Sky News Arabia FZ-LLC v Kassab Media FZ (LLC) [2018] DIFC CFI 067

Claim No. CFI-067-2018

THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS

In the name of His Highness Sheikh Mohammad Bin Rashid Al Maktoum, Ruler of Dubai

IN THE COURT OF FIRST INSTANCE
BEFORE JUSTICE SIR RICHARD FIELD

BETWEEN

SKY NEWS ARABIA FZ-LLC

Claimant

and

KASSAB MEDIA FZ (LLC)

Defendant

JUDGMENT OF JUSTICE SIR RICHARD FIELD

ORDER

UPON the Claimant’s claim submitted on 30 September 2018

AND UPON the Claimant’s Application seeking an Order striking out the defence

AND UPON hearing Counsel for the Claimant at the Hearingheld on 11 December 2019

AND UPON considering the Witness Statement of Kelvin Barker made under oath at the Hearingof 11 December 2019

AND UPON considering the Auditors Report by Mr Shahab Haida dated 18 July 2019

AND UPON reading the submissions and evidence filed and recorded on the Court file

IT IS HERBEY ORDERED THAT:

1. The Defendant shall pay the Claimant the principal of USD 4,776,668 with interest of USD1,634,319.67 calculated to the said date of 11 December 2019.

2. The Defendant shall pay the Claimant’s costs on account in the sum of AED 900,000 within 14 days of the date of this Judgment.

3. The balance of the Claimant’s costs shall be assessed by the Registrar, if not agreed.

Issued by:
Ayesha Bin Kalban
Assistant Registrar
Date of Issue: 6 January 2020
At: 9am

SCHEDULE OF REASONS

1. This is the trial of a claim for USD 4,576,668, plus interest, averred to be due under a contract styled “Agreement for the Supply of Advertising Sponsorship Sales Representation”, dated 1 July 2013, made between the Claimant and the Defendant (“the Contract”).

2. The Defendant was given notice of an order of this Court that the trial would proceed today, starting at 2pm.A day or so previously, the lawyers representing the Defendant applied to the Court for permission to come off the record.The Defendant has not appeared today to defend the claim.

3. Counsel for the Claimant, Mr Killen, applied to strike out the Defendant’s Defence and then to prove the Claimant’s claim.In making that application, he had in mind an overriding submission the Claimant advances to deal with the principal pleaded defence. That defence is that the provision in the Contract that obliged the Defendant to make a minimum payment when the revenue generated from the Defendant’s activities under the Contract was less than the stipulated minimum payment was unenforceable because the obligation was not supported by “cause” as required by UAE law or because it was a penalty.

4. The Claimant contends that the sums claimed all represent the stipulated share of the revenue actually earned under the Contract which in every quarter of the relevant period exceeded what would be due under the minimum payment obligation. It followed, it was submitted, that the minimum payment obligation formed no part of the Claimant’s Claim and accordingly there were no legal defences to the Claim, and thus the Defence should be struck out and the Claimant be permitted to prove its claim by reference to the terms Contract apart from the minimum payment obligation.

5. In the exercise of my discretion, I refused the application to strike out the Defence. The Defence pleads a counterclaim for sums paid under the minimum payment obligation and there were such sums paid by the Defendant prior to the period relevant to the Claimant’s Claim. In my judgment, in these circumstances,the interests of justice are better served if the Court considers and pronounces upon the pleaded defences.

6. The Claimant called one witness, Mr Kelvin Barker, who at the relevant time was the Chief Operating Officer of the Claimant. He took the oath and confirmed the contents of his witness statement. His evidence in chief was therefore admitted unopposed by the Defendant. He told the Court he no longer holds that position, and he gave a contact address in substitution for the address given in his witness statement, which was the address of the Claimant.

7. The Claimant also relied on a report from an independent accountant called Mr Haida. Parts of this report are inadmissible to the extent that Mr Haida describes the operation of the Contract but, in my judgment, that part of his report where he verifies the sums which are due to the Claimant by reference to his own examination of the relevant documentation is admissible. He was due to give evidence tomorrow in accordance with the timetable that had been agreed between the parties. He is not here today, in the expectation that he would only be required tomorrow. In my judgment, in the current circumstances where the Defendant has failed to appear, Mr Haida’s statement can come in as hearsay evidence pursuant to RDC 29.13 (2). It is a signed statement, and the Court can have regard to what Mr Haida says as to his authentication and verification of the sums due.

