Fix Sense Management Llc v (1) Sunset Hospitality Holding Limited (2) Sunset Hospitality Group Holding Limited [2020] DIFC CFI 059

Claim No. CFI 059/2020

THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS

IN THE COURT OF FIRST INSTANCE

BETWEEN

FIX SENSE MANAGEMENT LLC

Claimant

and

(1) SUNSET HOSPITALITY HOLDING LIMITED
(2) SUNSET HOSPITALITY GROUP HOLDING LIMITED

Defendants

JUDGMENT OF JUSTICE SIR JEREMY COOKE

ORDER

UPON reviewing the Claimant’s Application No. CFI-059-2020/1 dated 18 November 2020 (the “Application”)

AND UPON reviewing the Defendant’s response to the Application dated 16 December 2020

AND UPON hearing Counsel for the Claimant and Counsel for the Defendant at a hearing before Justice Sir Jeremy Cooke on 5 January 2021

IT IS HEREBY ORDERED THAT:

1. The Application is dismissed.

2. The Claimant shall pay the Defendants costs of the Application assessed at AED 90,000 plus VAT.

Issued by:
Nour Hineidi
Registrar
Date of Issue: 10 January 2021
At: 9am

Introduction

1. The Claimant (“Fix Sense”), of which Mrs Hana Habib Mansoor Habib Alherz (“HAH”) is the 99% shareholder (with her husband holding the remaining 1%), on 18 November 2020 applied for summary judgment on part of the claim to be given at the Case Management Hearing scheduled for 30 November 2019 in respect of paragraphs 47.1-47.4 of the Particulars of Claim. This appeared to be a “heavy” application and was therefore adjourned to 5 January 2021. By this Application, Fix Sense seeks an immediate declaration that the First Defendant (“Sunset RAK”) has unlawfully terminated an agreement dated 1 July 2016 between itself and Fix Sense (the “HOA”). It also appears to claim damages for non-payment of fees before and after such termination, as well as seeking an order for transfer of a 2.5% shareholding in Sunset RAK. As part of the application, it seeks the striking out of a series of paragraphs in the Defence of the two defendants, namely paragraphs 5, 30, 31, 32, 52, 53, 56, 64.7, 65, 66, 69 and 70, on the basis that they disclose no reasonable grounds for defending the claim and/or they are an abuse of process and are likely to obstruct the fair disposal of the proceedings. It is said that the pleading reveals no viable defence and that there is no realistic prospect of establishing a defence that termination of the Sunset HOA was justified, with the consequences that follow from that.

2. The tests applicable on an application for summary judgment are too well-known to require repetition. I need only refer to Investments Holding Lebanon et al v Deloitte & Touche et al [2016] DIFC CFI 027 (12 February 2018) and the citation there by Justice Roger Giles of the guidance given in the English decision in Easy Air Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch) at paragraph 15. The essential question is whether the Defendant has a realistic, as opposed to a fanciful, prospect of success in the defences put forward. The test applicable on striking out is yet more stringent, because, effectively, the pleas alone fall to be investigated to ascertain, whether as a matter of law they are capable of amounting to a defence, without any factual enquiry into the evidence which is said to support or refute them.

3. On any view, this was an optimistic application since some obvious factual issues arise as to the payments allegedly due and the circumstances which surround the termination of the HOA, which are not capable of resolution without a trial at which full evidence can be heard and tested by cross- examination. I have had the benefit of considering the Claim Form, the Particulars of Claim, the Defence and the Reply, together with 3 Witness Statements adduced by the Claimant, and in particular two from HAH dated 17 November and 29 December 2020, and skeleton arguments from the Claimant and the Defendants, together with a number of authorities, including New York authorities, on which the parties relied.

4. Ultimately however, by reference to the written submissions, there was one issue of law upon which the application to strike out and the application for summary judgment appeared largely to depend, although life had moved on somewhat by the time the oral hearing took place, at which Mr Iqbal stressed other matters. The critical point at issue from the written submissions turns on the construction and effect of a particular clause in the Sunset HOA which is entitled “Cross Default by Fix Sense” (the “Cross Default” clause). The two Defendants rely on this clause as entitling them to terminate the HOA on the ground that HAH was in repudiatory breach of the Nominee Agreements. The clause reads as follows:

“On breach of any agreement entered into with Sunset Group by Fix Sense or its shareholders in the course of such provision of the Services apply shall constitute [sic] a default of Fix Sense of this Agreement and Sunset may (at its sole discretion) pursue the remedies as may be applicable by law.”

