Claim No. CFI 004/2013
THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS
IN THE COURT OF FIRST INSTANCE
BEFORE JUSTICE SIR JOHN CHADWICK
BETWEEN
DIWAN CAPITAL LTD (in liquidation)
(by RA Dr A Wiederkehr and RA Dr G Wiederkehr)
Claimant
and
(1) EMIRATES INVESTMENT & DEVELOPMENT CO PSC
(2) ERNST & YOUNG UAE
(3) BUTI SAEED MOHAMMED AL-GHANDI
(4) ABDULWAHAB AHMED AL-NAKIB
(5) KHALED MAGDY EL-MARSAFY
(6) EVGENY KOVALISHIN
(7) ALI RASHID AL MAZROEI
(8) RICHARD BUSHMAN
(9) ROBERT BERTSCHINGER
(10) STEVE BURNHAM
(11) STEFFEN SCHUBERT
(12) MARCO G WALSER
(13) HARVEY PALMER
(14) BEAT NAEGELI
Defendants
ORDER OF JUSTICE SIR JOHN CHADWICK
UPON THE SEVERAL APPLICATIONS (i) of the Sixth, Ninth, Eleventh, Twelfth and Fourteenth Defendants, Evgency Kovalishin, Robert Bertschinger, Steffen Schubert, Marco G Walser and Beat Naegeli, by Application Notice CFI-004-2013/6 dated 27 July 2014, (ii) of the Third and Seventh Defendants, Buti Saeed Mohammed Al-Ghandi and Ali Rashid al Mazroei by Application Notice CFI-004-2013/7 dated 12 August 2014, (iii) of the First Defendant, Emirates Investment & Development Co PSC, by Application Notice CFI-004-2013/8 dated 18 August 2014, (iv) of the Second Defendant, Ernst & Young UAE (also known as Ernst & Young Middle East (Dubai Branch)), by Application Notice CFI-004-2013/9 dated 25 August 2014 and (v) of the Fourth and Fifth Defendants, Abdul Wahab Ahmad Al-Nakib and Khaled Magdy El-Marsavy, by Application Notice CFI-004-2013/10 dated 21 September 2014 seeking orders that the Claimant’s Particulars of Claim dated 27 April 2014 be struck out pursuant to Rule 4.16 of the Rules of the DIFC Court (“RDC”) or immediate judgment pursuant to Rule 24.1 of those Rules
AND UPON HEARING Mr Glen Davis QC, Counsel for the Sixth, Ninth, Eleventh, Twelfth and Fourteenth Defendants, Mr Tom Leech QC, Counsel for the Third, Fourth, Fifth and Seventh Defendants, Ms Jennifer Garn, Counsel for the First Defendant, Ms Anneliese Day QC, Counsel for the Second Defendant, and Mr Christopher Parker QC and Mr Robert-Jan Temmink, Counsel for the Claimant, on 14 and 15 December 2014
AND UPON the Claimant filing a Notice of Discontinuance (i) in respect of the claims made against the Second Defendant on 13 April 2015 and (ii) in respect of the claims made against the Third to Fourteenth Defendants on 28 July 2015
AND FOR THE REASONS which appear in the Judgment set out in the Schedule to this Order
On Application CFI-004-2013/8 IT IS HEREBY ORDERED THAT:
1.There shall be judgment for the First Defendant against the Claimant pursuant to RDC 24.1 on the whole of the claims made in these proceedings.
2. Subject to further order of the Court the Claimant shall pay to the First Defendant its costs of the proceedings including the costs of the Application.
AND IT IS DIRECTED THAT:
3. The Claimant’s application (if any) for a further order as to costs is to be made by filing and serving on the First Defendant written representations within 21 days of the date of this Order.
4. In the event that such application is made, the First Defendant may file and serve written submissions in response within 14 days of receipt of the Claimant’s written submissions.