8. I turn to the Contract. By clause 3.1, the Defendant was appointed by the Claimant for the term of the agreement as the exclusive media representative for the Claimant in the defined territory, responsible for selling all advertising and sponsorship on the Claimant’s channel, website and mobile services. From that exclusivity there was a carve-out contained in clause 3.2 which reserved to the Claimant itself the entitlement to sell advertising and sponsorship in the territory to: (i) certain identified clients as to which no payment would have to be made by the Claimant to the Defendant;and (ii) other identified clients called“Direct Clients” in respect of which the Claimant was obliged to pay to the Defendant 7.5 per cent of the revenue resulting from such dealings.

9. Clause 9.1 provided that, subject to payment of the minimum guaranteed sum, the net revenues from the advertising business generated by the Defendant would be divided between the Claimant and the Defendant as provided for in a table which set out the percentages payable to the Claimant and the Defendant in the following six years under the Contract. These percentages are 65%/35% for the first two years, 70%/30%for the next two years and 75%/25% per cent for the final two years.

10. Clause 32.1 provided that, save in respect of certain particularised circumstances, the agreement was to be the entire agreement made between the parties.

11. Clause 38.1 provided that the governing law was to be the laws of the United Arab Emirates as applicable in the Emirate of Abu Dhabi, and the Dubai International Financial Centre Courts were to have exclusive jurisdiction. Although at an earlier stage in the proceedings there was some dispute as to the impact of clause 38.1, it is common ground that the governing law of the Contract is the law of the UAE.

12. The Defendant in its pleadings admits the Contract and does not deny that under the terms thereof it should have made the payments that are sued for.

13. As mentioned earlier, there are two defences. The first defence is founded on Article 318 of the UAE Civil Code which states in its English translation:

“No person may take the property of another without lawful cause and if he takes it, he must return it.”

14. The Defendant pleads that the minimum guaranteed payments (“the MG payments”) it made under the Contract were made without lawful cause because, in substance, the contract was not an exclusive contract under which the Defendant was entitled to expect the Claimant, as a fully established and functioning company, to run a successful business that would produce revenues in excess of the MG payments. Instead, it is pleaded in paragraph 3.3 of the Defence that the exclusive nature of the appointment of the Defendant was substantially reduced under clause 3.2 of the agreement to which I have already referred. In paragraphs 3.4 and 3.5 of the Defence, it is pleaded that the commercial relationship set out in the agreement was largely collaborative built around the annual series of meetings to be held in November each year and this non-exclusive and collaborative relationship for the start-up was inconsistent with the concept of MG payments.

15. The Defendant further pleads that the minimum guaranteed payments cannot be justified on commercial grounds for the following reasons. (1) The Defendant has only limited exclusivity. (2) The Claimant is a start-up endeavour which has largely failed to achieve satisfactory results in procuring advertising by its own efforts. (3) The importance to success with the procurement of advertisements and ratings was dependent entirely on the Claimant’s programming and content, and there was no mechanism in the agreement for adjustment of the MG payments in the light of the actual performance of the Claimant. (4) The revenue to be shared in respect of net revenues in excess of the MG payments was substantially in favour of the Claimant.

16. The Defendant has not pleaded out a counterclaim in the ordinary and proper way. However, on a generous interpretation of the Defence, what is pleaded here is a set-off whereby the Defendant seeks to set off against the sums now claimed from it the MG payments that it paid prior to the determination of the Contract.

17. The second defence proceeds on the basis that the MG payments are a penalty and are unenforceable under Article 390 of the UAE Civil Code which provides:

“(1) The contracting parties may fix the amount of compensation in advance by making a provision in the contract or by later agreement subject to the provisions of the law.

(2) The court may, on the application of either party, vary such agreement so as to make the compensation equal to the loss and any agreement to the contrary shall be void.”

