Claim No. CFI 013/2018
CFI 019/2018
THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS
IN THE COURT OF FIRST INSTANCE
BETWEEN
IRAQ TELECOM LIMITED
Claimant
and
(1) ABDULHAMEED ABDULLAH MOHAMMED SALIH AQRAWI
(2) NOZAD HUSSEIN JUNDI
(3) RAYMOND SAMIR ZINA RAHMEH
(4) INTERNATIONAL HOLDINGS LIMITED
Defendants in CFI 013/2018
(1) RAYMOND SAMIR ZINA RAHMEH
(2) INTERNATIONAL HOLDINGS LIMITED
Defendants in CFI 019/2018
AMENDED ORDER WITH REASONS OF JUSTICE SIR JEREMY COOKE
UPON the Claimant’s application dated 4 March 2020 for permission to pursue a derivative claim in CFI-013-2018 (the “First Derivative Claim”)
AND UPON reviewing the First and Second witness statements of Mr. Ehab Aziz, the First, Second and Third witness statement of Mr. Nicholas Bortman and the Third Witness Statement of Mr. Shane Jury filed in CFI-013-2018
UPON the Claimant’s application dated 27 April 2020 seeking permission to amend the particulars of Claim in the form enclosed with the application (the “Amendment Application”) in CFI-013-2018
AND UPON the Claimant’s application dated 4 March for permission to pursue a derivative claim in CFI-019-2018 (the “Second Derivative Claim”)
AND UPON reviewing the First witness statements of Mr. Ehab Aziz, and the First, witness statement of Mr. Nicholas Bortman in CFI-019-2018
AND UPON hearing Counsel for the Claimant at the hearing held on 11 May 2020
AND PURSUANT TO Rule 18.2(2) of the Rules of the DIFC Courts
IT IS HEREBY ORDERED THAT:
1. Permission to pursue the First Derivative Claim is granted. Pursuant to RDC 20.65, the Claimant shall have permission to commence, prosecute, enforce and take all other steps in connection with proceedings against the First Defendant to Third Defendants on behalf of and in the name of the Fourth Defendant, in order to obtain the relief sought in the Particulars of Claim filed on 12 March 2018 and/or any other relief the Court considers appropriate, plus costs (the “Claim”), with full discretion in relation to the conduct of the Claim, including (without limitation) issuing correspondence in the name of the Fourth Defendant, commencing, prosecuting or defending any applications, defending any counterclaims made by the First to Third Defendants , and conducting any appeals and/or enforcement proceedings arising in connection with the Claim (CFI-013-2018).
2. The Fourth Defendant shall indemnify the Claimant against any liability in respect of costs incurred in the Claim (CFI-013-2018).
3. The costs of and incidental to the First Derivative Claim shall be costs in the case.
4. The Amendment Application is granted (CFI-013-2018).
5. The Court grants permission for the Claimant to file the Amended Particulars of Claim in the form enclosed with the Amendment Application (the ”Amendments”).
6. The Third Defendants may apply to set aside or vary this Order giving permission to amend under RDC 23.94 within 14 days after the date on which this Order is served on them.
7. There shall be no order as to the costs of the Amendment Application or the Amendments.
8. Permission to pursue the Second Derivative Claim is granted. Pursuant to RDC 20.65, the Claimant shall have permission to commence, prosecute, enforce and take all other steps in connection with proceedings against the First Defendant on behalf of and in the name of the Second Defendant, in order to obtain the relief sought in the Particulars of Claim filed on 12 April 2018 and/or any other relief the Court considers appropriate, plus costs (the “Claim”), with full discretion in relation to the conduct of the Claim, including (without limitation) issuing correspondence in the name of the Second Defendant, commencing, prosecuting or defending any applications, defending any counterclaims made by the First Defendant, and conducting any appeals and/or enforcement proceedings arising in connection with the Claim (CFI-019-2018).
9. The Second Defendant shall indemnify the Claimant against any liability in respect of costs incurred in the Claim (CFI-019-2018).
10. The orders for permission to Amend and permission to pursue the derivative claims herein set out in both action CFI-013-2018 and action CFI-019-2018 are subject to the Claimant filing within 6 weeks of this order particulars of loss and of causation in respect of each of the heads of loss claimed in each action and the relief sought consequent thereon. Such Particulars are to be served on the Defendants in each action.