5. Subject to further directions by the Court such application (if any) is to be determined without an oral hearing.
THE COURT MAKES NO ORDER on Applications CFI-004-2013/6, CFI-004-2013/7, CFI-004-2013/9 and CFI-004-2013/10
Issued by:
Natasha Bakirci
Assistant Registrar
Date of Issue: 17 March 2016
At: 11am
SCHEDULE
JUDGMENT OF JUSTICE SIR JOHN CHADWICK
1.The Claimant, Diwan Capital Limited (“the Company”), is a company incorporated in the Dubai International Financial Centre. The business of the Company was to deal in investments as an agent, to arrange credit or deal in investments and to advise on financial products or creditors. At an Extraordinary General Meeting of the Company held on 30 March 2010 it was resolved that it be wound up. On 5 July 2010 the Court appointed Mr Shahab Haider, a registered insolvency practitioner, to be the liquidator of the Company. By an Order made on 15 August 2012, in proceedings to which the reference is CFI-020-2010, the Court gave permission for derivative proceedings to be brought in the name of the Company by RA Dr Alfred Weiderkehr and RA Dr Georg Weiderkehr, shareholders in the Company, against those persons and in respect of those claims identified in paragraph 50 of their Proof of Debt and Application for Directions dated 27 June 2012. These proceedings were commenced, pursuant to the permission granted by the August 2012 Order, by the issue of a Claim Form on 3 February 2013.
2. The first-named Defendant to these proceedings, Emirates Investment & Development Co PSC (“EIDC”) is the holder of 6,428,571 Founder (or Ordinary) Shares of USD 0.7 each in the Company (having, in aggregate, a nominal value of USD 4.5 million). The second-named Defendant, Ernst & Young UAE (also known as Ernst & Young Middle East (Dubai Branch), “E&Y”) was the auditor of the Company. The remaining twelve Defendants were directors, or former directors, of the Company.
3. Particulars of Claim were filed on or about 27 April 2014. Defences were served on behalf of EIDC, on behalf of the Third and Seventh Defendants, and on behalf of the Sixth, Ninth, Eleventh, Twelfth and Fourteenth Defendants on or about 22 June 2014; a defence was served on behalf of E&Y on or about 21 August 2014; and a defence was served on behalf of the Fourth and Fifth Defendants on or about 18 September 2014. The Eighth, Tenth and Thirteenth Defendants did not acknowledge service of the Claim Form; and no defences were served on their behalf.
4. Each of the Defendants on behalf of whom defences had been served applied to strike out the Particulars of Claim pursuant to Rule 4.16 of the DIFC Court Rules or (in the alternative) for immediate judgment against the Company pursuant to RDC 24.1 on the claims made against them in the proceedings. Those applications were made (i) by EIDC on 18 August 2014 (Application No. CFI-004-2013/8), (ii) by E&Y on 25 August 2014 (Application No. CFI-004-2013/9), (iii) by the Third and Seventh Defendants on 14 August 2014 (Application No. CFI-004-2013/7, (iv) by the Fourth and Fifth Defendants on 21 September 2014 (Application No. CFI-004-2013/10) and (v) by the Sixth, Ninth, Eleventh, Twelfth and Fourteenth Defendants on 27 July 2014 (Application No. CFI-004-2013/6).
5. Those applications were heard on 14 and 15 December 2014. The Court reserved its judgment. Before judgment on the applications had been delivered (i) on 13 April 2015, the Company filed a Notice of Discontinuance in respect of the claims made against E&Y in these proceedings and (ii) on 26 July 2015, the Company filed a Notice of Discontinuance in respect of the claims made against the Third to Fourteenth Defendants. In those circumstances it is unnecessary to make any order on the applications CFI-004-2013/6, CFI-004-2013/7, CFI-004-2013/9 and CFI-004-2013/10; and I do not do so. The only application which I need to address in this judgment is that made by EIDC on 18 August 2014 (Application No. CFI-004-2013/8).
Application CFI-004-2013/8
6. The Company was incorporated on 27 January 2008 under the DIFC Companies Law (DIFC Law No. 6 of 2006) as a company limited by shares. Upon incorporation the issued share capital of the Company was USD 15 million represented by 21,428,571 Founder Shares of USD 0.7 each. The registered owner of those 21,428,571 shares was Diwan Capital Cayman Ltd (“Diwan Cayman”), a company incorporated in the Cayman Islands.
