Claim No: CFI 020/2010
THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS
IN THE COURT OF FIRST INSTANCE
BETWEEN
(1) RA DR ALFRED WIEDERKEHR
(2) RA DR GEORG WIEDERKEHR
Claimants
and
DIWAN CAPITAL LIMITED
Defendant
ORDER OF JUSTICE SIR JOHN CHADWICK
UPON reviewing the Claimant’s Application Notice submitted to the Court on 24 November 2015 on behalf of the Claimants, (respectively “the Application” and “the Claimants”)
AND UPON reading the documents described in the First Schedule to this Order
AND without an oral hearing
AND for the Reasons set out in the Schedule to this Order
IT IS HEREBY ORDERED THAT:
1. Mr Shahab Haider as the liquidator of Diwan Capital Limited (in liquidation) (“the Liquidator”) shall provide written confirmation to the Claimants within 14 days of the date of this Order that he has reviewed the terms of the Settlement Agreement (hereinafter described) and unequivocally agrees to all the terms contained therein in accordance with paragraph 5 of the Order dated 15 August 2012 made in these proceedings.
2. In the event that the Liquidator fails to provide the written confirmation as required by paragraph 1 of this Order and upon request by the Claimants, written confirmation in those terms shall be signed on behalf of the Liquidator by the Registrar of the Court and provided to the Claimants.
3. The Claimants shall bear their own costs of the Application and such costs shall not be treated for the purposes of paragraph 4 of the Order dated 15 August 2012 as costs and expenses of pursuing the proposed proceedings (as defined in that Order).
4. The Claimants shall bear the Liquidator’s costs of the Application in so far as such costs were incurred after 24 November 2015.
5. The Liquidator shall not be entitled to treat his costs in connection with the request for approval of the terms of the Settlement Agreement in so far as incurred between 27 July 2015 and 24 November 2015 as costs reasonably incurred in the liquidation; but, save as aforesaid (and save as to costs recovered or deducted pursuant to paragraph 4 of this Order) the Liquidator shall be entitled to treat his costs of the Application as costs in the liquidation.
6. The parties may apply for further directions in respect of monies paid into Court pursuant to the Settlement Agreement.
7. This Order shall not be open for inspection by the public without further order of the Court.
Issued by:
Maha AlMehairi
Judicial Officer
Date of Issue: 3 March 2016
At: 12pm
THE REASONS
1. On 5 July 2010 the Court appointed the Liquidator to be the liquidator of Diwan Capital Limited (“the Company”), a company registered in the DIFC and then in voluntary liquidation.
2. By an order dated 15 August 2012 (“the August 2012 Order”) the Claimants were given permission to bring proceedings in the name of the Company against the persons and in respect of the claims identified therein. Paragraph 4 of the August 2012 Order provided that, prior to distribution in the liquidation of any sums recovered in those proceedings, the Claimants should be paid out of such sums their reasonable costs and expenses of pursuing the same (such costs and expenses to be approved by the Court before deduction or payment thereof). The August 2012 Order provided that any proposals for settlement of such proceedings were to be put to the Liquidator for his agreement; and, in the absence of such agreement, were to be submitted to the Court for directions.
3. Pursuant to that order the Claimants issued proceedings in the name of the Company on 3 February 2013 under reference CFI 004/2013 (“the Derivative Proceedings”) against the thirteen defendants named therein. On 25 February 2013 a fourteenth defendant was added to those proceedings.
4. In or about July 2015 the Claimants and the third, fourth, fifth, sixth, seventh, ninth, eleventh, twelfth and fourteenth named defendants to the Derivative Proceedings (together, “the Represented Directors”) entered into a conditional agreement (“the Settlement Agreement”) the terms of which provided for the release of the Represented Directors and of the eighth, tenth and thirteenth defendants (together, “the Unrepresented Directors”; and, together with the represented directors, “the Released Parties”) of all claims made against them in the Derivative Proceedings upon the payment of a specified sum (“the Settlement Sum”) into Court.
5. It was a condition precedent to the payment of the Settlement Sum under the Settlement Agreement that the Claimants procure and produce to the Represented Directors written confirmation from the Liquidator that he had reviewed the terms of the Settlement Agreement and agreed unequivocally to all the terms contained therein.
