in a form which properly responds to the paragraphs in the Particulars of Claim and sets out his case in defence of the claim and as a counterclaim in a more coherent form.
37. The Defendant asked for costs if the Immediate Judgment Application was dismissed. The fifth witness statement of the Defendant was filed after the application was issued and was the first raising of the defence which I have held should go to trial; and it was a considerable time later that the Defence was filed taking it up. As matters stood when the Claimant filed the application, it was justified in making it. As I have said, I have considerable suspicions of the Defendant’s evidence which underpins the defence. In my view, the just disposition of the costs of the application is that they should be costs in the case.
38. I make the following orders:
(a) Dismiss the application for immediate judgment.
(b) Costs of the application to be costs in the case.
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