7. As at 7 March 2008 the shareholders of Diwan Cayman were EIDC (holding shares to the nominal value of USD 2.5 million), one Andrei Vavilov (holding shares to the nominal value of USD 15.2 million) and six others (holding, together, shares to the nominal value of USD 10.5 million). By a letter dated 9 March 2008, addressed to the directors of Diwan Cayman, EIDC stated that it had decided to increase its equity participation in Diwan Cayman from USD 2.5 million to USD 4.5 million. The effect of such an increase – as noted in the minutes of a meeting of the board of directors of Diwan Cayman held on 6 April 2008 – would have been to increase the issued capital of Diwan Cayman from USD 28.2 million to USD 30.2 million. It is common ground that EIDC did not give immediate effect to its decision by paying the sum of USD 2 million on 9 March 2008 (or on any other date prior to 5 January 2009); but that it did make a payment of USD 2 million (or thereabouts) to Diwan Cayman on 5 January 2009.
8. It is recorded in the minutes of a meeting of the board of directors of Diwan Cayman held on 9 March 2008 that (at that meeting) it was resolved that the registered shareholders of the Company should be EIDC and six of the other seven individuals and corporations (but not including Andrei Vavilov) who then held shares in Diwan Capital. On the same day, 9 March 2008, the Company gave Notice of Allotment of Shares (on form LTD3 sent to the DIFC Registrar of Companies). That notice showed that 21,428,571 Ordinary Shares of USD 0.7 each had been allotted to EIDC and the six others mentioned in the resolution of the directors of Diwan Cayman of 9 March 2008 to which I have just referred: in particular, it showed an allotment of 6,428,571 Ordinary Shares to EIDC. It showed, also, that the consideration for the allotment of the 21,428,571 Ordinary Shares was USD 15 million. USD 15.05 million had been transferred to the Company by Diwan Cayman on 4 March 2008. In a letter dated 5 March 2008 from the National Bank of Dubai (“the NBD”) to the Dubai Financial Services Authority (“the DFSA”) the NBD confirmed that the Company had deposited with the bank “the sum of USD 15,050,000 representing initial capital.”
9. Strictly, it may be said that the description in the Notice of Allotment dated 9 March 2008 of the shares allotted as “Ordinary Shares” is an error: the correct designation of those shares, in accordance with the Articles of Association of the Company, was “Founder Shares”. But nothing turns on that; and the misdescription was recognised in a subsequent Notice of Allotment, filed on 24 March 2008, which does, correctly, refer to those 21,428,571 shares as Founder Shares. That subsequent Notice of Allotment shows that 2,375,000 Investor Shares of USD 1.00 each were allotted to Andrei Vavilov on 24 March 2008.
10. The effect of the allotment of 21,428,571 Founder Shares by the Company on 9 March 2008 for a cash consideration of USD 15 million was that each of the seven allottees was treated as having subscribed for those shares in an amount equal to the nominal value of the shares which they held (or for which, in the case of EIDC, it had agreed to subscribe) in Diwan Cayman: that is to say, in amounts which, in aggregate, had a nominal value of USD 15 million. In particular, EIDC was treated as having subscribed for 6,428,571 Founder Shares (having a nominal value of USD 4.5 million) on the basis that it was the holder of shares in Diwan Cayman having that nominal value; notwithstanding that, as at the date of allotment (9 March 2008) it had not, in fact, paid the full USD 4.5 million to Diwan Cayman.
11. It is in those circumstances that the Company’s claim against EIDC in these proceedings (as it appears in the Claim Form) is for “interest for one year on the outstanding equity capital of US$2M in the amount of US$200,000 or such other sum as the Court shall see fit”. The basis upon which that claim is advanced is set out at paragraphs 6 to 8, 10 (part), 12 (part) to 16 (part), 17 and 18 and 115 to 117 of the Particulars of Claim:
“6. On 27 January 2008, the Company was incorporated in the DIFC with US$15 million fully paid up equity, subject to being granted a DFSA license (sic).
