April 11, 2021 court of first instance - Judgments
Claim No: CFI 082/2020
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
RADA TRADING LLC FZC
(1) WEALTH BRIDGE TRADING CRUDE OIL AND REFINED PRODUCTS ABROAD LLC
(2) COHENRICH ENERGY FZE
|15 February 2021
|Dr Rassan Robert Azhari instructed by Azhari Legal Consultancy for the Claimant.
Alex Burrell instructed by Horizons & Co for the First and Second Defendants.
|11 April 2021
JUDGMENT OF H.E JUSTICE OMAR AL MUHAIRI
UPON considering the Defendants’ application dated 17 January 2021 and the Claimant’s application dated 26 January 2021
AND UPON reviewing all the relevant documents on the Court’s file
IT IS HEREBY DECLARED AND ORDERED THAT: -
1. The Claimant’s claim be struck out.
2. The Second Defendant’s counterclaim be struck out.
3. The Claimant to pay the Defendants’ costs of striking out the claim, such costs to be assessed by the Registrar if not agreed.
4. The Second Defendant to pay the Claimant’s costs of striking out the counterclaim, such costs to be assessed by the Registrar if not agreed.
Date of issue: 11 April 2021
SCHEDULE OF REASONS
1. I have been asked to consider effectively two cross applications. The first is an application by the Defendants for strike out of the Claimant’s claim against them. This application also contains an ancillary application for immediate judgment on some aspects of the Claimant’s claim, as an alternative. The Second is an application for strike out of the Defendants’ counterclaim.
2. It is not necessary to set out the entire factual background of this case for the purposes of this judgment. Needless to say, I have had regard to all of the documents submitted by the parties in relation to their respective applications and I have carefully considered the skeleton arguments and submissions made on behalf of the parties.
3. This case arises from a settlement agreement entered into by all three of the parties to this claim and dated 30 March 2020 (the “Settlement Agreement”). Prior to this, the Claimant and First Defendant had previous dealings with one another. The First Defendant sold oil products to the Claimant.
4. As a result of fluctuations in the market, the Claimant overpaid the First Defendant for oil products in the sum of USD 11,028,338 (the “Overpayment”). The Claimant and the First Defendant agreed that the Overpayment would be returned to the Claimant in the form of Cargo Gas Oil to the value of USD 11,028,338. The First Defendant offered alternative recompense through one of its associated companies, the Second Defendant, as it was unable to repay the Overpayment itself. The extent of the First and Second Defendant’s association appears to be disputed, but it is not a factor that I consider to be relevant for the purposes of this judgment.
5. The Settlement Agreement effectively assigns the liability for the Overpayment to the Second Defendant and absolves the First Defendant from any liability or future claims in relation to the Overpayment. The Settlement Agreement stipulates that the Second Defendant shall make various deliveries of oil products throughout 2020 and some of 2021, until the entire value of the Overpayment has been met. The Settlement Agreement is not a contract; there is no consideration. It is merely the assignment of liability for a debt to the Second Defendant and sets out the terms upon which the Overpayment shall be paid to the Claimant.
6. In 2020 we faced the global pandemic which has caused substantial issues across the globe and the Second Defendant found itself unable to meet the terms of the Settlement Agreement. The Claimant contends that the Second Defendant was unable to comply with the Settlement Agreement for reasons other than the Coronavirus. The Second Defendant alleges that there was a variation to the Settlement Agreement to allow for alternative oil products to be used to satisfy the Overpayment. The Claimant refused deliveries after September 2020 and sought to terminate the Settlement Agreement on 1 October 2020.
7. The fact of the matter is that the Overpayment has not been repaid and the terms of the Settlement Agreement have not been met. The Claimant issued proceedings against the Defendants on 6 October 2020 and filed its Particulars of Claim on 26 November 2020. The Defendants filed their Defence and counterclaim on 24 December 2020. Both parties have been legally represented throughout the proceedings and both Defendants have been represented by the same firm.
