CFI 016/2020 DIFC Investments Limited v Dubai Islamic Bank

Claim No: CFI 016/2020

IN THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS

IN THE COURT OF FIRST INSTANCE

BETWEEN

DIFC INVESTMENTS LIMITED

Claimant/Respondent

and

DUBAI ISLAMIC BANK

Defendant/Applicant

ORDER WITH REASONS OF H.E JUSTICE SHAMLAN AL SAWALEHI

UPON the claim of the Claimant issued on 6 February 2020

AND UPON the order of the Court dated 25 March 2020 and explained in reasons dated 4 May 2020 amended on 3 June 2020 (the “Judgment”)

AND UPON the Defendant’s application for permission to appeal the Judgment dated 1 April 2020 (the “Application”)

AND UPON reviewing the submissions of the Defendant in support of the Application and the submissions of the Claimant in opposition to the Application

AND UPON reviewing the relevant documents on the Court file

IT IS HEREBY ORDERED:

1. The Application is dismissed.

2. The Defendant shall pay the Claimant its costs of the Application.

Issued by:
Nour Hineidi
Deputy Registrar
Date of Issue: 16 August 2020
Time: 11am

SCHEDULE OF REASONS

Introduction

1. By its Application, the Defendant seeks permission on 7 grounds to appeal my decision issued on 25 March 2020 and explained in reasons dated 4 May 2020 and amended on 3 June 2020, being the Judgment.

Background

2. On 26 October 2016, the Claimant entered into a contract (the “Contract”) with a construction contractor (the “Contractor”) for the supply, installation, construction and completion of works and design of the Gate Avenue, DIFC (the “Project”).

3. The Contract obliged the Contractor, inter alia, to provide the Claimant with an irrevocable, on demand and unconditional performance bond in terms set out in the Contract.

4. On 5 January 2017, the Defendant issued a performance guarantee to the Claimant (the “Guarantee”).

5. On 30 January 2020, the Claimant made a demand on the Defendant under the Guarantee on the basis that, it believed, the Contractor breached the Contract by failing to progress the works and failing to pay sub-contractors.

6. On the same day, the Defendant informed the Contractor that it would pay the Claimant within 3 banking days unless the Claimant withdrew the demand.

7. On 6 February 2020, 7 days after the demand was made, the Claimant issued a Part 8 Claim in this Court for judgment on the Guarantee on the basis that the Defendant had still not paid.

8. That same day, the Defendant wrote to Claimant stating it had received an order from the Dubai Court to “freeze and stop” payment under the Guarantee. The Defendant stated it would not make payment until it received further instructions from the Dubai Court.

9. It subsequently transpired that, on 4 February 2020, the Contractor had applied to the Dubai Court for a precautionary attachment to restrain the Defendant from paying under the Guarantee (the “Attachment”). The Dubai Court granted that application on 5 February 2020.

10. The Contractor commenced a civil claim in the Dubai Court against the Claimant and two other entities involved in the Gate Avenue Project. The Contractor sought, inter alia, the continuation of the Attachment. The case was officially registered on 18 February 2020.

11. I heard the claim for judgment on the Guarantee on 22 March 2020 and the Court issued my decision on 25 March 2020, again, explained in reasons dated 4 May 2020 and amended on 3 June 2020. In short, the Judgment allowed the claim and dismissed the points raised in defence.

12. By its Application, the Defendant seeks permission to appeal the Judgment.

The Application

The criteria

13. Most pertinently, under RDC r 44.31, a prospective appellant’s case must be that the decision they wish to appeal was either wrong or unjust because of a serious procedural or other irregularity in the proceedings. Under RDC r 44.19, permission to appeal may only be given where the lower court or the appeal court considers that the appeal would have a real prospect of success or there is some other compelling reason why the appeal should be heard.

Grounds 1 and 2

14. Under grounds 1 and 2 of the Application, the Defendant submits that it did not fail to pay the Claimant under the Guarantee and that nor did it deny the Claimant’s request for it to do so but rather that it was prevented by the Dubai Court Attachment. The Defendant contends that there was, then, “no payable debt” as the funds which the Defendant attempted to pay to the Claimant were “frozen by the Dubai Court.”

15. In response, the Claimant has submitted that the Defendant’s case was that it accepted that it had not paid under the Guarantee, but that this was justified by the Attachment: “arguing that this was not a failure to pay is semantic and wrong.” The Claimant says that the question for my determination at first instance was whether the Attachment afforded the Defendant a defence for not paying, not whether it had “failed” to do so or otherwise.