18. Article 318 of the UAE Civil Code has been referred to and explained in at least two cases decided by the Dubai Court of Cassation “the DBC”). In case 216/2009, the DBC said:

“The effect of article 318 of the Civil Code as clarified in the commentary is that the basic presumption is that a property of a person may not be transferred to another save in one or two cases. They are the agreement of those two persons to such transfer or if the law dictates that such transfer take place. If there is [not] a transfer of property in either, it must be returned to its owner.That is the rule of unjust enrichment. The owner of property who alleges that it has been transferred to another person otherwise than in the two circumstances aforesaid has the burden of proving his allegation in that he has to produce evidence firstly that his property was transferred to another and, secondly that the transfer of the property to that person took place without lawful cause. Whether that has happened is a matter of fact in the trial court. There is no scope for the application of the principle of unjust enrichment in a case where there is a contract governing the relationship between two parties. In a case where there is no contract, the action can be brought on the basis of unjust enrichment if the conditions therefor are made out.”

19. In case 234/2009, the DBC said:

“This rule [relating to unjust enrichment under Article 318 of the Civil Code] has its origin in non-contractual obligation, because if there is a contractual relationship between the parties or an agreement governing the relationship between them, the criterion for the application of this rule will be negated, as it will be the agreement that is the determining factor in deciding the rights and obligations of each of the parties towards the other. The person alleging that his opponent has used unlawful means in the transaction between the parties lies on the person who asserts it.”

20. In my judgment, on the basis of these two authorities and having regard to the wording of Article318 itself, the MG payments do not give rise to a cause of action in unjust enrichment. The Defendant freely agreed to pay the minimum guaranteed payments; indeed, in the early negotiations that led finally to the executed agreement, the Defendant offered to make such payments. As I saybelow when dealing with the penalty defence, there was “cause” i.e. legal cause for the minimum guarantee. True it is that full, exclusive exclusivity within the territory was not granted. Nonetheless, such exclusivity that was granted was a valuable consideration in exchange for the Contract. To have such exclusivity within the territoryplainly constituted a considerable benefit to the Defendant for which it was prepared to agree to make the MG payments.

21. It follows, in my judgment, that unquestionably the MG payments that have been made over the course of the Contract are not recoverable as unjust enrichment. They were paid pursuant to the Contract for good, lawful cause and the Article 318 defence fails.

22. I turn to the plea of penalty under Article 390 of the Civil Code. In my judgment, the minimum guarantee was not a stipulation designed to compensate the claimant should there be a breach of contract on behalf of the Defendant. Instead, the MG payment obligation, as I have said, was the consideration paid by the Defendant for a the limited exclusivity it was granted under the Contract.

23. The Claimant cites a decision of the Union Supreme Court (“the USC”) concerning Article 390, case 370/20, in which the USC said:

“The above provisions [Article 390 (1) & (2)] indicates that incorporating the penalty clause in a contract means that the assessment of harm is decided at the discretionary power of the contracting parties. As such, the creditor is not obliged to prove the same. Rather, it is the debtor that is required to prove that no harm had been inflicted. It is also presumed that the assessment of the agreed compensation should be proportionate, with the harm sustained by the creditor, which requires the judge to comply with and enforce such clause unless the debtor proves that the agreed assessment is exaggerated…”

24. As I have just held, the MG payment obligation was not a provision designed to compensate the Claimant for harm done by the Defendant. The Defendant did not contractually oblige itself to achieve revenue in excess of the minimum guaranteed payment.

25. It follows, in my judgment, that the defence founded on Article 390 in the UAE Civil Codedoes not succeed. The result is that there is no good defence to the Claimant’s claim. The principal sum due, as I mentioned at the beginning of this judgment is USD 4,576,668, which has been authenticated and verified in Mr Haida’s report, which evidence I accept.

26. As to the claim for interest, under the governing law of the Contract (UAE law), there is entitlement to interest where sums due have not been paid at a rate of up to 12 per cent per annum, although it appears that the normal rate awarded under this provision is 9 per cent.