7. At registration, all shares in the Company were allotted to Diwan Capital Cayman. The shareholders in Diwan Cayman were (or were supposed to be) those providing the subscription capital and, through Diwan Cayman, those subscribers were to hold 100% of equity in the Company.
8. Negotiations on the term of the license revealed two special conditions. First that the Company would be required to have US$15M fully paid up registered share capital. Secondly, Mr Vavilov . . . was to have non-controller status, that is, his direct or indirect shareholding was to be limited to less than 10% of the equity.
…
10. In early 2008, the Company sought to meet the license conditions intimated by the DFSA…
…
12. On 4 March 2008, Diwan Cayman transferred US$15.05 million to the Company to constitute the fully paid-up share capital and to meet the license condition required by the DFSA concerning the Company’s capital. . . . [T]he DFSA had mandated in discussions with the applicant (Diwan Cayman on behalf of the Company) that the Company would not be granted a license without the mandated US$15 million paid-up share capital.
13. Around this date, Diwan Cayman became aware that the shares in Diwan Cayman had not been allotted as previously thought to the capital providers but remained with the incorporating parties.
14. Following internal investigation, on 9 March 2008, the board of Diwan Cayman reversed the allotment of shares in the Company and resolved to allot all shares in the Company directly to the founding shareholders, save that none were to be allotted to Mr Vavilov.
15. On 9 March 2008, the First Defendant agreed to provide an immediate increase in its share subscription from US$2.5 million to US$4.5 million, thus increasing the capital raised by Diwan Capital from US$28.2 million to US$30.2 million. The First Defendant failed to provide the further subscription funds immediately, or indeed until 5 January 2009.
16. As a consequence of this change, on 9 March 2008 and with the approval of the DFSA the Company’s register of members was changed so as to show the incorporating (founding) shareholders and the amount of the equity which they either had provided, or said they had provided. The Company’s register of members was then stated to be (the figures in brackets indicate each members fully paid share capital):
“(a) Emirates Investment & Development Co PSC (US$4.5 million)
…”
17. On 9 March 2008, the Company submitted to the DFSA a bank confirmation of US$15M for the registered and paid-up share capital and submitted the allotment of fully paid shares for each shareholder as above – the submission of both documents being DFSA conditions for the grant of the Company’s license.
18. The Company’s DFSA licence (sic) was issued on 10 March 2008, the conditions of obtaining the licence having apparently been met.
…
115. The First Defendant was contractually obliged to pay the sums due for its allotment of shares timeously and upon allocation of its shares. The First Defendant should have paid US$2,000,000 on 9 March 2008 in payment of its commitment to purchase shares in the Company to that value. In breach of that commitment, it failed to pay the said sum until 5 January 2009.
116. The Company is entitled to, and claims interest upon the sum of US$ 2,000,000 from the due date (9 March 2008) until payment (5 January 2009) at a commercial rate of interest.
117. The relevant commercial rate is the same rate as prevailed in the UAE for loans at the time and based on the average 3 month EIBOR (interbank) rate of 2.95% plus 400 points (4%) commercial spread or a total of 6.95% per annum.
PARTICULARS OF LOSS
Interest, at 6.95% per annum on US$2,000,000 from 9 March 2008 to 5 January 2009 or 266 days = US$101,300.00.”
It may be noted, first, that the claim is pleaded in contract, and not “in restitution” as advanced in the Claim Form; and, second, that the claim, as quantified in the pleadings, (USD 101,300) is some 50% of that advanced in the Claim Form. In the Particulars of Loss set out under paragraph 138 of the Particulars of Claim, which are incorporated by reference in the Relief sought in that pleading, the claim is described as a claim for “Interest on missing equity from the First Defendant – US$101,300”. It is important, also, to note the terms in which it is alleged (in paragraph 15 of the Particulars of Claim) that EIDC agreed, on 9 March 2008, to provide an immediate increase in its share subscription from US$2.5 million to US$4.5 million: it is said that that agreement had the effect of “thus increasing the capital raised by Diwan Cayman from US$28.2 million to US$30.2 million” (emphasis added).