16. The Claimant further submits that the assertion that there is “no payable debt” is “entirely indefensible.” It says that on no arguable basis would a debt be destroyed merely because a Court restrained its payment.

17. So far as grounds 1 and 2 are concerned, I think that the only arguable issue would have been whether the Defendant should be compelled by this Court to pay notwithstanding the Attachment of the Dubai Court. However, and as the Claimant has highlighted, that is a question about whether the Judgment should be stayed, not set aside, but no stay was sought by the Defendant. In my judgment, the status of the Defendant’s non-payment – whether it was a result of failure, denial or prevention – has not been demonstrated to me to be of any consequence to the debt itself and, in turn, to the propriety of the Judgment; the Judgment has not been demonstrated to be RDC r 44.31(1)(a) wrong or RDC r 44.31(1)(b) unjust for any of the reasons submitted by the Defendant under grounds 1 and 2 of its Application. These parts of the Application are, therefore, dismissed.

Ground 3

18. By ground 3 of the Application, the Defendant highlights that it is not a party to the dispute between the Claimant and the Contractor and, therefore, has no locus standi to challenge the Attachment.

19. For its part, the Claimant submits that the Court was well aware that the Defendant was not party to the proceedings in which the Attachment was made, as, indeed, is demonstrated in the reasons of the Judgment. The Claimant avers, moreover, that this point goes against the Defendant’s case, constituting a reason “why the [Defendant] could not seek recognition or enforcement of the Attachment in the DIFC.”

20. I agree with the Claimant. In my view, the DIFC Court claim is a straightforward debt claim. In deciding the matter, I need to know that there is a debt – determinable principally from the terms of the Guarantee and by the facts which demonstrate that the conditions for payment have been satisfied – and whether the debt has been paid. On 30 January 2020, the Defendant informed the Contractor that it would pay the Claimant within 3 banking days unless the Claimant withdrew the demand. The demand was not withdrawn and the debt has not yet been paid. These facts alone satisfy me that there is an unsatisfied debt. Indeed, strictly speaking, neither the debt nor its non-payment are disputed.

21. Moreover, the Defendant has not demonstrated to me why it should be concerned with challenging or supporting the Attachment, even if it had standing. In my view, it is in the Claimant’s and the Contractor’s interests to take such steps. If the Defendant has concerns that the Contractor will not be able to meet its obligations towards the it after payment under the Guarantee has been made, for me, this is a separate, contained issue, this time between the Defendant and the Contractor.

22. In my judgment, ground 3 of the Application does not demonstrate that the Judgment is RDC r 44.31(1)(a) wrong or RDC r 44.31(1)(b) unjust and this part of the Application is accordingly dismissed.

Ground 4

23. Under ground 4 of its Application, the Defendant submits that the Court erred in failing to address the effects of the Attachment on the Defendant as well as for making a finding that the Dubai Court lacked jurisdiction to make the Attachment in the first place. Regarding the second point, the Defendant says that it was not for this Court to determine whether the Dubai Court had jurisdiction and that the Defendant is not a party to those proceedings in any event.

24. Regarding the first point, the Claimant submits that the Court was plainly aware that the Defendant’s case was that it would be unlawful for it to pay under the Guarantee but that the Court directed itself to the authorities which show that such considerations are irrelevant and do not support a stay of execution, let alone give rise to a defence. The cases referred to in the Judgment included Power Curber International Ltd v National Bank of Kuwait SAK [1981] 1 WLR 1233 (CA) and National Infrastructure Development Company Ltd v Banco Santander SA [2017] EWCA Civ 27; [2018] 1 All ER (Comm) 156 (including the first instance judgment at [2016] EWHC (Comm) 2508).

25. In Power Curber, at p.1241, Lord Denning MR said:

If the court of any of the countries should interfere with the obligations of one of its banks (by ordering it not to pay under a letter of credit), it would strike at the very heart of that country’s international trade. No foreign seller would supply goods to that country on letters of credit because he could no longer be confident of being paid. No trader would accept a letter of credit issued by a bank of that country if it might be ordered by its courts not to pay. So it is part of the law of international trade that letters of credit should be honoured and not nullified by an attachment order at the suit of the buyer. (emphasis added)

In National Infrastructure at first instance, David Foxton QC (then sitting as a deputy High Court Judge) held:

When a claim is brought under a standby letter of credit, which under English law has a status equivalent to cash, it would strike at the recognised commercial purpose of such transactions if a bank could refuse to pay and then avoid judgment being entered for reasons other than the very limited categories of defence to such actions recognised by English law. Whilst it is said that the facts of the present case are extraordinary, I suspect they would soon become commonplace if a party who had opened a letter of credit could defeat the bank’s payment obligation to pay by obtaining an injunction against the bank in its home jurisdiction.

