Claim No: CFI-036-2014
THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS
IN THE COURT OF FIRST INSTANCE
BEFORE H.E. JUSTICE ALI AL MADHANI
BETWEEN
VANNIN CAPITAL PCC PLC
for and on behalf of protected cell – Project Ramsey
Claimant
and
(1) MR RAFED ABDEL MOHSEN BADER AL KHORAFI
(2) MRS AMRAH ALI ABDEL LATIF AL HAMAD
(3) MRS ALIA MOHAMED SULAIMAN AL RIFAI
(4) KBH KAANUUN LIMITED
(5) BANK SARASIN-ALPEN (ME) LIMITED
(6) BANK J. SAFRA SARASIN LTD (FORMERLY BANK SARASIN & CO LIMITED)
Defendants
ORDER OF H.E. JUSTICE ALI AL MADHANI
UPON reviewing Application Notice CFI-036-2014/3 filed by the First to Third Defendants on 10 June 2015 seeking: (i) a variation of the Order of H.E. Justice Omar Al Muhairi dated 10 November 2014 (the “First Application”); (ii) a stay of DIFC-LCIA arbitral proceedings (the “Second Application”); and (iii) a dismissal of the tribunal in the DIFC-LCIA arbitral proceedings (the “Third Application”)
AND UPON reviewing Application Notice CFI-036-2014/4 filed by the Claimant on 11 June 2015 seeking: (i) service of the First Application on the Fifth and Sixth Defendants in redacted form; and (ii) a dismissal of the Second Application and the Third Application on jurisdictional grounds (the “Vannin Application”)
AND UPON hearing Counsel for the Claimant, Counsel for the Khorafis, Counsel for the Fourth Defendant and Counsel for Bank Sarasin on 29 July 2015
IT IS HEREBY ORDERED THAT:
- The First Application is dismissed.
- The Second Application is dismissed.
- The Third Application is dismissed.
- The Vannin Application is granted.
- The First to Third Defendants shall pay the costs of the Second Application and the Third Application on the standard basis, to be assessed by the Registrar if not agreed.
- The parties shall file submissions of a maximum of four pages on costs relating to the First Application, specifically on costs related to the Fifth and Sixth Defendants’ involvement up to the hearing date, within 7 days of the date of this Order.
REASONS FOR THE ORDER
Introduction
1. This judgment deals with the two applications brought by the First, Second and Third Defendants (the “Khorafis”) made on 10 June 2015 (the “First Application”) for an order varying the order of HE Justice Omar Al Muhairi of 10 November 2014 (the “Preservation Order”) so that:
(i) USD 945,593.00 out of the sums paid into Court by the Fifth and Sixth Defendants (“Bank Sarasin”) by way of payment on account of damages (USD 10,400,000) and an interim award of costs (USD 1,000,000) (together the “Interim Payment”) in proceedings brought by the Khorafis against Bank Sarasin (the “Main Action”) be paid to the Khorafis and their present lawyers, Hamdan Al Shamsi (“HAS”); and
(ii) USD 2,000,000 to be held in Court (at the discretion of the Court) representing the First Tranche Payment to the Second Respondent KBH Kaanuun, under the CFI-035-2014 Consent Order, dated 9 February 2015; and
(iii) Only insofar as any further damages are awarded against and paid by Bank Sarasin should such further sums be held in Court as security for the claims of the Claimant (“Vannin”), which funded the Khorafis in the Main Action, and Fourth Defendant (“KBH”) which acted for them in that action.
2. The Khorafis’ further application (the “Second Application”) is in respect of DIFC-LCIA arbitral proceedings under reference D-L-14045 (the “Arbitration”) pursued by Vannin for payment of sums due under its Restated Litigated Funding Agreement (the “RLFA”) with the Khorafis and KBH for:
(i) An order that the Arbitration be stayed until further Order of the Court; or
(ii) A declaration that the tribunal in the Arbitration (the “Tribunal”) has no jurisdiction (the “Third Application”).
3. In addition to the submissions Vannin brought forth defending against the above applications by the Khorafis, Vannin submitted an application (the “Vannin Application”) dated 11 June 2015 seeking:
(i) Service of the First Application, in a redacted form, on Bank Sarasin; and
(ii) The dismissal of the Second and Third Applications for relief which the Court has no jurisdiction to grant.
4. In the first part of this judgment I will deal with the First Application and the first part of Vannin’s Application in regards to the service of the First Application on Bank Sarasin. I will summarise the parties’ submissions in that regard before presenting my view and judgment.
5. In the second part of my judgment I shall deal with the Second Application and the Third Application and this Court’s power to intervene in the concerned arbitral proceeding.
6. Costs shall be dealt with after inviting the parties to submit short submissions in this regard.
The First Application
7. Vannin submitted a Claim Form on 3 November 2014 which sought interim relief to preserve the Interim Payment that Deputy Chief Justice Sir John Chadwick ordered Bank Sarasin to make to the Khorafis by his Interim Order of 28 October 2015 (the “Interim Order”) in the matter CFI-026-2009 after the same judge had found Bank Sarasin liable to the Khorafis for various regulatory breaches in his judgment of 21 August 2014 in the main action (the “Trial Judgment”).
8. The Interim Order consisted of USD 10,445,049 for the Khorafis’ losses when their investments were ‘closed out’, which were an agreed sum; and USD 1,000,000 as an interim payment on account of the Khorafis’ costs.
9. Vannin’s ground for that claim and interim application was on the basis of its entitlement (in part with KBH) to the full amount of that payment and indeed its beneficial ownership of its entitlement under trusts declared in the RLFA.
10. That application was supported by KBH in its own application (the “KBH Application”) of 6 November 2014, also seeking an order that the Interim Payment be paid into the Court pending a further order of the Court.