5. Despite the failures in syntax, the overall intent of the clause is not difficult to ascertain but was the subject of considerable and convoluted argument. It is necessary however to place it in the context constituted by the HOA itself and other agreements which are in one way or another related to the HOA. It is also necessary to draw attention to the existence of other proceedings in CFI-024-2020 in which Sunset RAK and another affiliate, Peatura FZ LLC (“PFZ”) have made claims against HAH as an individual for breach by her of two Nominee Agreements, dated 18 December 2016 and 25 May 2017, to which she was a party. Each was allegedly entered into in connection with the HOA, and another agreement made between the Second Defendant (“Sunset BVI”) and Fix Sense (the “BVI Shareholders Agreement”). The inter connection is obvious but their exact interrelationship is the subject of dispute. Mr Iqbal for Fix Sense described the HOA as the “Mother Agreement” and it seems that the Nominee Agreements were entered into in the light of it, or of a similar over- arching arrangement which preceded its execution, whatever their timing.

6. Whilst there are disputes as to the timing of the different agreements, email correspondence shows that both the HOA and the BVI Shareholders Agreement, which were both dated 1 July 2016, were not in fact executed until after 12 April 2017 at the earliest because there is discussion between the parties at that stage of a potential execution date of 1 May 2017. The dates of the Nominee Agreements may well straddle the date of execution of these two agreements with Fix Sense.

7. Sunset BVI is the owner of 100% of the shares in Sunset RAK, which is a 51% shareholder in PFZ, which in turn is the registered shareholder of 49% of the shares in Break Oven Restaurant LLC (“Brick Oven”). Sunset RAK is also the registered shareholder of 49% of the shares in Black Restaurant & Coffee LLC (“Black Tap”). 51% of the shares in Brick Oven and Black Tap are registered in the name of HAH and it is disputed whether or not those shares are held as nominee or are beneficially owned by HAH. In November/December 2019, Sunset RAK and PFZ requested HAH to transfer the 51% shares, which were registered in her name, to another UAE national on the basis that she held them as their nominee under the Nominee Agreements. She refused.

CFI-024-2020

8. In CFI-024-2020, an action begun in March 2020, Sunset RAK and PFZ seek the transfer of those shareholdings, relying on the Nominee Agreements. The claims are resisted by HAH on the basis that the Nominee Agreements are void on the grounds that:

9. Those proceedings have progressed further than the current proceedings, although disclosure has not yet occurred, and the Court of Appeal is due to hear an interlocutory appeal on January 18 in relation to the exclusion of a late counterclaim and evidence adduced by HAH and the question whether the action should proceed under Part 8 (under which it commenced) or under Part 7. Fix Sense accepted in its written submissions that it was not for this Court today to determine matters which fall be decided in that action unless the issues are necessary for decision on the application made by Fix Sense which falls to be determined today. The same or related issues arise however in the two actions and self- evidently, as appears from the summary above, involve issues of fact, as well as issues of public policy which are unsuitable for decision on a summary judgment application.

The Claim in the Current Action

10. As appears from the current action, HAH, the ultimate beneficial owner of Fix Sense, contends that Fix Sense beneficially owns 2.5% of the shares in Sunset RAK under the terms of the BVI Shareholders Agreement and HOA and seeks the transfer and registration of those shares in its name. The entitlement to that 2.5% is not disputed by the Defendants, although that shareholding has not been registered. An offer to transfer the shares has been made in the Defence which has not been taken up. There is thus no issue on this point and it would not appear to me to be right for the Court to issue what amounts to a mandatory injunction or an order for specific performance in such circumstances. The transfer and registration can be and should be effected without the court’s involvement within 14 days, as I indicated at the hearing. It is not an issue that I need to deal with today.

11. It is also contended by Fix Sense that, under those two agreements, it was given an option to purchase a further 2.5% shareholding, which again is not disputed, although disputes exist as whether that option has been properly exercised and/ or whether the two Defendants have, in breach of contract prevented it being exercised. Fix Sense claims specific performance of the two Agreements, seeking transfer of the 2.5% shares in Sunset RAK, the provision of “proper” audited accounts for Sunset RAK and its subsidiaries/affiliates for 2018 and 2019 in order to enable it to give proper consideration to the exercise of its option to acquire this further 2.5%. Fix Sense also alleges that it was a breach of contract and of the duty of good faith that is inherent in the contract for the Sunset companies to require transfer of the 51% shareholdings in Brick Oven and Black Tap under the Nominee Agreements to Sunset RAK and PFZ and that Sunset RAK wrongfully terminated the HOA by notice dated 5 February 2020 with effect from 11 February 2020. It claims various sums as fees due before and after such termination.