11. Liberty to apply.
12. The costs of and incidental to the Second Derivative Claim shall be costs in the case.
Issued by:
Nour Hineidi
Deputy Registrar
Date of Issue: 18 May 2020
Date of Re-issue: 19 May 2020
At: 11am
SCHEDULE OF REASONS
The Amendment Application in CFI-013-2018
1. Permission is granted for the following reasons which I state shortly.
2. First, the existing particulars of claim were served on the Fourth Defendant, which is the company on whose behalf the Claimant wishes to bring a derivative claim against the other Defendants which is the subject of an application which I have also to deal with. They were also served on the Third Defendant in Lebanon. But difficulties have prevented service on the First and Second Defendant who are resident in Erbil in Iraq where current well publicised problems exist and there is inherent delay in service combined with what appears to be a uncooperative attitude on the part of authorities there.
3. Secondly, the amendments essentially have the following impact:
(a) They take account of changes in the law of the DIFC since the claim was first issued in March 2018, and in particular the new 2018 Companies Law.
(b) They plead also developments since the original claim form in related proceedings in arbitration against Mr Barzani who is a director of the Fourth Defendant, like the First and Third Defendants, but against whom a claim is progressed in arbitration by reason of an arbitration clause in the Shareholders’ agreement to which he was a party. His alleged misdoings are central to the claim against the First and Third Defendants who as co-directors should, it is said, have acted or caused the Fourth Defendant to act in such a way as to prevent him doing what he did or in such a way as to make claims against him for what he did do. It has become necessary to update the existing particulars in respect of further matters discovered since in relation to the alleged breaches of duty on Mr Barzani’s part. A further effect is to delete the relief that had previously been sought by reference to appointment of a representative to carry out functions for the Fourth Defendant, somewhat akin to an appointment of a receiver which had been sought in an interlocutory application.
(c) Thirdly, none of the defendants have filed an acknowledgment of service as yet or have taken any steps in the actions and there can be no prejudice to them in allowing the amendments to be made.
(d) Fourthly, despite issues which appears to me to arise in relation to causation and in the particularisation of losses suffered, as set out in the original form of the pleadings and repeated in the current proposed amendments, there is, in my judgment, no basis to say that the amendments themselves have no realistic prospect of success on the materials as they stand. It is hard to see, therefore, how there could be any objections to the amendments as formulated.
(e) Fifth, although the First and Third Defendants have not been served with the application, they are on notice of it being made. There are problems of the kind I have already mentioned in serving on the First and Second Defendants and also problems in service on the Third Defendant who is resident in Lebanon where service in usually the subject of delay.
4. I am content therefore to allow the amendment on an ex parte basis in the circumstances, but there must be liberty for the Third Defendant who has been served with the original claim form to apply to set aside the order for permission within a given period of service of these amendments and upon which I will hear Counsel. My inclination would be to give liberty to apply within 14 days of service.
5. I should mention that the Fourth Defendant, being the Company on whose behalf the derivative action is to be brought if permission is given under RDC 20.65, can itself have no objection to the amendments if such permission is given. I therefore make no provision on any application on its behalf until I have determined the application under the rule in relation to bringing the derivative claim.
6. There is one condition to the grant of permission to amend. As I say I can see no valid objection to the amendments themselves. But the overall shape of the proceedings in the amended form does not particularize the losses nor how are they alleged to be caused by the breaches in questions. Some of this may be obvious as a matter of inference, but it seems to me that it is a fundamental principle of pleadings that they should identify the breaches and the particular losses caused thereby in the context of potential future argument, whether or not the Defendants choose to participate, as the Court needs to be clear as to what is claimed and on what basis and about each of the heads of loss which is being pursued. This is of (particular) importance where issues of reflective loss potentially arise.
7. In the present case, the Claimant seeks to bring a derivative action in the name of the Fourth Defendant so that losses directly suffered by the Fourth Defendant can be recovered. Iit appears from the original pleading and the pleading in its amended form that many of the losses claimed are losses suffered by “Korek”, the subsidiary company of the Fourth Defendant. This potentially could give rise to the need for a double derivative claim which might present some difficulty because Korek is an Iraqi company, the shares in which, as a matter of Iraqi Law, arguably belong to the original shareholders as of 13 March 2018. Mr Barzani and Mr Jawshin and Mr Jiqsy, although there might be an argument about constructive trust should they be the legal owners of the shares. There is a statutory provision in article 54 of the DIFC Companies Law, which enables a shareholder of a company to pursue a claim for the return of an undisclosed benefit obtained by a director in a transaction with a subsidiary, as well as under a transaction with the company of which the shareholder is a member. On a claim by the Fourth Defendant, a shareholder in Korek therefore, there is scope for recovery of sums obtained by the various Defendants from what is described as self-dealing, but whether that extends to cover the claim for a failure of directors to prevent another director from self-dealing must be an open question. There appear to be some claims that the Fourth Defendant can undoubtedly pursue against its directors for direct loss suffered by it in the shape of sums of money that the Fourth Defendant should have received under the subscription agreement from CS or in relation to the IBL loan and remedies involving orders to do or not to do something may not infringe the rules against recovery of reflective loss to which there are exceptions. There is need for clarity in the pleadings so that the issues can be seen for what they are.