6. On 26 July 2015 the Claimants filed a Notice of Discontinuance in respect of all the claims made in the Derivative Proceedings against the Released Parties.
7. In response to the Claimants’ request to the Liquidator (made by email dated 26 July 2015) for his approval of the terms of the Settlement Agreement, his legal representatives stated (in a letter dated 22 August 2015) that he would consent to the Settlement Agreement if, but only if, three conditions were satisfied:
(i) that the Claimants procure that paragraph 4 of the August 2012 Order (and paragraph 4 of the schedule to an earlier order said to have been made on 26 July 2012) be varied so as to provide that all monies which would (it is said) have been paid to the Liquidator under those paragraphs shall be paid into Court in accordance with the Settlement Agreement;
(ii) that the Claimants prepare and submit to the Liquidator a schedule of their costs incurred in the Derivative Proceedings for his consideration and approval; and
(iii) that the Claimants indemnify the Liquidator against any claims that might be made by the defendants to the Derivative Proceedings.
8. The conditions which were sought on behalf of the Liquidator in the letter dated 22 July 2015 were rejected by the Claimants in a letter dated 1 September 2015 from their attorney (Dr Gordian Gaeta). It was said that the Claimants saw no reason to enter into correspondence concerning matters outside the Liquidator’s decision whether to approve or decline to approve the terms of the Settlement Agreement. The Liquidator was invited either to approve the terms of the Settlement Agreement or to seek the guidance of the Court.
9. The Liquidator’s response, in a letter from his legal representatives dated 15 September 2015, was not to set out his objections to the course which the Claimants had adopted in failing to put settlement proposals before him for approval before agreeing the terms of the Settlement Agreement with the Represented Directors; but to state that “on a commercial basis alone” he gave his consent to the Settlement Agreement “in light of the fact that you have made it clear that you intend to press ahead without rectifying your breaches …”. It was stated that the Liquidator maintained his objections and fully reserved his rights in relation to the indemnities provided to him by the Claimants and further losses that may be incurred howsoever arising from their breaches of the August 2012 Order.
10. The Application seeks a declaration that the Liquidator has given his approval to a proposed settlement to the claims in the Derivative Proceedings against the Represented Directors upon the terms set out in the Settlement Agreement. It is said, in the document described as “Application for Directions for the Liquidator and Claimants’ Submissions” by which the Application is made, that, in the events which have happened, the Liquidator has given his consent to the proposed settlement, “but refuses to evidence such approval in a form which can be disclosed to [the Represented Directors] such as to allow the proposed settlement to be finalised”. In the alternative, the Application seeks an order that the terms set out in the Settlement Agreement are approved by the Court. The Claimants also seek an order that the costs of the application be paid by the Liquidator personally.
11. The Liquidator’s response to the Application is set out in the witness statement of Daleep Kumar Singh, dated 27 December 2015. At paragraph 14 of the witness statement it is said the Claimants have acted “in flagrant breach of the Order” in that they did not submit a proposal for settlement to the Liquidator; rather they “simply informed the Liquidator of what had already taken place” and that, in those circumstances, “the Liquidator cannot be expected to give retrospective consent to the deal”. At paragraph 16 of the witness statement four reasons are advanced in support of that contention:
(1) that, as a consequence of the Claimants’ breach of the August 2012 Order the Liquidator was deprived from taking a view as to whether the settlement proposal was in the best interest of the creditors, prior to the settlement being finalised;
(2) that the executed Settlement Agreement contained a number of worrying omissions; in that, for example, the Unrepresented Directors were allowed to enjoy the benefit of the settlement agreement without being parties to that agreement or without providing any consideration for that benefit, with the result that the potential recovery for the Company was reduced;
(3) that the Claimants entered into the Settlement Agreement without any consideration of the cost consequences of so doing; given that the Settlement Agreement was silent in relation to costs and the provisions of RDC 34.15 could be said to apply on discontinuance of the claims against the Released Parties;
(4) that Clause 2.2 of the Settlement Agreement provided that the settlement could not be concluded without the Liquidator’s written agreement to its terms; with the consequence that the effect of failing to obtain that consent was that no payment would be made.