11. On 10 November 2014 H.E. Justice Omar Al Muhairi in his Judgment granted Vannin’s request and ordered that the funds held by this Court should only be released if Vannin, the Khorafis and KBH agree as to the division of those funds, or there is a relevant order as to their respective entitlements based on an arbitral award to determine such matters, or pursuant to an order of any competent court.
12. E. Justice Omar Al Muhairi in the same judgment dismissed a cross-application submitted by the Khorafis on 4 November 2014 arguing that the Court had no jurisdiction to make the Preservation Order.
13. On 10 June 2015 the Khorafis brought this application, the First Application, to vary the Preservation Order, as stated above.
14. In the First Application, the Khorafis sought a court order to vary the Order of Justice Omar Al Muhairi dated 10 November 2014 as follows:
(i) The adjudged sums of USD 10,445,049 and USD 1,000,000 together with any interest thereon be payable from the monies awarded to the Claimants in CFI 026/2009 and paid by Bank Sarasin Alpen (ME) Limited and Bank J. Safra Sarasin Limited (formerly Bank Sarasin & Co Limited) (“the Defendants in the Main Proceedings”) as partial compensation and as interim payment of costs respectively (“the Interim Judgment Sum”), by the order of the Deputy Chief Justice Sir John Chadwick dated 28 October 2014 and currently preserved by the Preservation Order of H.E. Justice Omar Ali Muhairi dated 10 November 2014 in CFI 036/2014 (“the Interim Preservation Order”).
(ii) USD 945,593.00 in support of third party disbursements under the CFI 035/2014 Consent Order dated 9 February 2015 to be paid to the Second Respondent in terms of its obligations under that Order.
(iii) USD 2,000,000 to be held in Court (at the discretion of the Court) representing the First Tranche Payment to the Second Respondent KBH Kaanuun, under the CFI 035/2014 Consent Order, dated 9 February 2015.
(iv) The balance, or such sum as the Court deems appropriate, to be paid to the Applicants in accordance with their entitlement to damages and costs from the CFI 026/2009 proceedings, as determined by the order of Deputy Chief Justice Sir John Chadwick dated 28 October 2014.
(v) Security for the claims of the First (Vannin) and Second (KBH) Respondents to be provided from any further award of damages to be paid under CFI 026/2009.
(vi) Security for the claim by the First Respondent for the sum of USD 10,122,724.30, with that sum protected and paid into Court (the Further Preservation Order) as a first charge from any further award of damages to be paid under CFI 026/2009. That sum (or part thereof) shall be paid to the First Respondent in accordance with the final determination of any Court or Arbitral Tribunal as to the amount due to the First Respondent.
(vii) Security for the claim by the Second Respondent for the sum of USD 2,000,000 with that protected sum paid into Court as a first charge from any further award of damages. That sum (or part thereof) shall be paid to the First Respondent in accordance with the final determination of any Court or Arbitral Tribunal as to the amount due to the First Respondent. This sum being the same monies, and not in addition, to the monies to be held under the CFI 035/2014 Consent Order dated 9 February 2015.
(viii) This order should be read together with, and in any event subject to, the order of Justice Roger Giles made in CFI 026/2015 dated 5 April 2015.
15. The Khorafis applied for the stated relief in regards to the distribution of the Interim Fund and supported it with an Application Notice, Skeleton Argument, Draft Statement of Case and evidence including the Witness Statement of Mr Mohammed Nour and a vast number of documents, very few of which were referred to in the hearing.
16. The draft Statement of Case deals mainly with the merits of the contractual relationship between the parties in the Litigating Funding Agreement (LFA) and the Restated Litigating Funding Agreement (RLFA). It does not address the fact that it is unsigned and not followed by a statement of truth. The reasoning behind it being submitted is not clear to anyone in the proceedings. It does not deal with the application at hand and has no reference to it nor did it put forth any grounds or reasoning as to why the Khorafis are entitled to the remedy they are seeking in the current application. Accordingly, I find that it is not relevant to the current application.
17. The first argument put forth by the Khorafis to support this application is that they are entitled to such relief because it is in the interests of justice to grant such relief and they referred the Court to Rule 25.6(1) and Rule 25.7(2)(b) of the Rules of the DIFC Courts (“RDC”) with directions as to filing the Claim under RDC 25.7(3). Rules 25.6 and 25.7 read as follows:
“25.6 An order for an interim remedy may be made at any time, including:
(1) before proceedings are started; and
(2) after judgment has been given.
25.7 However:
(1) Rule 25.6 is subject to any Rule, Practice Direction or other enactment which provides otherwise;
(2) the Court may grant an interim remedy before a claim has been made only if:
(a) the matter is urgent; or
(b) it is otherwise desirable to do so in the interests of justice; and
(c) unless the Court otherwise orders, a defendant may not apply for any of the orders listed in Rule 25.1 before he has filed either an acknowledgment of service or a defence.
(3) Where the Court grants an interim remedy before a claim has been commenced, it may give directions requiring a claim to be commenced.
(4) In particular, the Court need not direct that a claim be commenced where the application is made for production of documents or inspection of property before a claim is made.”
18. With reference to the Witness Statement of Mr Mohammed Nour, the Khorafis argue that they are entitled to liabilities of up to USD 3.5 million in addition to the liability towards KBH. It is argued that if the fund is not paid the Khorafis will not be able to pay the attorney fees for the upcoming Court of Appeal hearing which conflicts with the Court’s overriding objective, “ensuring that the parties are on an equal footing” as put forth in RDC 1.6(1).
19. The Khorafis assert that as the Respondents in the appeal brought by Bank Sarasin who have made sequential applications to the Court, they are compelled to expend money whilst their money in the preserved fund in the Court is denied to them. The Khorafis further argue that without a release of funds, the Court of Appeal hearing will have to be adjourned which is against the interests of justice.