12. Leaving to one side the question of the 2.5% share entitlement referred to in paragraph 10 above, the sole matter for determination on Fix Sense’s application is whether or not Sunset RAK has a realistic prospect of succeeding in its defence that the termination of the HOA was justified by reference to the Cross-Default Clause in the HOA and whether various paragraphs of the Defence should be struck out as disclosing no basis for such a defence.

The HOA

13. The HOA between Fix Sense and Said RAK contains a series of clauses with titles to them but no numbering. It is governed by the laws and regulations of the DIFC with an exclusive jurisdiction clause in favour of the DIFC Courts. The following provisions are relevant:

The Nominee Agreements

14. Each of the two Nominee Agreements concluded by HAH with Sunset RAK and with Brick Oven and Black Tap (as the case may be) is in essentially the same form, so it is only necessary to cite the provisions of one of them. Each was governed by the laws of the DIFC and subject to the exclusive jurisdiction of the DIFC Courts. In each case HAH is the “Nominee” and the “Nominee Shares” are constituted by the 51% shareholding registered in her name. The relevant provisions are as follows:

The CCL and the Memoranda of Association (the “MOA”) of Black Tap and Brick Oven.

15. Although, as is noted above, the terms of the Nominee Agreements were agreed to prevail over the MOA of these companies, reliance was placed on Articles 7.8 and 9 of the Black Tap MOA and the equivalent provisions of the Brick Oven MOA which provided:

16. Under Article 10 (1) of the “CCL”, referred to in the HOA, apart from excepted categories of company, any company established in the UAE “shall have one or more UAE partners holding at least 51% of the share capital of the company” and any transfer of the title to any share of a partner that may affect that percentage “shall be invalid”. This is Federal Law, applied in on shore Dubai but a unitary approach would be expected in the DIFC. Although HAH contended that the requested transfers by her of the shares in Black Tap and Brick Oven would be in breach of these provisions, as set out above, the requested transfer of shares from HAH was to a UAE national not a foreigner.

17. Whether as appears to have been suggested, the whole scheme of nominee arrangements breached the public policy which underlies the CCL raises difficult issues which require full exploration and would not necessarily assist HAH. Reliance was placed on emails passing between Mr Ortuna and herself which appeared to show an awareness of a risk in the arrangements being made for nominee holdings. The HOA itself refers to Fix Sense providing “local sponsor related services with respect to the nominee ownership of shares in UAE companies in order to meet the requirements” of the CCL and to the provision of “Services…… as may be permitted by law”, as and when requested by Sunset RAK and to one of the Services as being the holding of “51% of the shares in Sunset Group companies” in order to ensure compliance with the CCL. The very terms of the HOA, apart from the Nominee Agreements therefore raise the same public policy issues as the Nominee Agreements themselves, if such there be, and any Court would undoubtedly consider the whole scheme, as set out in the different contracts as well as the correspondence and exchanges between the parties in determining whether what was done did breach the law or public policy considerations. If the Nominee Agreements are void on that ground, there must be a strong argument for saying that all the arrangements between the parties are void also, which would mean that any claim based on the HOA might well be considered unenforceable.

18. If such arguments are to be raised and in oral submissions, this aspect appeared to play a greater part than in prior written submissions, full exploration of the evidence and the law and public policy would be needed which cannot be effected on an immediate judgment application.

Analysis

19. The terms of each of the Nominee Agreements are clear in setting out the status of HAH as a nominee shareholder of the 51% shareholdings in Brick Oven and Black Tap. The validity of these agreements is the subject matter of CFI-024-2020. It is not submitted that Sunset RAK and FPZ do not have an arguable case in that action for a repudiatory breach of the Nominee Agreements on refusal by HAH to transfer the 51% shareholdings held by virtue of those Agreements to Sunset RAK and FPZ respectively. It is that breach upon which Sunset RAK and Sunset BVI rely as constituting a breach of the Cross-Default Clause in the HOA.