12. It is not alleged in paragraph 15 of the Particulars of Claim, or at all in that pleading, that EIDC’s agreement to increase its share subscription had the effect of increasing the issued capital of the Company (whether from USD 13 million to USD 15 million, or at all). When the first sentence of paragraph 15 of the Particulars of Claim is read as a whole, it is plain that the allegation that “the First Defendant agreed to provide an immediate increase in its share subscription from US$2.5 million to US$4.5 million” is an allegation that EIDC agreed, on 9 March 2008, to increase its share in the capital of Diwan Cayman; it is not an allegation that EIDC agreed to increase its subscription to the capital of the Company.
13. Further, it is plain that an allegation that EIDC agreed, on 9 March 2008, to increase its share in the capital of Diwan Cayman – and not an allegation that EIDC agreed to increase its subscription to the capital of the Company – was the only allegation that could properly be pleaded in the first sentence of paragraph 15 of the Particulars of Claim; given the terms of the letter of 9 March 2008 from EIDC on which the Company seeks to rely. That letter is addressed to “the Board of Directors, Diwan Capital (Cayman) Ltd” at an address in George Town, Grand Cayman. It is in these terms:
“EMIRATES INVESTMENT & DEVELOPMENT PSC has decided to increase its equity participation into DIWAN CAPITAL (CAYMAN) Ltd from USD 2.5 Million to USD 4.5 Million.”
The letter of 9 March 2008 provides no support for an allegation that EIDC agreed to increase its subscription to the capital of the Company. As I have said, earlier in this judgment, 21,428,571 Founder Shares were allotted by the Company on 9 March 2008 for a cash consideration of USD 15 million paid by Diwan Cayman; and (at the direction of Diwan Cayman) were allotted on the basis that the seven allottees were treated as having subscribed for those shares in amounts equal in nominal value to the nominal value of the shares which they held (or, in the case of EIDC, had agreed to subscribe) in Diwan Cayman. In particular, EIDC was treated as having subscribed for 6,428,571 Founder Shares (having a nominal value of USD 4.5 million) on the basis that it was (or had agreed to become) the holder of shares in Diwan Cayman having that nominal value.
14. EIDC’s pleaded response to paragraphs 15 and 16 of the Particulars of Claim is contained in paragraphs 15 to 17 of its Statement of Defence:
“15 With respect to paragraph 15, it is denied that on 9 March 2008 the First Defendant agreed to provide an immediate increase in its share subscription from US$ 2.5 million to US$ 4.5 million by way of an immediate payment of US$ 2 million. It is further denied that the First Defendant subsequently breached such an obligation. It is averred that the Claimant has failed to plead or adduce any facts to substantiate these claims.
16 It is averred that on or before 9 March 2008 the First Defendant undertook to increase its equity participation from US$ 2.5 million to US$ 4.5 million by way of a payment to be made to Diwan Capital (Cayman) Limited at a future date. In full compliance with that undertaking, the First Defendant paid approximately US$ 2 million to Diwan Capital (Cayman) Limited on 5 January 2009, thereby increasing its equity participation from US$ 2.5 million to US$ 4.5 million, as agreed.
17. No admission is made with respect to paragraph 16 save that, on 9 March 2008, 6,428,571 ordinary shares in the Claimant (equivalent to US$ 4.5 million fully paid up share capital) were allotted to the First Defendant. It is averred that these shares were properly allotted to the First Defendant as a result of its undertaking to increase its equity participation to US$ 4.5 million by way of a payment to be made at a future date.”
The words “to Diwan Capital (Cayman) Limited” which appear in the first sentence of paragraph 16 of the Defence (and which I have italicised) were added by amendment at the hearing of the Application in December 2014: those words make explicit what would otherwise be implicit, given the reference in the second sentence of that paragraph to the payment of USD 2 million to Diwan Cayman “in full compliance with that undertaking”. Further, it is plain, when the second sentence of paragraph 17 of the Defence is read in context, that the reference to “its undertaking to increase its equity participation to US$ 4.5 million by way of a payment to be made at a future date” is to EIDC’s undertaking to increase its equity participation in Diwan Cayman to USD 4.5 million by a payment to be made to Diwan Cayman at a future date.