20. The applicant’s second argument is that there is a powerful reason in the List of Reasons dated 30 October 2015 by Deputy Chief Justice Sir John Chadwick at paragraph 20 to release all of the interim funds; which is the purpose for which they were given in the first place.
“20. …It is common practice in this court, as in other courts exercising commercial jurisdiction, to recognize that a party who has obtained the benefit of an order for costs in his favour should not be kept out of his money longer than is necessary while the process of assessment grinds through.”
21. The decision of the Deputy Chief Justice Sir John Chadwick is a powerful authority for the proposition that the interests of the Khorafis, unpaid lawyers and experts, and the interests of the litigation should be favoured over the contingent interests of Vannin, provided that the interests of Vannin can be adequately safeguarded. The same reasoning must apply to the award of damages.
22. In order to assess the interests of justice, the Khorafis suggest that it is appropriate to look at the strength of the case between the parties. A high degree of need might have to be balanced against a weak case overall. As set out below, the Khorafis possess a high degree of need, and a very strong claim against Vannin.
23. The Khorafis contend that they are asset rich and (relatively) cash poor. They have sold assets since August 2014 and paid USD 1.1 million on account of fees and will pay a further USD 500,000 in two months. That is a very considerable effort. The conundrum is that if they sell their income-producing assets, their ability to produce income will suffer.
24. The third argument put forth by the Khorafis is that there is no need for an undertaking nor is there any risk in regards to the repayment if the court frees the preserved money for them. The Appellants presented two possible conclusions for these proceedings:
(i) If this application for the Interim Fund is granted, but the substantive case against Vannin fails, and Vannin are owed USD 10.4 million, the answer is simple. It would be paid off by Bank Sarasin if the appeal is dismissed.
(ii) If Bank Sarasin win the appeal, Vannin will have no issues to claim. They would be barred from entitlement. No repayment issues would therefore arise according to the LFA.
25. In the remainder of the Khorafis submissions it was argued that the Khorafis have a strong arguable case compared with Vannin and KBH’s position when it comes to the standards of proof in this case.
26. The applicant went further to deliberate the substantive claim surrounding the LFA to establish a breach on behalf of Vannin. The alleged breach of the contract, breach of implied terms, breach of Code of Conduct for litigation and breach of the Code of the Association of Litigation Funders of England and Wales were discussed.
27. Finally the Khorafis assert that Vannin and KBH have come to the Court without evidence which addresses the substantive allegations against them. They have preferred to put forward a series of largely unmeritorious procedural points. Therefore, according to the Appellants, the Court should conclude that there is a good arguable case against Vannin and KBH.
Vannin’s Arguments
28. In the First Application, Vannin’s primary submission is that the Preservation Order was made by H.E. Justice Omar Al Muhairi after a half day hearing of submissions from Vannin, KBH and the Khorafis, and has never been subject to any appeal by the Khorafis or any other party.
29. Vannin asserts that the Preservation Order has been effective, and has ensured that the Interim Payment has remained preserved in Court, for over six months while the Arbitration between Vannin, the Khorafis and KBH has proceeded. The onus on any party seeking a variation of the Preservation Order is to show that there has been a significant and material change in circumstances from those which were, or could have been, put before the Court previously, as cited in Chanel v Woolworth & Co [1981] 1 WLR 485 at 492H-493A:
“Even in interlocutory matters, a party cannot fight over again a battle which has already been fought unless there has been some significant change of circumstances, or the party has become aware of facts which he could not reasonably have known, or found out, in time for the first encounter.”
30. The argument is that the Applicant cannot simply invite a Court to reconsider an order on the same material or material which was available at the time of the earlier hearing. Vannin also supported the principle cited in paragraph 29 above with the decision in Lloyds Investment (Scandinavia) Ltd v. Ager- Hanssen [2003] EWHC 1740 (Ch) which prohibits the applicants from bringing an application to invite the Court to reconsider an order on the same material or material which was available at the time of the earlier hearing.
31. Vannin invited the Court to explore the commentary to Part 23 of the CPR in the English White Book, at 23.0.15, which refers to considerations arising when there are successive applications for the same relief.
32. In that context, Vannin argues that there is no significant or material change in circumstances save that Bank Sarasin has obtained permission for the appeal against the judgment in the Main Action, which had already been initiated and filed before the Preservation Order was made by H.E. Justice Omar Al Muhairi.
33. In reply to the point put forth by the Khorafis regarding their need to pay their Counsel USD 583,077 before the end of September 2015 and their desire to pay HAS its own fees for the Appeal and the First to Third Applications, Vannin’s view is that there is no evidence of any alleged inability on the part of the Khorafis to fund those fees from other sources; and their desire that they should be paid from the Interim Payment gives no reason as to why this Court should now strip away the security that was given to Vannin and KBH in the Preservation Order.
34. Vannin further argues that the faint suggestion in the Witness Statement of Mr Nour that the release of the Interim Payment from this Court is somehow required in order to allow the Khorafis to resist the Appeals is certainly not new. It was a suggestion repeatedly made during the correspondence between HAS and Vannin’s lawyers, Clyde & Co, and in the period after the Trial Judgment in which Vannin and KBH were seeking to persuade the Khorafis that the Interim Payment should be paid into an agreed designated or escrow account. That correspondence was considered in some detail by H.E. Justice Omar Al Muhairi.
35. While the DIFC Court does have supervisory jurisdiction to deal with the Preservation Order, it does not have jurisdiction to deal with the merits of any of the claims initiated by the Khorafis by way of a Draft Statement of Case. Even if it did, and even if the arguments made could not have been put forth last time around, the Khorafis could show no more than an arguable case, which would reinforce the case for the interim preservation of the Interim Payment. For the avoidance of doubt, the Preservation Order was not a consent order, and does not purport to confer jurisdiction on any court.