In the concluding paragraphs of the witness statement it is said, first, that the Liquidator has made it clear in correspondence that he approves of the Settlement Agreement on a commercial basis but that he cannot give an unqualified approval bearing in mind the number of serious unanswered questions that remain, which could lead to a significant reduction of the amounts due under the settlement; second, that the Liquidator opposes a declaration that he has given his approval to the terms of the Settlement Agreement and opposes an order that he pay the costs of the Application personally; and, third, that the Liquidator does not oppose an order that the terms set out in the Settlement Agreement are approved by the Court, or such other order as the Court may think appropriate in the circumstances, provided that the Claimants are ordered to pay the costs of and occasioned by the Application.
12. The Claimants’ reply to the Liquidator’s response is found in the document dated 10 January 2016 described as “Claimants’ Submissions in Response to Liquidator’s Witness Statement”. It is said that, in the circumstances that the Liquidator does not oppose an order in terms of the relief sought by the Claimants in the alternative – that is to say, an order that the terms set out in the Settlement Agreement are approved by the Court, or such other order as the Court may think fit – there is no substantive issue between the parties on the Application. It is said that the proviso by which the Liquidator qualifies his consent to an order in those terms – that the Claimants are ordered to pay the costs of the Application – is “nonsensical and objectionable”; in that the Application was necessary only because the Liquidator refused to consent to the terms of the Settlement Agreement.
13. As I have said, the Liquidator’s initial response to the Claimants’ request for approval of the terms of the Settlement Agreement was that he would consent if, but only if, the three conditions set out in the letter dated 22 August 2015 were satisfied. That initial response was ill-conceived. First, there was no need to vary any existing order made by this Court: there was no reason why the Claimants and the Represented Directors should not agree terms for the release of the claims made against the Released Parties in the Derivative Proceedings which provided for the Settlement Sum to be paid into Court: indeed, an agreement in those terms had the advantage that the Represented Directors would obtain a good receipt for the Settlement Sum and would not, thereafter, be concerned with the distribution of that sum between the Claimants, the Liquidator and the other persons (if any) interested in the liquidation. Second, there was no need for the Claimants to prepare and submit to the Liquidator (before approval of the terms of the Settlement Agreement and in advance of the payment of the Settlement Sum into Court) a schedule of their costs incurred in the Derivative Proceedings for his consideration and approval: paragraph 4 of the August 2012 Order provided for payment to the Claimants of their reasonable costs and expenses of pursuing the Derivative Proceedings (which costs and expenses were to be approved by the Court prior to any deduction): the Represented Directors were not concerned with any payment which was to be made out of the Settlement Sum to the Claimants in respect of their costs and expenses: the sensible course was to leave the quantification of those costs and expenses to be determined (as between the Claimants and the Liquidator) after the Settlement Sum had been paid into Court. Third, there was no need for any additional undertaking by the Claimants to indemnify the Liquidator against any claims that might be made by the defendants to the Derivative Proceedings: provision for such an indemnity had already been made by paragraph 3 of the August 2012 Order.
14. The Liquidator’s further response (in the first witness statement of Daleep Kumar Singh) contained two objections of more substance: that, as a consequence of the Claimants’ breach of the August 2012 Order the Liquidator was deprived from taking a view as to whether the settlement proposals were in the best interest of the creditors (if any), prior to the settlement being finalised; and that Clause 2.2 of the Settlement Agreement provided that the settlement could not be concluded without the Liquidator’s written agreement to its terms, with the consequence that the effect of failing to obtain that consent was that no payment would be made. The other two points were ill-conceived. There is nothing to suggest that the inclusion of the Unrepresented Directors as parties to the Settlement Agreement would have added to the Settlement Sum or that preserving the claims made against them in the Derivative Proceedings (by excluding them from the class of Released Parties) would have been of any benefit to the Company. And the suggestion that the Claimants entered into the Settlement Agreement without any consideration of the cost consequences of so doing ignores Clause 8.3 (which provides, in terms) that each party shall bear its own costs of the proceedings and in relation to the Agreement.