15. By Application No. CFI-004-2013/8, issued on 18 August 2014, EIDC seeks an order that the Particulars of Claim be struck out pursuant to Rule 4.16 of the DIFC Court Rules; or, in the alternative, immediate judgment against the Company on the whole of the claim pursuant to Rule 24.1 of the DIFC Court Rules; and an order that the Company pay EIDC’s costs of these proceedings, including the costs of the RDC 4.16 provides (so far as material) that the Court may strike out a statement of case if it appears to the Court:
“4.16…
(1) that the statement of case discloses no reasonable grounds for bringing . . . the claim”
RDC 24.1 is in these terms (so far as material):
“24.1 The Court may give immediate judgment against a claimant…on the whole of a claim…if:
(1) it considers that:
(a) that claimant has no real prospect of succeeding on the claim…; or;
(b) …; and
(2) there is no other compelling reason why the case…should be disposed of at a trial.”
16. The Application is supported by the witness statement of Arif Khan, then the Chief Operating Officer of EIDC, dated 13 August 2014. In that witness statement, the Chief Operating Officer states (so far as material):
“12. As set out in paragraph 15 of the Particulars of Claim, the claim against EIDC is premised upon an alleged breach of an agreement, on 9 March 2008, to increase its equity participation by way of an immediate payment to the Claimant of US$ 2 million…[T]he Claimant [has] failed to establish in the Particulars of Claim the existence or nature of any payment obligations owed by EIDC to the Claimant…
- The only document that the claimant refers to the Particulars of Claim and relies upon as evidence of the alleged agreement by EIDC to increase its equity participation by way of an immediate payment by US 2 million is a letter dated 9 March 2008…This letter, sent by the Chief Investment Officer of EIDC, states that EIDC ‘has decided to increase its equity participation into Diwan (Cayman) Ltd from USD 2.5 million to USD 4.5 million’…
- Contrary to the Claimant’s assertions, the 9 March 2008 letter does not demonstrate an agreement between the Claimant and EIDC to increase its share subscription by way of an immediate payment of US$ 2 million and to the best of my knowledge and belief, there are no other documents upon which the Claimant could rely at trial as evidence of an agreement on 9 March 2008 between EIDC and the Claimant to increase its share subscription from US$ 2.5 million to US$4.5 million by way of an immediate payment.
- In the absence of any evidence of an agreement between EIDC and the Claimant to pay the additional US$ 2 million on 9 March 2008, I do not believe that there is any legal and/or contractual basis for the claim against EIDC or the Claimant’s request for relief.”
[emphasis in text]
17. The Company responded to the evidence filed in support of the Application by filing the witness statement dated 17 October 2014 made by Peter Ronald Ashford, a solicitor having conduct of these proceedings on its behalf. EIDC’s Application is addressed at paragraphs 67 to 78 of that witness statement. Mr Ashford does not challenge or contradict the statement in paragraph 14 of the witness statement of Arif Khan that, to the best of his knowledge and belief, there were no documents, other than the letter of 9 March 2008, upon which the Company could rely at trial as evidence of an agreement on 9 March 2008 between EIDC and the Company that EIDC would increase its share subscription in the Company from US$ 2.5 million to US$4.5 million by way of an immediate payment. Those paragraphs of Mr Ashford’s witness statement contain no evidence of any undertaking given by EIDC to the Company (as distinct from an undertaking given to Diwan Cayman) to subscribe for shares; and, in particular, no evidence of any undertaking given by EIDC to subscribe for shares in the Company (as distinct from an undertaking to increase its subscription for shares in Diwan Cayman).