KBH’s Arguments
36. KBH’s main argument in regards to the First Application is that any distribution of the Interim Preservation Sum should be in accordance with the Interim Preservation Order, which stipulates that, pursuant to the wording of the Interim Preservation Order, any variation to the Interim Preservation Order can only occur in accordance with the following:
(i) Further order of the Court based on a consent order signed by Vannin, the Khorafis and KBH; and/or
(ii) An order by way of an arbitration award or of any competent court.
37. KBH contends that there is currently no agreement between Vannin, the Khorafis or KBH in regards to the manner in which the Preserved Funds should be distributed. Similarly, there is currently no order by way of an arbitration award or of any competent court.
38. None of the reasons given by the Khorafis for seeking distribution of the funds (difficulty in paying legal fees, securing the Appeal or clearing debts) constitute a legal basis justifying the variation of the Interim Preservation Order and the distribution of the Preserved Fund.
39. During the hearing, KBH’s Counsel joined Vannin’s Counsel in his argument that the Preservation Order of 6 November 2014 cannot be revisited unless significant or material circumstances from those which were, or could have been put before the Court previously have changed, as summarised in Vannin’s argument above.
The Court’s Power to Vary Preliminary Orders
40. Although RDC 4.7 provides parties the right to apply to the Court in order to vary a given order that determines preliminary issues (interim orders), the question as to what extent the Court can modify the order in question is not clear in the RDC as there is no such provision as to the limits.
41. RDC 2.10 (Application of the CPR and the Guide) gives this Court the power to refer to the English Civil Procedure Rules in the event no provision is made in the RDC in regards to a procedural ambiguity, as follows:
“2.10 If no provision is made or no appropriate form is provided by the Rules or any law in force in the DIFC , the following rules of practice and procedure shall be followed and adopted:
(1) Such Rules as shall have been enacted;
(2) To the extent that no Rule or Practice Direction dealing with the matter shall have been enacted, with regard to the Court of First Instance, the Guide together with any prescribed forms with such changes as the Court considers appropriate to be applied in the circumstances;
(3) Insofar as the Guide does not deal with the matter or makes reference to the CPR , the CPR together with any prescribed forms with such changes as the Court considers appropriate to be applied in the circumstances;
…”
42. The general rule of the CPR in regards to the question at hand is what can be abstracted from CPR 3.1(9) which states that in a fair and orderly case management system, pre-trial matters should remain settled so that the parties can plan for trial accordingly.
43. The rule in Henderson v Henderson [1843] 3 Hare 100, 67 ER 313 applies so that a party cannot make repeated or successive applications where the grounds relied upon in the later applications existed and were available at the time of the first application, and still less when those grounds were relied upon, but were rejected by the Court.
44. The Court’s general jurisdiction under CPR 3.1(7) to vary its orders should not be exercised for the purpose of enabling a party to re-argue any application, relying on submissions and evidence that were available to them at the time of the earlier hearing, see Lloyds Investment (Scandinavia) v. Ager-Hanssen [2003] EWHC 1740 (Ch). The Court’s jurisdiction under CPR 3.1(7) should not normally be exercised unless the applicant is able to place new material before the court, whether in the form of evidence or argument, which was not placed before the court on the earlier occasion, see Collier v. Williams [2006] EWCA Civ 20 [2006] 1 WLR 194.
45. The rule is summarised in Chanel v Woolworth & Co [1981] 1 WLR 485 at 492H-493A as set out in paragraph 29 above.
46. One cannot imagine that parties may be allowed to continue fighting over the same issues surrounding an order without end. The judicial orders must provide stability and some sort of finality to the issues between the parties even if the issue is not on the merits of the case.
47. Deciding otherwise could lead to endless appeals on the varying of orders where the losing party would drag the application before a court for long periods that would defeat the court’s objectives to deal with cases justly, fairly and in a reasonable time period.
48. Having found that a party cannot fight to vary an order which has already been fought unless there has been some significant change of circumstances, I must now turn to the Appellants’ submissions and evidence to verify if there was indeed a material change of circumstances since the Preservation Order was granted.
49. The evidence by the Khorafis, as put forth by Mr Mohammed Nour in his Witness Statement, suggests that:
“8. There exists a need for urgency in this proceeding. The reason is that, whilst we have agreed with our Counsel as their fee for the Appeal, and they have substantially discounted it, on our current cash flow, we will be unable to meet the obligation.
9. Mr. Al Khorafi has expended the following sum since the 21 August 2014 judgment: USD 1,104,440.00 Paid on Account of Counsel Fees, Court Fees, Advisory Fees, Legal Fees and Disbursements.
10. Mr. Al Khorafi’s cash flow determines that he next make a payment of USD 500,000.00 in September 2015.
11. I confirm that I have personally examined and informed myself as to the outstanding liabilities of Mr. Al Khorafi. I set out below;
12. There is an outstanding liability to our lawyers HAS in the amount of USD 461,359.00. We are not under immediate pressure to make payment of this amount. However, at the same time, we want to pay our lawyers.
a. There are outstanding Trial Costs from CFI-026-2009 of USD 948,593.00. These are detailed in the KBH Consent Order dated 9 February 2015 and are scheduled to be paid from the Preserved Funds held by the Court. These accounts have been outstanding for a long time and need to be sorted out as soon as possible.
b. We have a contingent liability to a Dubai Law firm of USD 134,130.00 and a barrister instructed by them, USD 22,850.00. Our lawyers do not accept that the whole of this fee is payable due to a dispute between those firms as to the extent of instructions given. Nevertheless, we list the full amount of that payment claim.
c. We have an outstanding amount to Griffins, the Forensic Accountants for work done on the Quantum hearing, of USD 48,500.00.
d. In addition there is a significant sum claimed by Eversheds LLP in the amount of USD 900,000.00. They have indicated that they are quite prepared to wait until the judgment sum becomes available. We have not yet analysed that invoice and considered its recoverability.
e. Finally there is an Invoice for recent work done by the firm of Irwin Mitchell LLP in the amount of USD 91,000.00. Again, without casting aspersions on the invoice, we are not yet in a position to accept it as being payable and we are unlikely to do so.