26. As counsel for the Claimant has highlighted, the point of these cases is that the value of on demand instruments would be fatally undermined if they could simply be blocked by a court order in the jurisdiction of the bank’s head office. By agreeing to advance an on-demand performance guarantee to the Claimant and, moreover, by agreeing to DIFC Courts and law, the Defendant took on the risk it did and submitted to the jurisdiction of the DIFC Courts. In my view, it is too late for the Defendant to now retreat from its agreement.

27. In its Appeal Skeleton, the Defendant argues that the Court wrongly relied on the case of RD Harbottle v National Westminster Bank [1975] QB 146 and the principles derived from it. It is said that those principles apply to letters of credit and not to performance guarantees and that there are “clear differences [between the two in terms of] their functions, purposes and execution.” In RD Harbottle itself, however, Kerr J. said at p.155 – 156:

As such, it is the instrument’s nature as an irrevocable on-demand obligation which triggers the policy that the Courts must not interfere save in clear cases of fraud, not the instrument’s nature as being a letter of credit.

28. Regarding the Defendant’s claim that the Court erred in venturing to determine whether the Dubai Court had jurisdiction to make the Attachment, the Claimant submits that it was open to the Court to decide that the Dubai Courts lacked jurisdiction over a claim against DIFCI: “that conclusion was also plainly right and followed logically from the terms of Article 5(A)(1)(a) of the Judicial Authority Law.”

29. This issue did not feature prominently in the Judgment and was not the ratio of the decision, at any rate. Even if the Dubai Court had jurisdiction to make the Attachment, still, I was compelled by DIFC law to enter judgment on the Guarantee.

30. In my judgment, ground 4 of the Application does not establish that the Judgment is RDC r 44.31(1)(a) wrong or RDC r 44.31(1)(b) unjust and this part of the Application is accordingly dismissed.

Ground 5

31. By ground 5 of its Application, the Defendant contends that the Court erred in its interpretation of the UAE Law of Civil Procedures No. 11 of 1992 (as amended) and in particular in finding that the Attachment ceased to have force as the Contractor did not secure an extension of it.

32. The Claimant’s position is that this assertion is wrong and, in any event, unexplained. Further, the Claimant avers that it is wholly irrelevant to the outcome: “The Judge observed, rightly, that the Contractor failed to obtain a continuation of the Attachment in time. However, the Judge had already explained that, as a matter of law, the Attachment was no defence to the claim.”

33. The Claimant is correct in its analysis. My finding that the Attachment no longer had force was in addition to my finding that the Attachment did not provide a defence to the Defendant even if it did. As such, even if I am wrong on this point – and I do not think that I was and nor has the Defendant established this at any rate – in my judgment, the Defendant’s case fails at an earlier juncture.

34. Ground 5 of the Application does not establish that the Judgment is RDC r 44.31(1)(a) wrong or RDC r 44.31(1)(b) unjust and this part of the Application is accordingly dismissed.

Grounds 6 and 7

35. Under grounds 6 and 7 of the Application, the Defendant submits that the Court erred in not considering a Certificate of Completion which, under the letterhead of the Claimant and signed by all of the relevant parties, stated that the Project was 98.64% complete without, moreover, mentioning any claim of any breach under the Guarantee. Citing the maxim “he who comes into equity must come with clean hands,” the Defendant contends that the fact that the Project was 98.64% complete renders the Claimant as being without clean hands in these proceedings.

36. The Claimant rejects this claim emphatically. It submits that the Defendant has attempted to introduce on appeal allegations of bad faith and unconscionability on the part of the Claimant, while this is “wholly unacceptable” and it is “absolutely denied that DIFCI acted in bad faith or unconscionably at any stage.” The Claimant submits that it has a wholly credible claim that the Contractor was in breach of the Contract and objects to the late introduction of the bad-faith allegation.

37. In this Application, the Defendant seeks to rely on the Singapore position in JBE Properties Pte Ltd v Gammon Pte Ltd [2010] SGCA 46. The courts in Singapore have adopted a reduced standard of “unconscionability” in determining whether to restrain demand under a performance guarantee. In response to this, the Claimant queries how that approach works, as a matter of law. Fraud in presentation of a guarantee amounts to the tort of deceit. There is no logical difficulty in restraining a party on a quia timet basis from committing a tort. The courts would not generally be understood to have the power, the Claimant submits, to restrain a party from acting “unconscionably” where that conduct does not amount to an actionable tort or breach of contract.