20. I have set out the terms of the Cross-Default Clause already. My attention has been drawn to sections 49 – 54 of the Contract Law of the DIFC and the need to interpret a contract according to the common intention of the parties and, where no such intention can be established according to the meaning that reasonable persons of the same kind as the parties would give to it in the same circumstances. Regard can be had to the preliminary negotiations between the parties and terms and expressions are to be interpreted in the light of the contract as a whole or the statements in which they appear. Contract terms are to be interpreted so as to give effect to all the terms other than deprive any of meaning or effect. The business object/commercial purpose is to be taken into account in construing the words used, particularly if there is any difficulty in construction. My attention was drawn by Mr Dillon- Malone SC, appearing on behalf of the two defendants, to the decision of the Court of Appeal in Damac Park Towers Company Ltd v Youssef Issa Ward [2015] DIFC CA 006 from paragraphs 80 onwards, which I have well in mind.

21. The wording of the Cross-Default Clause is, in my judgment, clear. Despite the infelicitous use of words and the ungrammatical form of the clause it can only be read as providing that a breach of “any agreement” between “Sunset Group” and “Fix Sense” or “its shareholders” is to constitute a breach of the HOA. I am wholly unable to see that there is any other realistic way of reading or construing the clause.

22. The way in which the clause operates is that a breach of a qualifying agreement, as set out in paragraph 21 above, in itself constitutes a default of Fix Sense under the HOA, entitling Sunset RAK to pursue such remedies as the law allows in relation to such a breach. It is plainly arguable that the nature of the breach of the Nominee Agreements is fundamental to the relationship of the parties under the HOA and amounted to a repudiation of the HOA as much as of the Nominee Agreements themselves, because of the obvious interrelationship between them.

23. Moreover, when attention is directed to the exchanges of emails between 20 March 2017 and 12 April 2017, it is clear that the parties directed their attention to the Cross Default Clause and that amendments were made to it by a representative of Fix Sense, namely HAH’s husband, who put forward the wording which ultimately found its place in the HOA. No question of “ contra proferentem” construction arises.

24. The context in which the Cross-Default Clause appears in the HOA is as a clause following on from the “Default by Fix Sense” clause. The logic of providing for defaults by Fix Sense and then for a cross default clause in relation to other agreements to which its owners were party, is inexorable, where it was envisaged that its shareholders might supply the nominee services. The commercial purpose is obvious where the services provided under the HOA are, by agreement, whenever made, extended to the subsidiaries of Sunset RAK and are not provided by Fix Sense itself but by an individual UAE national (who owns Fix Sense) under a collateral contract as envisaged by the “Fix Sense Services” clause and the Cross- Default clause itself, in the HOA.

25. The arguments to the contrary put forward by Fix Sense do not, in my judgment, carry any weight at all. A number of points have been raised at one time or another. Fix Sense put forward the following arguments, as summarised in paragraphs 26-31 below:

26. FIx Sense argued that Sunset RAK is not entitled to terminate the HOA with Fix Sense on the basis of HAH’s alleged breach of the Nominee Agreements because there is no privity of contract between Sunset RAK and HAH in the HOA because she is not a party to it. Sunset RAK ignores the distinction between Fix Sense and its 99% shareholder, HAH.

27. Fix Sense argues that the Cross Default Clause only operates if the Nominee Agreements are enforceable which they are not by reason of:

28. These matters are all highly disputable and unsuitable for determination on an application for summary judgment or striking out. They are all, save perhaps for the last point in paragraph 27.4, matters raised in CFI-024-2020 and raise factual issues to be determined either in that action or here. As to the last point, on the face of the Nominee Agreements, there is no uncertainty as to the fees payable, although described in correspondence as “symbolic”, with a further agreement anticipated which could modify the consideration. Moreover, it is nothing to the point whether these fees were actually paid, for the purpose of ascertaining whether a promise to pay constitutes consideration.

29. Fix Sense argued that there has been non-payment of fees due under the Nominee Agreements which amounts to a repudiation of them which has been accepted by HAH.

30. Fix Sense argued that there was no guarantee by HAH to abide by the Cross Default Clause in the HOA nor any guarantee by Fix Sense of HAH’s liability under the Nominee Agreements, so that there is no basis to hold Fix Sense liable for any default by her under those Agreements. This misses the point once again as to the very nature of the Cross Default Clause.