13. The problem which gives rise to this application is our difficulty in paying Counsels’ Fees immediately.
We have a debt of considerable gratitude to our Counsel who have worked very hard on very little and achieved considerable success.”
50. Both Vannin and KBH contend that none of the grounds in Mr Mohammad Nour’s Witness Statement, which were relied on and argued by the Khorafis’ representatives, are new grounds or circumstances, as they were all available or could reasonably have been known by the Khorafis at the time when the Preservation Order was heard and granted or at least at the time when the Khorafis could have submitted their appeal against it.
51. The Khorafis have not established that any of the grounds referred to in their submissions are new or could not have been available to them to put forth before the Court at the Preservation Hearing. Instead the focus was on the issues of financial hardship and inability to pay the debts surrounding the proceeding.
52. Consequently, the submissions suggest that there is no significant or material change in circumstances to justify varying the security provided by H.E. Justice Al Muhairi ordering that the Interim Payment be paid into Court. The only change is that permission to appeal has been granted for an appeal which was already anticipated at the time of the Preservation Order, and the costs of which were already being discussed by the Khorafis’ representative in order to seek further funding.
53. Ms Hanlon of HAS, the representative for the Khorafis at the Preservation Hearing on 6 June 2014, mentioned on page 73 of the hearing transcript that the possibility of an appeal was an issue for the Court to consider. “There could be appeals filed by the Defendants, Defendant 1 and 2. This is in CFI-026-2009 and I cannot predict this. I have attempted to get the information from the Registrar.”
54. Having established that the Khorafis have put forward no material change of circumstances or events since the Preservation Order was granted, this Court sees no ground on which it can revisit the Order.
Bank Sarasin’s position
55. In the First Application’s submissions and while hearing the First Application above, the Appellants asked this Court to consider the presence of Bank Sarasin. This Court came to the conclusion that Bank Sarasin is not an applicant in this first application, nor are they actual respondents as the Appellants never intended to serve them with this application.
56. The Appellants never agreed that Bank Sarasin should be parties in this application; it was Vannin’s suggestion that they be served with the application which they were then served with in redacted bundles and therefore submitted written replies to the application before attending the hearing with Counsel to represent them.
57. The Court agreed with the Khorafis and ordered that Bank Sarasin are not to be parties to this application since they are not required to take action or refrain from action on anything in this application. During the hearing therefore, the Court asked their representative to leave the courtroom.
58. I see that Vannin now requests to involve Bank Sarasin. I therefore request the parties and Bank Sarasin to make submissions in regards to the costs related to Bank Sarasin’s involvement up to the hearing date of no more than four pages from each party.
The Second Application
59. In the Second Application the Khorafis seek an Order under the DIFC Arbitration Law to stay the Arbitration proceedings DIFC/LCIA D-L-14043 initiated on 8 December 2014 or, alternatively, a declaration that the arbitral tribunal has no jurisdiction.
60. The Khorafis case is that Vannin have no immediate right to final payment as the entitlement of Vannin to be paid a final payment arises under Clause 10.1 of the Agreement on the occurrence of a “Win”. A ‘win’ is defined in the Agreement as:
“…that any part of the Claim is Concluded in the Client’s favour in that the Client is able to recover damages…”
Further, ‘Concluded’, is defined as:
“ …the Claim (or relevant part of it) has been Won or Lost, and that:
If the Claim (or where appropriate, part of it) has been Won, the Opponent:
…
has Lost any appeal.”
- The Khorafis’ position is that a Claim has not been ‘won’ until the Opponent has lost the Appeal. In this case, the appeal is allowed and therefore there is no finality to the matter, as the case may take either direction. Saying otherwise, a litigation funder of uncertain means would need a covenant to pay back any sum awarded under an interim judgment. The fact that the contract makes no provision for repayment significantly supports the view that payment should only be made on the finality of the litigation. Pure common sense dictates that as well.
- In order to support their argument of finality, the Khorafis refer to three other provisions of the Agreement which they say are drafted in conformity with their argument, which are as follows:
- The definition of ‘stages’, and particularly Stage 3, which ends at “the handing down of judgment following trial”. On any assessment, we are in stage 3. Trial is the whole course of the proceedings and judgment is a ‘final judgment,’ following which comes a “final payment” and the right to ‘arbitrate’ under the only available clause, Clause 17.1.3.
- The definition of “interim judgment’ makes it quite clear that the Agreement intends to distinguish between interim judgments and interim payments on the one hand, and final judgments and final payments on the other.
- The arrangements for the repayment of the Distributed Fund are drafted in conformity with the provision for the repayment of the Undistributed Fund at Clause 7.2.
- In order to demonstrate how a case can be ‘won’ in accordance with contract structure, the Khorafis rely on the test of Investors Compensation Scheme Ltd v West Bromwich BS [1997] UKHL 28, so that the interpretation of ‘win’ shall be subject to the five principles set out in the seminal speech of Lord Hoffman;
- what a reasonable person having all the background knowledge would have understood;
- where the background includes anything in the ‘matrix of fact’ that could affect the language’s meaning;
- but excluding prior negotiations, for the policy of reducing litigation;
- where the meaning of words is not to be deduced literally, but contextually; and
- on the presumption that people do not easily make linguistic mistakes.