38. In my view, and as the Claimant has contended, the Court does not need to concern itself with this distinction. No allegation of unconscionability was raised below. To the contrary, the Defendant has taken the position in these proceedings that the dispute between the Claimant and the Contractor was irrelevant to the issues in this claim. In its Statement of Defence, for example, the Defendant stated, “it is not necessary by the Court to decide on matters between the Claimant and the Contractor.” To the extent that the Claimant might be acting unconscionably and to the extent that a tribunal should act upon such conduct, I do not think that these proceedings, to which the Contractor is not a party, are ideal for making a determination either way.

39. That an allegation of unconscionability has now been made against the Claimant, crucially without any proper evidence supporting the claim, is evidence, I think, of this position: the Contractor, and not the Defendant, would be in a position to establish by way of factual evidence that the Claimant’s conduct is unconscionable if it is indeed so. All that the Defendant has submitted by way of evidence of the Claimant’s alleged unconscionable conduct is the Completion Certificate indicating that construction was 98% complete. How this evidences bad faith in the presentation of the demand is not explained by the Defendant, and it was required to be explained: for example, the completion dates for the various sections of the Project fell between 29 December 2017 and 30 April 2018, while the Completion Certificate is dated 24 December 2019.

40. If a claim of unconscionability on the part of the Claimant will be pursued, I think it should be left to the Contractor – who, moreover, is ultimately liable for the amount demanded by the Claimant under the Guarantee – to establish this against the Claimant in the appropriate forum.

41. It is worth noting before concluding discussion of grounds 6 and 7 of the Application that the DIFC Court of Appeal will not permit a fresh point to be raised on appeal where it would require further factual investigation: DAMAC Park Towers Ltd v Ward [2015] DIFC CA 006 (14 December 2015) at [68] to [70]. At [69], the Court of Appeal cited an English House of Lords case of Connecticut Fire Insurance Co v Kavanash [1892] AC 473 case in which it had been said:

But their Lordships have no hesitation in holding that the course [of permitting a new point on appeal] ought not, in any case, to be followed, unless the Court is satisfied that the evidence upon which they are asked to decide establishes beyond doubt that the facts, if fully investigated, would have supported the new plea.

In my view, an investigation of whether the demand was “unconscionable” would plainly require a factual investigation. This cannot be undertaken on appeal.

42. In conclusion, I find that grounds 6 and 7 of the Application do not establish that the Judgment is RDC r 44.31(1)(a) wrong or RDC r 44.31(1)(b) unjust and these part of the Application is accordingly dismissed.

Additional arguments

43. In its skeleton argument for this Application, the Defendant has submitted an additional argument. I will discuss it briefly.

Immediacy

44. The Defendant contends that, in coming to a decision, the Court failed to address the meaning of the word “immediately” in the Guarantee, stating, “the importance of this point cannot be over stated as it is the core factor to ascertain whether the [Defendant] had indeed failed as alleged by the [C]laimant.” The Defendant says the word “immediately” requires payment within a reasonable time.

45. The Claimant submits in this regard that by the time of the hearing, a reasonable time to pay had elapsed on any view: “the question was then whether the Attachment provided a defence. It did not.”

46. The issue of the time to pay arose below because the demand was made on 30 January 2020, but the Attachment was not issued until 5 February or possibly 6 February 2020. The Defendant had previously confirmed to the Contractor that it would pay within 3 banking days of the demand, that is, by 4 February 2020. It is therefore clear that the Defendant was able to pay on 4 February 2020. In my view, by deciding that it would pay the Claimant within 3 banking days of the demand, the Defendant itself established a reliable measure – or at least one that the Defendant cannot really dispute – of a reasonable period within which to make payment without offending the term “immediately” in the Guarantee. More than 6 months have passed since that date. I think it is fair to conclude that the Defendant is indisputably within the realms of unreasonableness so far as the term “immediately” is concerned.

47. To the extent that the Defendant’s contention regarding the word “immediately” formed part of its Application for permission to appeal, I find it does not establish that the Judgment is RDC r 44.31(1)(a) wrong or RDC r 44.31(1)(b) unjust and this part of the Application is accordingly dismissed.

Costs

48. The general rule under RDC r 38.7 is that the unsuccessful party pays the costs of the successful party. The Claimant is the successful party and, in accordance with the general rule, the Defendant shall pay it its costs.

Conclusion

49. For the reasons given above, I take the view that the proposed appeal has no prospect of success and that it does not demonstrate some other compelling reason why the appeal should be heard. The Application is, therefore, dismissed and the Defendant shall pay the Claimant its costs of the Application to be assessed by a Registrar if not agreed.