8. The Defendants issued an application for strike out of the Claimant’s claim and alternatively for immediate judgment on 17 January 2021. The Claimant also issued an application for strike out of the counterclaim on 26 January 2021.
9. First turning to the First Defendant’s application for strike out of the claim against them, the difficulty I have is that I must consider the pleadings for strike out in isolation. Helpfully, the evidence submitted in the applications is more akin to submissions. On the submissions and pleadings before me, I consider that the Settlement Agreement is valid and binding upon the parties. The reasons pleaded and put forward by the Claimant, in my judgment, are not sufficient in the circumstances to rescind, invalidate or set aside the Settlement Agreement. As specified within the Settlement Agreement, all liability for the Overpayment was assigned to the Second Defendant and the First Defendant was absolved of liability.
10. On the pleadings, I do not find that the circumstances are sufficient to give rise to bad faith. The Defendants’ silence cannot be considered an act of bad faith nor do consider that silence enticed the Claimant to enter into the Settlement Agreement.
11. Although the parties were aware of the Covid-19 pandemic at the time of signing the Settlement Agreement, I do not consider that the full extent and effect of the global health crisis were in the contemplation of any parties at that time. While Dubai had already entered into lockdown, I do not consider that any party could have fully understood and contemplated the effect the pandemic would have life; effects so strong that we are still feeling them today. I take judicial notice of the fact that the global pandemic has had a significant effect on the worldwide economy and particularly on the oil and gas industry.
12. I do not consider that the Second Defendant’s inability to comply with the terms of the Settlement Agreement automatically gives rise to an assumption of insolvency prior to entering into the Settlement Agreement. While the inability to pay one’s debts is one of the tests for insolvency, that does not give rise to an assumption of insolvency prior to that time. Although I do note that the Second Defendant was “having problems with clients since January 2020”, that does not necessarily mean that it was in financial difficulties at that time or that it was insolvent.
13. The Settlement Agreement was based on a commercial relationship between the parties. It was for the Claimant to undertake its own due diligence before entering into the Settlement Agreement. I do not find that there is sufficient evidence to demonstrate bad faith on the part of the Defendants, in particular regarding the financial status of the Second Defendant before entering into the Settlement Agreement. There is nothing within the pleadings in relation to the entering into of the Settlement Agreement to demonstrate that the Defendants acted unconscionably or improperly. The Claimant’s claim is based on an assumption alone.
14. Clause 4.2 the Settlement Agreement specifies that neither party entered into the same in reliance on any representation or warranty made by the other party. Therefore, the parties expressly excluded any ability to rely upon representations of the other in entering into the Settlement Agreement. While fraudulent misrepresentation cannot be excluded, I do not find that the circumstances of the case would give rise to a claim for fraudulent misrepresentation. The Claimant seeks to rely upon the Defendants’ silence. For misrepresentation to occur there must be an express representation rather than mere silence. As such, I do not find that there is any basis to rescind the Settlement Agreement on the basis of bad faith or on misrepresentation.
15. The Claimant submitted that termination of the Settlement Agreement would give rise to liability on the part of the First Defendant by default. There is a clear difference in terminating and rescinding an agreement. The latter can only occur in special circumstances such as fraud or misrepresentation. I do not find that there is evidence of a prima facie case for either of those causes of action here. Once an agreement is rescinded, the parties are put back to the position they would have been in had that agreement never been entered into.
16. For liability on account of the default to come about for the First Defendant, the Settlement Agreement would need to be rescinded or set aside, rather than merely terminated. I do not find the circumstances as set out in the pleadings would give rise to recission of the Settlement Agreement or that there are grounds to set it aside. Therefore, termination alone will not give rise to recission and the parties would not be put back into a position as though the Settlement Agreement had not been entered into.