- Accordingly, for the Khorafis, a “win” only arises when the case is complete, and that means including all exhausted appeals. Only then can a ‘final payment’ be claimed or be payable.
- As a result of the arguments above, the Khorafis contend that there is no final judgment and no final payment, so the dispute is not a dispute over final payments, and therefore there is no valid Arbitration Clause. Accordingly, the Khorafis invite the Court to stay the Arbitration proceedings.
The Third Application
- In their third Application the Khorafis contend that there is a valid and binding escalation clause in the RFLA which requires the parties to consider mediation and that the parties have not considered the mandatory mediation in terms of Clause 17.1.3 of the RFLA, which reads:
“…If the dispute relates to the amounts payable under this agreement which are final payments, then the parties are required to consider mediation. If that does not work, then the parties will be at liberty to have the matter decided by arbitration pursuant to the DIFC-LCIA Arbitration Rules.”
- The argument then follows that the Arbitration should be stayed due to the failure by Vannin to observe the provisions of Clause 17.1.3 of the RFLA which is an escalation clause.
- The Khorafis in this application depend on an analysis of the “impugned” correspondence set out in the Notice of Application. It is said that the correspondence shows that there was no consideration of mediation, and that the only way this matter got to a formal arbitration was by Vannin’s representatives’ misleading statements to the Acting Registrar of the DIFC-LCIA in correspondence dated 20 November 2014.
- The Khorafis contend that when Vannin was asked by the Acting Registrar of the DIFC-LCIA to provide information as to whether the parties had considered mediation, the answer given was misleading. They asserted that Vannin had said there was “an exhaustion of amicable mediation efforts” against the reality which, according to the Khorafis, was that there had been no consideration of mediation.
- The Khorafis refer to Justice Colman’s finding in Cable & Wireless PLC IBM UK Ltd [2003] 1 B.L.R. 89 where he recognised the enforceability of an ADR agreement which nominated a respected ADR institution as providing mediation services, and when he opined that it was not strictly necessary to have such a body, it did make the agreement sufficiently referable to objective criteria. They also referred to Joseph Ed, 18.03;
“Proceedings brought in court in contravention of the terms of such a clause are liable to be stayed or adjourned as appropriate. Equally, however, there must be a danger that an arbitration commenced in breach of an effective ADR provision will be ineffective if there has been a failure to comply with a binding condition precedent to arbitration.”
- The Khorafis, after claiming no mediation had been conducted, set the following grounds out as to why the arbitration proceedings should be stayed;
- Clause 17.1.3 of the RFLA is an effective ADR Clause which constitutes an enforceable agreement to consider mediation;
- The clause is not uncertain and is complete and sufficiently referable to objective criteria;
- The obligation is for the parties to consider mediation in a joint temporal sense as a good faith requirement;
- Good faith is an important tenet of DIFC Law and in the context of Clause 17.1.3 requires the parties to adopt an honest and genuine approach to settling a dispute, and an honest attempt by the parties to consider mediation is the objective criteria required to be met;
- Only if the honest and objective consideration of mediation does not work, can the parties go to arbitration, in which case the use of the word work denotes a positive obligation;
- An arbitration commenced in breach of an effective ADR provision will be ineffective if there has been a failure to comply with a binding condition precedent to arbitration; and
- The behaviour of Vannin in misrepresenting correspondence was not genuine.
- The Khorafis further argue that failing to adhere to ADR must have financial impact on the overall proceedings as;
- A requirement for the parties to consider mediation is important given the effect of RDC Part 27 and applicable English Case Law which outlines the costs consequences following a refusal to consider or participate in mediation;
- In order for the Court, at a later date, to consider whether or not a party has compromised its costs position by refusing to engage in ADR, the Khorafis submit it is necessary for the Court to have objective material before it; and
- A significant misstatement by a party as to their compliance with ADR should support a stay, particularly if there is a contractual structure to engage in some measurable manner.
Vannin’s Application
- In this application, instead of directly submitting a defence to the First and Second Applications, Vannin chose to challenge those applications by way of counter application, the core purpose of which was to dismiss the aforementioned applications.
- In its submission, Vannin’s primary point, in response to the Second Application and Third Application, is that the DIFC Courts have no jurisdiction to decide the competence of the Tribunal to adjudicate in the Arbitration. They say it is the Tribunal that has jurisdiction to determine its own competence with reference to the principle of “Kompetenz-Kompetenz” which Vannin argue is expressly confirmed in Article 23(1) of the DIFC Arbitration Law.
- Vannin further submits that the Khorafis, by inviting the Court to give itself the relevant power by extending its inherent jurisdiction to reach the finding that RDC 4.2(6) permits a stay of any proceedings anywhere, including arbitral proceedings, is “breaking a small amount of new ground”.
- For Vannin, the DIFC Courts have no jurisdiction to intervene by stay or declaration that the Arbitral Tribunal has no jurisdiction because no legislative or legal source permits the DIFC Courts to do so before the arbitral tribunal has determined that matter.
- By referring to the Judgment of Justice Williams in International Electromechanical Services LLC v. Al Fattan Engineering LLC (14 October 2012) CFI 004/2012, Vannin’s position is that the general power of the DIFC Courts under RDC 4.2(6) to ‘stay the whole or part of any proceedings’ may not apply to any proceedings or judgments of any Court or Tribunal other than those of the DIFC Courts. There is no basis for any such extension by the Court of its own jurisdiction.
- Vannin’s final point on jurisdiction is that it will be open to parties to invite the Courts to intervene and examine jurisdiction at a later stage if and when an application to recognise or enforce an award by a Tribunal is made and an application contesting jurisdiction is filed.