15. There is no doubt that the Claimants failed to put the proposals for settlement which became embodied in the Settlement Agreement to the Liquidator for his approval before those proposals became binding on the Parties (subject to the condition precedent) on the execution of that agreement – as they were required to do under Clause 5 of the August 2012 Order and before they discontinued the Derivative Proceedings against the Released Parties. The effect of the course which the Claimants adopted was that the Liquidator had no opportunity to make representations to the Claimants or to the Court (if so minded) that the interests of the Company would be better served by attempting to negotiate an improvement in the terms of the Settlement Agreement. The choice with which he was faced was between approving the terms which had been negotiated between the Claimants and the Represented Directors – with the consequence that the Settlement Sum would be paid into Court by the Represented Directors (or by their insurers) – or refusing to approve those terms – with the consequence that the Settlement Sum would not be paid and the claims against the Released Parties would have been discontinued for no consideration. The course which the Claimants adopted had the effect (whether or not intended) of pre-empting the consideration of the settlement proposals by the Liquidator on their merits; for which Clause 5 of the August 2012 Order had provided. In those circumstances, as it seems to me, the Liquidator was entitled to take the view that the protection of the Company’s interests which Clause 5 of that order had been intended to provide – by giving him the opportunity to consider the settlement proposals on their merits – had been frustrated by the course which the Claimants had chosen to adopt; and that the question whether or not the terms of the Settlement Agreement should be approved should be left to the Court.
16. Under the terms of the Settlement Agreement the condition precedent to the payment of the Settlement Sum is that the Claimants procure and produce to the Represented Directors “written confirmation from the Liquidator that [he] has reviewed the terms of the Agreement and unequivocally agrees to all the terms contained therein in accordance with paragraph 5 of the 15 August 2012 Order.” The question for the Court is whether, in the events which have happened, it is in the best interests of the Company (and of those interested in a distribution of its assets) that that condition precedent should be satisfied: that is to say, whether, in the events which have happened, the Liquidator should be directed to provide written confirmation in the terms which are required. In my view there is no doubt that the answer to that question is “yes”: in the events which have happened it is in the best interests of the Company and of those interested in the distribution of its assets that written confirmation in the terms which are required by the condition precedent should be provided to the Represented Directors. As I have said, failure to satisfy the condition precedent would have the effect that the Settlement Sum would not be paid and the claims against the Released Parties would have been discontinued for no consideration.
17. Accordingly, I direct that the Liquidator provides written confirmation to the Claimants within 14 days of the date of this Order that he has reviewed the terms of the Agreement and unequivocally agrees to all the terms contained therein in accordance with paragraph 5 of the August 2012 Order; and I further direct that, if the Liquidator fails to do so and upon request by the Claimants, written confirmation in those terms shall be signed on behalf of the Liquidator by the Registrar of the Court and provided to the Claimants.
18. I have explained why the Liquidator was entitled to take the view that the question whether the Settlement Agreement should be approved should be left to the Court. He was entitled to take that view in the circumstances that the Claimants chose to adopt the course which they did; a course which was inconsistent with the provisions in Clause 5 of the August 2012 Order. In those circumstances I am satisfied that the appropriate order as to the costs of the Application is that the Claimants should bear both their own costs and the costs of the Liquidator in so far as the latter costs were incurred after 24 November 2015 (being the date upon which the Application was received by the Court). The Claimants’ costs of the Application should not be treated for the purposes of paragraph 4 of the August 2012 Order 2012 as costs and expenses of pursuing the Derivative Proceedings. Further, given that the Liquidator’s initial response to the Claimants’ request for approval of the Settlement Agreement was ill-conceived (for reasons which I have explained), it is appropriate that the Liquidator should not be entitled to treat his costs in connection with that request in so far as incurred between 27 July 2015 and 24 November 2015 as costs reasonably incurred in the liquidation.
19. The Settlement Agreement contains (at Clause 6) provisions which are intended to preserve confidentiality in respect of the claims made in the Derivative Proceedings, the negotiations leading to settlement of those claims and the existence and terms of the Settlement Agreement. In those circumstances, I am satisfied that, without further order of the Court (after taking account of such representations, if any, as the Claimants, the Liquidator and the Represented Defendants may wish the Court to consider), this Order should not be open to inspection by the public.
Issued by:
Maha AlMehairi
Judicial Officer
Date of Issue: 3 March 2016
At: 12pm
The post CFI 020/2010 (1) RA Dr Alfred Wiederkehr (2) RA Dr Georg Wiederkehr v Diwan Capital Limited appeared first on DIFC Courts.