17. I also accept the Defendants’ submission that the Settlement Agreement is not a bilateral contract, but merely an assignment of liability to the Second Defendant. Therefore, Article 272 of the UAE Civil Code, Law 5 of 1985 does not apply and the Settlement Agreement cannot be rescinded in this manner.
18. The Claimant has also submitted that the relevant parts of the Settlement Agreement are invalid as those parts have impliedly sought to exclude liability under tort. However, the Claimant’s claim is a contractual one: when reading the Particulars of Claim I did not consider that the Claimant was bringing a claim in tort. The requirements of establishing tortious liability, such as a duty of care, are not set out in the Particulars of Claim, nor is a specified claim under the tort of deceit. In any event, I do not consider that the Settlement Agreement seeks to exclude tortious liability per se, it merely seeks to assign all liability to the Second Defendant rather than exclude it. I, therefore, do not accept the Claimant’s submission in this regard.
19. The Claimant further contends that the Settlement Agreement is invalid as the party who signed on behalf of the First Defendant was not a manager. I do not consider that this invalidates the Settlement Agreement: the First Defendant accepts that it entered into the terms of the Settlement Agreement. I accept the Defendants’ submissions as contained at paragraphs 41 to 50 of Mr Zarouni’s second witness statement. The person who signed on behalf of the First Defendant in my judgment had authority from the First Defendant to do so, whether express, implied or ostensible. I also accept that the First Defendant’s company stamp on the signing confirms acceptance of the First Defendant of the terms of the Settlement Agreement. Furthermore, I accept that it is only for the First Defendant to dispute its entering into an agreement and not for the Claimant, given the authority set out in Mr Zarouni’s second witness statement. As a result, I consider that the First Defendant validly entered into the terms of the Settlement Agreement and agreed to the same.
20. In the Claimant’s Reply and Defence to Counterclaim and in submissions, it has sought to assert that the First Defendant is the alter ego of the Second Defendant as the financial manager of the First defendant is the shareholder of the Second Defendant and further because the Defendants are represented by the same legal representative. The Claimant appears to be requesting that the Court lift the corporate veil in an attempt to share liability between the Defendants. Firstly, I accept the Defendants’ submission that a new cause of action cannot be brought in a Reply and that a Reply is intended to respond to the matters raised in the Defence.
21. Secondly, while it may be the case that the Defendants are represented by the same firm and the financial manager of the First Defendant is the shareholder of the Second Defendant, I see no basis in this without more to lift the corporate veil. I do not consider, in the circumstances, that the simple use or involvement of the Second Defendant in this matter is a sham or was done in an attempt to defraud the Claimant. As I have set out above, the Settlement Agreement was a commercial transaction, and it was for the Claimant to undertake its own due diligence. The Claimant decided to enter into the Settlement Agreement of its own volition. I do not accept that the Defendants tricked the Claimant by their silence.
22. If the Claimant had wished for the First Defendant to remain liable for the Overpayment it should have required the Settlement Agreement to make such a provision. However, such liability is contrary to the terms of the Settlement Agreement. The Settlement Agreement absolves the First Defendant from any liability and the Claimant warranted not to bring any claim against the First Defendant for the same.
23. In the circumstances and given the strict wording of the Settlement Agreement as to the liability of the First Defendant, I consider it is appropriate to strike out the claim as against the First Defendant on the basis that the Particulars of Claim discloses no reasonable grounds for bringing a claim against the First Defendant. The Settlement Agreement is clear: there is no basis disclosed in the Particulars of Claim to set it aside or rescind and, as set out in the Settlement Agreement, the liability for the same has been firmly assigned to the Second Defendant. As such there is no need for me to consider the Defendants’ application for immediate judgment.