- With regards to merits, and the point of the meaning of “win”, Vannin insist that the definition of “win” is to be interpreted in a common-sense and purposive way, save that it will always include actual recovery from the opponents of any damages awarded, whether by enforcement proceedings or otherwise.
- Vannin’s further argument in relation to the three specific stages of the claim is that the final stage, ‘Stage 3’, extends only to the handing down of judgment following trial (Clause 3 of the RLFA).
- Vannin contends that upon the Khorafis winning in the trial judgment, it was entitled under the RLFA to the immediate payment of both the ‘Distributed Fund’ and the ‘Funding Premium’ and to the payment of the ‘Recovered Sums’ into a separate designated client account. Neither entitlement was in any way conditional upon the provision of further funding beyond Stage 3. The argument is that there is no suggestion anywhere in the RLFA of any obligation on Vannin’s part to fund the Khorafis’ claims beyond Stage 3.
- Vannin finally argues, on the mediation point, that Clause 17.3.1 is an escalation provision requiring only a consideration of mediation but not mediation itself, which lacks any certainty to make it an enforceable clause.
- Vannin refers to the case of Wah v Grant Thornton [2012] EWHC 3198, where the English Court found that a term requiring the Chief Executive to have attempted to settle a dispute ‘by amicable conciliation’ lacked “sufficient definition and certainty to constitute enforceable conditions precedent to the commencement of an arbitration”.
KBH’s position
- KBH’s position with regard to the Second Application and the Third Application is that the DIFC Courts should refuse to hear and determine the stay applications for the following reasons;
- The appropriate forum for the Khorafis to raise any jurisdiction argument is in the Arbitration, as the matters are properly within the powers of the Arbitral Tribunal to determine; and
- If the DIFC Courts are to hear and determine the Second Application and Third Application, this would give rise to the possibility of a multiplicity of binding decisions in respect of the same issue and possibly even a conflict between any decisions made in the different forums.
Judgment
- It is evident that the parties have agreed to refer any dispute between them arising out of the execution of the RLFA to arbitration in the DIFC, namely to the DIFC-LCIA Arbitration Centre, as Clause 17.1.3 of the Agreement reads:
“…If the dispute relates to the amounts payable under this agreement which are final payments, then the parties are required to consider mediation. If that does not work, then the parties will be at liberty to have the matter decided by arbitration pursuant to the DIFC-LCIA Arbitration Rules.”
- It is also clear that the Second Application and the Third Application are not challenges against the validity of the Arbitration Clause and there is nothing before me to that effect. Therefore, a prima facie case has been established that a valid Arbitration Agreement exists between parties to resolve their dispute.
- In their applications, the Khorafis are requesting the Court to stay the Arbitration or to declare that the Arbitral Tribunal lacks jurisdiction for the reasons that the Khorafis have not won the case yet according to the definition of “win” in the RLFA, and that Vannin or the parties in general have failed to observe the provisions concerning Mediation pursuant to Clause 17.1.3 of the RFLA, which is an escalation clause prior to Arbitration.
- The question therefore to be determined is to what extent can this Court intervene in a case that has already been referred to arbitration through an undisputable prima facie clause and order a stay of the Arbitration proceedings?
- The question is about this Court’s power and jurisdiction to stay arbitral proceedings where the seat is the DIFC and the arbitral forum is under its supervision.
- The usual situation is that the Arbitral Tribunal should as a selected forum rule on its own jurisdiction, including any objections with respect to the existence or validity of the Arbitration exactly as the DIFC Arbitration Law provides in Article 10(1) and 23(1) with regard to the competence of the Arbitral Tribunal to rule on its jurisdiction.
- Article 10(1) (Extent of Court intervention) reads;
“In matters governed by this Law, no DIFC Court shall intervene except to the extent so provided in this Law.”
Article 23(1) (Competence of Arbitral Tribunal to rule on its jurisdiction) reads;
“The Arbitral Tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the Arbitration Agreement. For that purpose, an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision by the Arbitral Tribunal that the contract is null and void shall not by itself determine the invalidity of the arbitration clause.”
- As I said above, that is the normal situation. However, there must be exceptional cases where the Court would be approached to deal with issues related to the Arbitration Tribunal’s jurisdiction. The DIFC Arbitration Law has drawn a line as to what extent this Court can intervene in the authority of the Arbitral Tribunal in regards to jurisdictional challenges and in the event of disagreement.
- Article 13 of the DIFC Arbitration Law allows this Court to intervene, despite the fact that the Arbitral Tribunal might still deal with the issue, as the use of the term ”may” in Article 23(1) suggests, only if the Arbitration Agreement is null and void, inoperative or incapable of being performed. Article 13 states:
“(1) If an action is brought before the DIFC Court in a matter which is the subject of an Arbitration Agreement, the DIFC Court shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, dismiss or stay such action unless it finds that the Arbitration Agreement is null and void, inoperative or incapable of being performed.
(2) Where an action referred to in paragraph (1) of this Article has been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the DIFC Court.”
- The Arbitration Clause itself “shall be treated as an agreement independent of the other terms of the contract”, as Article 23(1) suggests. However, there are no grounds put forward by the Khorafis in which they plead that the Arbitration Clause is null and void, inoperative or incapable of being performed. Accordingly, both the Second Applications and Third Applications in this regard must fail.
- The further question in the Second Application is whether Vannin’s immediate right to final payment arises under Clause 10.1 of the Agreement.
- It is beyond doubt that what the Khorafis are trying to do in their Second Application is to ask this Court to step on the selected Arbitral Tribunal’s toes by looking at the merits of the case referred to arbitration and interpreting the agreement, then to conclude that the arbitral tribunal has no jurisdiction.