18. It is not, I think, unfair to observe that the paragraphs of Mr Ashcroft’s witness statement to which I have referred contain argument rather than evidence. The argument advanced in those paragraphs is that, given that 6,428,571 Founder (or Ordinary) Shares of USD 0.7 each in the Company (having a nominal value of USD 4.5 million) were allotted to EIDC as fully paid on 9 March 2008, EIDC (which had, at that date, subscribed only USD 2.5 million for shares in Diwan Cayman) thereupon incurred an obligation to the Company to make an immediate payment to the Company of USD 2 million. The argument overlooks (or ignores) the unchallenged fact that the 6,428,571 Founder Shares in the Company allotted to EIDC were included in the 21,428,571 Founder Shares (having, in aggregate, a nominal value of USD 15 million) which were allotted by the Company on 9 March 2008 for a cash consideration of USD 15 million paid to the Company by Diwan Cayman. All the Founder Shares allotted by the Company (including all those allotted to EIDC) as fully paid were, indeed, fully paid. The shortfall lay in what, as at 9 March 2008, EIDC had actually paid to Diwan Cayman by way of subscription for shares in Diwan Cayman; not in what had been paid to the Company for the allotment of Founder Shares made by the Company on 9 March 2008. At paragraph 77 of Mr Ashford’s witness statement it is said that:
“77. It follows that (a) there was an obligation of immediate payment on or before 9 March 2008 which ought to have been enforced, and (b) the shares were improperly issued and the DFSA was misled on 9 March 2008.”
If (as to which I make no finding) the undertaking given in the letter of 9 March 2008 did give rise to an obligation of immediate payment which arose on that date, the obligation was to pay USD 2 million to Diwan Cayman by way of increased subscription for shares in Diwan Cayman and was enforceable (if at all) by Diwan Cayman); and, if (as to which, again, I make no finding) Founder Shares were improperly allotted by the Company to EIDC on 9 March 2008, the appropriate relief would be an order to rectify the share register of the Company, not an order for damages for breach of contract.
19. At paragraph 78 of Mr Ashford’s witness statement it is said that:
“78. At the time of writing this statement the Company had not settled a reply to any Defence. It is likely that the Company will put in issue the payment obligation and will, in the alternative, argue that there was an implied term in the subscription obligations of the shareholders that they were to pay for the shares that they wished to have allotted to them immediately and for fair and full value. At the very least, this is an issue which should be determined at trial when the whole factual matrix and the questions of law which arise on the construction of the DIFC Company Law may be fully considered and determined.”
In response to the suggestion in that paragraph that the Company might seek to raise, by way of Reply, a contention that there was to be implied, as a term in the subscription obligations of the shareholders, that they were to pay for the shares that they wished to have allotted to them immediately and for fair and full value, it was pointed out on behalf of EIDC, in a witness statement made by Arif Khan and dated 17 November 2014 (his second witness statement), that the Company had never previously asserted in these proceedings that there was an implied term which required EIDC to make immediate payment for its additional share subscription; and that the Company had not sought permission to amend the Particulars of Claim to make this allegation. In the event, no application to amend in order to raise the new issue was made at the hearing of the Application; the contention that the proceedings should go to trial so that the issue could be raised by way of Reply was not pursued; and I need say no more about this point.
20. The submissions on the basis of which the Application was advanced were set out in the skeleton argument dated 9 December 2014; and were developed in oral argument at the hearing which took place shortly thereafter. In substance those submissions adopt the points made in the witness statements of Arif Khan to which I have just referred. The submissions on which the Company relied in opposing the Application were set out in a document dated 10 December 2014 and described as “Claimant’s Outline Submissions”. It was stated at paragraph 97 of that document:
“97. The Company’s claim against the First Defendant is straightforward. Any agreement to take shares in return for money must be in agreement to pay immediately upon allotment: see Article 35(4) [of the DIFC Companies Law]. Consequently [the First Defendant} was in breach of Article 35(4) when it received its allotment of shares for $4.5m but had only paid $2.5m for those shares.”
The Company’s submissions, also, were developed in oral argument at the hearing.