24. Now turning to the application for strike out of the claim as against the Second Defendant. The only part of the Particulars of Claim that sets out the allegations of liability against the Second Defendant is at paragraph 8.3.1. The purpose of a pleading is to set out a party’s case so that the issues in dispute and which require determination by the Court are clear. Paragraph 8.3.1 does not set out the basis of any breach of contract and lacks clarity. The Particulars of Claim in this regard, as against the Second Defendant, does not meet the requirements of RDC Part 17. It would be an injustice to the defending party for the Court to allow a case that is not properly pleaded to proceed to trial where the defending party may not have understood the issue to be live. The Particulars of Claim remain as they stand, and the Claimant has not sought to amend the same. I, therefore, grant the Second Defendant’s application and strike out the Claimant’s claim against the Second Defendant.
25. While I am asked to strictly apply the RDC and the terms of the Settlement Agreement to the Claimant, I must also apply them in the same manner upon the Defendants. The Second Defendant’s counterclaim relies solely on the variation of the Settlement Agreement. Having considered the counterclaim in some detail, I do not accept that it sets out a proper basis for variation. Under clause 4 of the Settlement Agreement, the terms therein formed the entire agreement. Therefore, no ancillary agreement could have been formed regarding the supply of alternative oil products. However, more importantly at clause 13 it states that any variation to the Settlement Agreement should be in writing and signed by or on behalf of the parties.
26. The counterclaim does not seek to plead that any written variation occurred and certainly not that such variation was signed by the parties. As a result, I do not find that there is any legal basis, in the circumstances, for the Settlement Agreement having in fact been varied. Therefore, the Claimant was not obliged to accept the alternative products and no liability for the Second Defendant’s alleged losses can arise. As a result, I also strike out the counterclaim on the basis that it discloses no reasonable grounds for bringing the counterclaim.
27. In the Claimant’s reply to the Defendants’ application, it sought to rely upon without prejudice correspondence. While some correspondence may not be marked without prejudice, that does not necessarily mean that it is not so. Conversely, simply because correspondence is marked without prejudice does not mean that it is so. Having looked at the correspondence as part of the Claimant’s reply, I do consider that it is correspondence purely dealing with a genuine attempt to settle the matter and is, therefore, without prejudice. As such, this correspondence should not have been brought before the Court until the conclusion of the case when the issue of costs is considered.
28. The Court does not look upon the disclosure of without prejudice correspondence lightly and the Claimant should certainly think twice before doing so again. I have completely disregarded this correspondence in coming to my determination and I do not consider that it was relevant in any event as I was required to consider the Particulars of Claim and the counterclaim in isolation.
29. Finally, the Claimant states, as a procedural issue, that the Defendants were wrong to include substantive submissions within their witness statements. Although I accept that witness statements should be used for evidence, it is general practice where an application such as this is being made to include general submissions within supporting witness statements. I found the Defendants’ witness statements to be helpful; if anything, they put the Claimant on notice as to the nature and extent of the arguments that were to be put forward on the Defendants’ behalf. I do not consider that there was any prejudice to the inclusion of submissions within the witness statement. However, there was significant overlap in the skeleton argument and witness statements. I appreciate that there can be difficulties in parties being able to fully put forward their application in the application notice alone. In coming to my judgment, I have taken into account the contents of the witness statement. An application should sufficiently set out the basis upon which an application is being made and the general arguments that are to be put forward. However, for ease of the Court, substantive arguments should not be contained within witness statements and should be reserved for skeleton arguments.
30. Having regard to the relative success of the parties and the general principle that costs follow the event, I order that the Claimant shall pay the Defendants’ costs of the strike out of their claims against the First and Second Defendant.
31. The Second Defendant also pays the Claimant’s costs arising from the striking out the counterclaim.
32. In making this determination I have had regard to the circumstances as set out at RDC 38.8. There are issues with the conduct of both parties on each side. While the Claimant wrongfully disclosed without prejudice correspondence, as noted above, I do not consider such correspondence was relevant to the applications before me. I also accept that the Defendants should not have included substantive submissions within their witness statements, however, I do not consider this had any material effect on the proceedings.
33. In the circumstances, I do not propose to make any additional adverse costs orders against either party for these reasons and I consider that costs should simply follow the event.