- Even if the Khorafis manage to establish before this Court that there is still no ‘win’ to justify Vannin’s claim, which has nothing to do with the Arbitration Clause in any event, the request put forward still must be seen as requiring the Court to cross the jurisdiction of another selected forum. The Court is restrained from doing so by Article 13(1) of the DIFC Arbitration Law, and this request is therefore denied.
The parties’ failure to consider arbitration
- We then come to the issue in the Third Application of whether the Arbitration should be stayed due to the failure by Vannin to observe the provisions of Clause 17.1.3 of the RFLA as an escalation clause dictating that “final and binding mediation” is mandatory before arbitration.
- In this particular argument, I see that there might be a controversial point that the mediation as a pre-condition is something to do with the validity of the Arbitration Clause itself unlike the other argument related to the meaning of “win”.
- This point of view above laid down by the Khorafis is to be determined in light of the question of whether it is this Court or the selected arbitral tribunal who should deal with such an issue.
- As to the point of which forum should look at the issue surrounding the Mediation Clause, this Court or the Arbitral Tribunal referred to in the Arbitration Clause, the Khorafis provided two references. The first is a reference to Justice Colman in Cable & Wireless PLC IBM UK Ltd [2003] 1 B.L.R. 89 where he recognised the enforceability of an ADR agreement which nominated a respected ADR institution as providing mediation services, and where he opined that it was not strictly necessary to have such a body, but it did make the agreement sufficiently referable to objective criteria.
- The second reference is to the Joseph Ed, 18.03, which reads;
“Proceedings brought in court in contravention of the terms of such a clause are liable to be stayed or adjourned as appropriate. Equally, however, there must be a danger that an arbitration commenced in breach of an effective ADR provision will be ineffective if there has been a failure to comply with a binding condition precedent to arbitration.”
- As to the first reference, although the case demonstrates the importance of an ADR Clause in the contracts, nothing in this reference helps the Khorafis support their argument that the Court should stay the arbitration proceedings. In this case, Justice Colman in the English Court was examining the enforceability of an ADR Clause pre-condition to its own judicial jurisdiction and there was no challenge of jurisdiction as between Judiciary and Arbitral Tribunal as in this case.
- As to the second reference provided by the Khorafis which again demonstrates the enforceability of an ADR Clause before a Court and Arbitration Tribunal, the reference given, as it appeared in the Khorafis’ submission, was not clear as to who should resolve the issue surrounding the enforceability of a mediation clause in a case referred to Arbitration.
- I said the reference submitted by the Khorafis is not clear on the point of who should resolve the issue in the case that is referred to arbitration; however, it is not clear because the Khorafis’ representatives didn’t wish to make it clear in their submission before this Court. The same author of the book David Joseph Q.C (Jurisdiction and Arbitration Agreements and their Enforcement) that the Khorafis quoted from made it clear at paragraphs 18.13 and 18.14 that:
“In granting a stay, the court is enforcing the arbitration agreement and not the ADR provision. In other words, in order to grant a stay under s.9 of the Arbitration Act 1996, the court needs to be satisfied of the existence of an arbitration agreement within the meaning of the Act. The court is not concerned with enforceability or the certainty of the ADR provision. Should such a question arise, that would be a matter for the arbitral tribunal to consider.”
- The author makes reference to Ardentia v British Telecommunications Plc [2008] EWHC 2111 (ch) where the Court in granting a stay was enforcing the obligation to arbitrate and not the questionable ADR provision.
- Thus, it seems to me very obvious that in a case where one party approaches the Court applying for a stay of arbitral proceedings for the reason that an ADR provision exists and ADR should be conducted pre-arbitration, the Court must not consider the ADR provision and keep its focus on the Arbitration agreement only. In other words, the enforceability of the ADR provision must not be a reason to stay arbitral proceedings by way of Court order and that question must be kept for the selected forum to rule on.
- I also agree with Vannin’s point on jurisdiction, that it will be open to parties to invite the Courts to intervene and examine arbitration jurisdiction at a later stage. This can be found in Article 44.1.a.(iii) Grounds for refusing recognition or enforcement, which reads:
“(1) Recognition or enforcement of an arbitral award, irrespective of the State or jurisdiction in which it was made, may be refused by the DIFC Court only:
(a) at the request of the party against whom it is invoked, if that party furnishes to the DIFC Court proof that:
(iii) the award deals with a dispute not contemplated by or not falling within the terms of the submission to Arbitration, or it contains decisions on matters beyond the scope of the submission to Arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to Arbitration may be recognised and enforced;”
- Just as Articles 13 and 23 of the DIFC Arbitration Law suggest, nothing in the Khorafis’ application justifies the intervention of this Court to grant a stay of the arbitral proceedings or to declare that the arbitral tribunal has no jurisdiction to proceed with the dispute between the parties. Therefore, the Khorafis’ Second Application and Third Application must be dismissed.
- Furthermore, the Vannin Application contesting this Court’s jurisdiction to deal with the Khorafis’ Second Application and Third Application is granted.
- Having reached the above conclusion, I do not see any point in dealing with the rest of the arguments in the applications at hand.
- The Khorafis shall pay the costs of the Second Application and the Third Application on the standard basis, to be assessed by the Registrar, if not agreed between the parties.
Issued by:
Natasha Bakirci
Assistant Registrar
Date of issue: 28 January 2016
At: 2pm
The post CFI 036/2014 Vannin Capital PCC PLC v (1) Mr Rafed Abdel Mohsen Bader Al Khorafi (2) Mrs Amrah Ali Abdel Latif Al Hamad (3) Mrs Alia Mohamed Sulaiman Al Rifai (4) KBH Kaanuun Limited (5) Bank Sarasin-Alpen (ME) Limited (6) Bank j. Safra Sarasin Ltd appeared first on DIFC Courts.