21. For the reasons that I have already indicated in this judgment, I am satisfied that this is a case in which EIDC is entitled to judgment against the Company pursuant to RDC 24.1. In my view the Company has no real prospect of succeeding in the claims made against EIDC in these proceedings; and there is no other compelling reason why the case should be disposed of at a trial.
22. In so far as the claim for interest on USD 2 million in respect of the period from 9 March 2008 until 5 January 2009 is based on a contract to make immediate payment – arising from an undertaking said to be contained in the letter of 9 March 2008 – it is ill-conceived: the letter of 9 March 2008 neither contains any undertaking given by EIDC to the Company nor evidences any agreement made between EIDC and the Company. As I have said, whatever obligations (if any) may have arisen from EIDC’s statement that it had decided to increase its equity participation into Diwan Cayman from USD 2.5 million to USD 4.5 million were obligations which were enforceable (if at all) by Diwan Cayman (and not by the Company) and did not include obligations to subscribe for Founder Shares (or any other shares) in the Company.
23. In so far as the claim for interest is based on the premise that the 6,428,571 Founder Shares of USD 0.7 each in the Company (having a nominal value of USD 4.5 million) which were allotted to EIDC as fully paid on 9 March 2008, were not fully paid – with the consequence that, pursuant to Article 35(4) of the DIFC Companies Law, EIDC thereupon incurred an obligation to the Company to make an immediate payment to the Company of USD 2 million – it is also ill-conceived: all the Founder Shares in the Company allotted to EIDC as fully paid were, indeed, fully paid. They were fully paid out of the USD 15 million which had been transferred by Diwan Cayman to the Company on 4 March 2008. As I have said, the shortfall lay in what, as at 9 March 2008, EIDC had actually paid to Diwan Cayman by way of subscription for shares in Diwan Cayman; not in what had been paid to the Company for the allotment of Founder Shares made by the Company on 9 March 2008.
24. As I have said, the contention that the proceedings should go to trial so that new issues can be raised by way of Reply is no longer pursued.
25. Given that I am satisfied that this is a case in which EIDC is entitled to judgment against the Company pursuant to RDC 24.1, it is unnecessary for me to make an order striking out the Particulars of Claim under RDC 4.16; but, again for reasons that I have already indicated earlier in this judgment, there is much force in EIDC’s contention that the statement of case discloses no reasonable grounds for bringing the claim. I take that view in the circumstances (i) that the claim is pleaded in contract on the basis of an undertaking given by EIDC (not on the basis of a breach of Article 35(4) of the DIFC Companies Law) and (ii) that, properly understood, the Particulars of Claim do not contain an allegation that EIDC agreed with the Company to increase its subscription to the capital of the Company.
26. As I have said, the Application seeks an order that the Company pay EIDC’s costs of these proceedings, including the costs of the Application. My provisional view is that, having obtained an order for judgment under RDC 24.1, EIDC is entitled to the order for costs which it seeks. But I have not heard submissions on the point. In those circumstances, I will direct (i) that, subject to further consideration in the light of such representations (if any) as the Company may be advised to make, the Company is to pay EIDC its costs of these proceedings, including the costs of this Application; (ii) that such representations (if any) that the Company may choose to make are to be made in writing and are to be filed with the Court and served on EIDC within twenty one days of delivery of this judgment; (iii) that, if representations are made by the Company within the time limited, EIDC may respond (if so advised) by filing and serving written representations within fourteen days of receipt thereof; and (iv) that, subject to any further order of the Court, the issues raised by such representations (if any) as may be filed and served in accordance with these directions shall be determined by the Court without an oral hearing.
The post CFI 004/2013 Diwan Capital Ltd v (1) Emirates Investment & Development Co Psc (2) Ernst & Young UAE (3) Buti Saeed Mohammed Al-Ghandi (4) Abdulwahab Ahmed Al-Nakib (5) Khaled Magdy El-Marsafy (6) Evgeny Kovalishin (7) Ali Rashid Al Mazroei (8) Richard Bushman (9) Robert Bertschinger (10) Steve Burnham (11) Steffen Schubert (12) Marco G Walser (13) Harvey Palmer (14) Beat Naegeli appeared first on DIFC Courts.