8. Whilst dealing with this aspect, I mention also the need for clarity in the other action, CFI-019-2018 where the same point could arise to the extent that any claim does not involve self-dealing on the part of the First Defendant in that action, Mr Rahmeh, who is the Third Defendant in this action. There needs to be clarity in relation to the loss that is claimed, the relief claimed in relation to the loss as well as the causation of the loss. The point in fact is of significance both in the context of permission to amend in this action, by which I mean CFI-013-2018, as well as in context or permission to bring a derivative action on behalf of Fourth Defendant which is the Second Defendant in CFI-019-2018. I therefore require a schedule of loss and causation to be provided in both actions as a condition subsequent of permission to amend the particulars of claim and for permission to bring derivative actions should I otherwise be prepared to grant them permission for the later, in either or both actions.
Application for permission to bring derivative claims in CFI-013-2018 and CFI-019-2018
9. I then turn to the application for permission to bring derivative claims in both the two actions. On that my ruling is as follows:
10. I am satisfied that there is good prima facie case against each of the First, Second and Third Defendants in CFI-013-2018 and against the First Defendant in CFI-019-2018. In each case, the action is for breach of duty to the company International Holdings Limited (the Fourth Defendant in the first action and the Second Defendant in the second action.) I am satisfied also that there is a good prima facie case to show that a fraud has been and is been perpetrated on the Claimant as the minority 44 percent shareholder in International Holdings the Fourth and Second Defendant respectfully in the two actions.
11. I am satisfied that there is prima facie that the First, Second and Third Defendants have been and/or are participating in that fraud. That is because they have either been appointed by the majority shareholder or are in league with its ultimate controller Mr Barzani, which means that no claim may ever be brought against them or Mr Barzani by International Holdings for breach of duty on their part because they control International Holdings. The evidence appears in two witness statements of Mr Aziz and three witness statements of Mr Bortman and is compelling. The evidence of Aziz 1 and Bortman 1 and 2 was before the Court on an earlier application at which the Fourth Defendant was then represented, controlled as it was by Mr Barzani and the First and Third Defendants. The Fourth Defendant had the opportunity to put in evidence which it notably failed to do. Thus, there is no evidence to challenge the evidence which is been put forward by the Claimant.
12. I am satisfied also that it is in the interests of International Holdings as a Defendant in each of the actions for such claims to be made on its behalf and in its name against the other Defendants in each of the two actions. It is appropriate for the Claimant to bring a derivative claim on behalf of International Holdings against them as set out in the pleadings before the court. Any reasonable, independent and honest board of directors would do so. The terms of RDC 20.65 require the court to give its permission for the pursuit of such a derivative claim after the claim form has been issued. The application for permission must be supported by evidence in accordance with RDC 20.66 and has to be served on the Defendant 14 days before the application is heard, along with the claim form, evidence and the application itself. It is clear to me that as a matter of principle and proper construction of the rules that the Defendant referred to on whom service must be made is the company on whose behalf the derivative claim is to be brought, namely International Holdings. Service has been made on the company and I am satisfied that the requirements of the Rules have been met here. It is also right that International Holdings should indemnify the Claimant against costs incurred in bringing the claim. Each of the areas upon which I have expressed myself as satisfied in relation to CFI-013-2018 applies in relation to CFI-019-2019, for the same reasons and I am prepared to grant permission for derivative claims to continue and for an order to made in the form applied for in each action, subject to the condition subsequent that I have already mentioned when granting permission to amend in CFI-013-2018. That is the requirement that within a period of 6 weeks or less, full particulars of the losses claimed and of causation as a result of the breaches of duty pleaded, with the relief sought in consequence, should be provided.
13. These particulars should have an eye on issues of reflective loss, where International Holdings in each action is concerned and where immediate loss appears to have been suffered by Korek.
14. For the sake of clarity, I confirm that the orders giving the permission sought in each action are effective as of today subject to the filing of such particulars with the court within the period I have outlined. And the period for any objections to the amendment which is for the Third Defendant in CFI-013-2018 runs from today’s date.