31. Fix Sense argued that this sort of Cross Default clause has no real place in anything other than security documentation of one kind or another. It was accepted that, in principle, such clauses could apply to other commercial contracts, but it was said that there had to be some limits, without any clear exposition of what those limits might be. There is no reason in principle why this should be so, and no relevant authority has been cited in support of the proposition. The principle of freedom of contract applies and the effect of what the parties have agreed here is, as I have already said, clear and unambiguous.

32. Reliance was placed by Mr Iqbal on New York cases relating to insolvency which brings in special considerations of its own and I derive no assistance from them. The submission that the clause in itself is unconscionable is belied by the features set out above. There is nothing disproportionate in the protection of the Sunset companies’ legitimate interests in this clause. To the contrary, it appears a necessary protection in the event of the refusal of a nominee to comply with the Nominee Agreement, where that nominee is not party to the HOA but is the owner of such a party and intimately involved with it.

33. Fix Sense also submitted that there were inherent contradictions between the HOA and the Nominee Agreements, but I am unable to see how, if this is so, it helps Fix Sense in its application today. Some of the inherent contradictions alleged seemed more apparent than real. The lack of existence of shares in Brick Oven at the time of the Nominee Agreement relating to it, would not appear to me to be fatal to its validity; nor is there any inherent contradiction between the provision in Clause 5.5 of the Nominee Agreements for the transfer of shares by HAH and the continued existence of the HOA. If HAH had transferred the shares as requested, there would be no further shares held by her in Black Tap and Brick Oven, but the HOA was capable of application to services provided “as and when requested” by Sunset RAK whether for other subsidiaries yet to be incorporated or otherwise. The termination of the arrangements under the Nominee Agreements did not automatically bring the HOA to an end. Although the HOA provided that it would remain in force “for an unlimited period”, that did not mean that the Nominee Agreements in relation to Black Tap and Brick Oven could not be terminated, as was plainly envisaged by the terms of clause 5.5 and 6.2. Nor is the Cross-Default clause in the HOA, relating to breaches of the Nominee Agreements, inconsistent in any way with the other provisions of the HOA.

34. In my judgment, therefore, Sunset RAK and Sunset BVI have a realistic prospect of success in their defence by reference to the Cross Default Clause and the alleged breaches of the Nominee Agreements by HAH. As a matter of construction of the Cross Default Clause, Fix Sense’s contentions are plainly wrong and the factual questions which arise in relation to the alleged breaches of the Nominee Agreements and the validity or invalidity of those Agreements cannot be determined on an application for summary judgment and are, moreover, the subject matter of CFI-024-2020.

Conclusion

35. Fix Sense’s application therefore fails and immediate judgment is refused. None of the paragraphs in the Defence fall to be struck out.

36. I have received submissions in writing in relation to both the question of liability for costs and on the quantum sought. As I indicated at the hearing, it must inevitably follow from the failure of the Application, that Fix Sense must pay the costs of the application, and it does not challenge this principle. I accept its submission as to the basis of costs, however and do not consider that this case is sufficiently “out of the norm” to justify awarding costs on the indemnity basis, as submitted by the Defendants.

37. As to quantum, the total sum claimed by the two defendants is AED 97,200 plus VAT of AED 4,860. Whilst a number of criticisms have been aimed at the bill of costs, I do not consider that excess time has been spent nor that the fees charged are incommensurate with the work required, other than a small deduction as the hearing took less time than the 4 hours for which provision was made in the bill. The fees charged are otherwise justifiable and the submission that more time was spent on “work done on documents” than necessary because that only involved work on skeleton arguments ignores the large volume of documents which had to be read, as I know from the time that I had to take to do so. The hearing went short because of such pre- reading. I consider that Fix Sense should pay the full amount (less AED 7,200 in respect of saved hearing time) plus VAT, for bringing the application which was, to my mind, always doomed to fail. I assess the fees summarily at AED 90,000 plus Vat.

38. When the Court of Appeal has determined the appeal in CFI-024-2020, the parties should liaise with a view to agreeing on the future course of both sets of proceedings. If agreement can be reached, the matter can be referred to the Court for its approval. If no agreement is reached, there should be a Case Management Conference of both cases at the same time for the Court to consider the most efficient and expeditious way of resolving the interconnected disputes and whether or not, in the light of the Court of Appeal judgment, it makes sense for them to be heard together or separately. It may be sensible for the Court of Appeal to be made aware of this judgment and that possibility.

Issued by:
Nour Hineidi
Registrar
Date of Issue: 10 January 2021
At: 9am