27. Article 17 of the DIFC Law of Damages and Remedies entitles a party which establishes that it has not been paid a sum of money due to it to an award of interest calculated by reference to the average bank short-term lending rate to prime borrowers. The situation, therefore, is that the law of the Contract provides for a particular head of loss, namely interest, and the law of the forum provides by Article 17 of the Dubai Law of Damages and Remedies for an award of interest by way of a remedy for that loss. Mr Killen referred me to a decision of Mr Justice Leggatt, as he then was, sitting in the London Commercial Court in AS LatvijasKrajbanka (In Liquidation) and Vladimir Antonov[2016] EWHC 1679 Comm. In paragraph 7 of his judgment, Mr Justice Leggatt says:

“The proper approach to applying this distinction [i.e. the distinction between matters of substance governed by the lexcausae and matters of procedure governed by the lexfori] has been considered by the House of Lords in Harding and Wealands [2007] 2 AC 1 and by the Supreme Court in Cox and Versicherung AG [2014] AC 1379. Those casesdecide that the question whether a particular head of loss is recoverable is a question of substance governed by the law applicable to the obligation. On the other hand, whether there is a remedy available for any particular item of loss is a procedural question governed by English law as the law of the forum. Applying that distinction to a claim for interest, the Court of Appeal held in Maher vGroupama Grand Est [2010] 1 WLR 1564, para 40, that the existence of a right to recover interest as a head of damage is a matter of substance governed by the applicable law, but that section 35(A) of the 1981 Act is a procedural provision which creates a remedy exercised at the court’s discretion. The Court of Appeal considered that this discretionary remedy is available whether a substantive right to recover interest exists or not, although the factors to be taken into account in exercising the court’s discretion might well include any relevant provisions of the applicable foreign law relating to the recovery of interest.”

28. I propose to adopt this approach articulated by Mr JusticeLeggatt.Accordingly, I find that this Court, in quantifying the interest recoverable, should have regard to the substantive law of the Contractunder which there is entitlement to interest up to 12 per cent but where the normal rate is 9 per cent. The Claimant has undertaken a calculation of interestat the rate of 9% p.a. taking periods of time which are more favourable to the Defendant than to the Claimant. That seems to me to be an entirely reasonable approach about which the Defendant could make no possible complaint. The sum claimed at 9% p.a. in respect of the sums due and over the periods of time I have just referred to is USD1,634,319.67. Accordingly, for the reasons I have given, I give judgment against the Defendant in the principal of USD4,776,668 with interest calculated to today’s date of USD1,634,319.67.

S. 35A of the UK Senior Courts Act provides: Subject to rules of court, in proceedings (whenever instituted) before the High Court for the recovery of a debt or damages there may be included in any sum for which judgment is given simple interest, at such rate as the court thinks fit or as rules of court may provide, on all or any part of the debt or damages in respect of which judgment is given, or payment is made before judgment, for all or any part of the period between the date when the cause of action arose and—(a) in the case of any sum paid before judgment, the date of the payment; and(b) in the case of the sum for which judgment is given, the date of the judgment.

29. Relying on a Costs Schedule showing costs totalling AED 1,341,109.69 the Claimant sought an immediate assessment of costs in that sum pursuant to RDC 38 (30) which provides:

The general rule is that the Court should make an immediate assessment of the costs:

(1) at the conclusion of any hearing, which has lasted no more than one day, in which case the order will deal with the costs of the application or matter to which the hearing related. If this hearing disposes of the claim, the order may deal with the costs of the whole claim; (2) in hearings in the Court of Appeal to which FRDC 44.165 / ARDC 44.140 applies;

unless there is good reason not to do so e.g. where the paying party shows substantial grounds for disputing the sum claimed for costs that cannot be dealt with on the material available or there is insufficient time to carry out an immediate assessment.”

30. In my judgment, there is good reason not to conduct an immediate assessment of the costs of the action. I say this because these proceedings until very recently were fiercely fought and I cannot decide simply on the basis of the Costs Schedule provided whether each of the items set out in the Schedule was reasonably incurred.

31. I can, however, order an interim payment on account of costs which I propose to do in the sum of AED 900,000 which I find to be the minimum sum that would be awarded on a detailed assessment by the Registrar.

Issued by:
Ayesha Bin Kalban
Assistant Registrar
Date of Issue: 6 January 2020
At: 9am