Injazat Capital Limited and Injazat Technology Fund B.S.C. v Denton Wilde Sapte & Co (a firm) [2010] DIFC CFI 019 (07 March 2012)


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You are here: BAILII >> Databases >> The Dubai International Financial Centre >> Injazat Capital Limited and Injazat Technology Fund B.S.C. v Denton Wilde Sapte & Co (a firm) [2010] DIFC CFI 019 (07 March 2012)
URL: http://www.bailii.org/ae/cases/DIFC/2012/cfi_019.html
Cite as: [2010] DIFC CFI 19, [2010] DIFC CFI 019

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Injazat Capital Limited and Injazat Technology Fund B.S.C. v Denton Wilde Sapte & Co (a firm) [2010] DIFC CFI 019

March 07, 2012 Court of First Instance -Judgments

Claim No: CFI 019/2010

THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS

Court

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

Ruler
of Dubai

IN THE COURT

Court
OF FIRST INSTANCE

Before Justice Sir David Steel

BETWEEN

1. INJAZAT CAPITAL LIMITED

2. INJAZAT TECHNOLOGY FUND B.S.C

Claimants

and

DENTON WILDE SAPTE & CO (a firm)

Defendant

Defendant

Hearing: 23 January 2012

Counsel: David Murray, instructed by Dewey & LeBoeuf, appeared for the Claimants

Philip Norman of Simmons & Simmons appeared for the Defendant

Judgment: 6 March 2012


JUDGMENT


 

The application

1. By their application notice dated 24 August 2010 the Defendant ("DWS") seek an order dismissing or staying the proceedings brought by the Claimants ("ITF") pursuant to Article 13(1) of the DIFC

DIFC
Arbitration Law No.1 of 2008 ("Law No.1") or pursuant to Article 2 of the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York 1958), on the grounds that the claim was subject to an arbitration clause invoked at DWS's option for arbitration in London under the auspices of the LCIA.

2. The initial stance adopted by ITF was simply that there was no arbitration agreement (or that any such agreement was invalid). However, in its skeleton argument, ITF advanced a new contention that Article 13 only applied to domestic arbitrations (i.e. arbitrations where the seat was the DIFC). Further, it was submitted that reliance on the New York Convention was misconceived as its terms did not form part of the domestic law of Dubai (including the DIFC).

3. This, in turn, provoked a change of tack by DWS. To my mind, it was largely conceded that Article 13(1) had no application to non-domestic arbitrations. But it was contended that the reference to "any other court" or "another court" in Law No. 12 of 2004 relating to the jurisdiction of the DIFC Courts

DIFC Courts
(as amended by Law No. 16 of 2011) included arbitration courts or tribunals, a construction supported, it was submitted, by reference to the decision in Salomon v. Commissioners of Customs and Excise [1967] 2 QB 116.

4. Alternatively, on the assumption that a stay was not available either under the provisions of Law No.1 or Article 2 of the New York Convention, it was submitted, as I understood it, that the terms of the law

the Law
and jurisdiction clause in the contract involved the application of the laws of Dubai to the issue (in contrast to the law of the DIFC) which, in turn, recognised the validity of the option to arbitrate and the consequent justification for a stay.

5. This last point led to the submission by ITF that if Dubai law (as opposed to DIFC law) was the applicable law, the arbitration agreement was invalid as it was not signed by the parties.

6. Given the potential wide-ranging implications of the concession made by DWS, I wrote to the parties following the oral hearing as follows:

"It became common ground at the recent hearing that (subject to the argument based onSalomon) Article 13 of the DIFC Arbitration Law only imposes an obligation on the court to stay an action where the matter is subject to a domestic arbitration clause.

The point was not argued but it may be that the court has a residual discretion to stay proceedings where the seat of the arbitration is outside the DIFC."

I invited submissions from DWS on this issue within 10 days (and a response from ITF within 10 days thereafter) if the point was to be pursued.

7. In the result, DWS made detailed further written submissions although regrettably much of them were a rehearsal of submissions already made orally on the other issues outlined above. However, the point was taken that there was a residual discretion on the part of the court to stay the proceedings even if Article 13 of Law No. 1 and/or Article 5(a) of Law No. 12 were not engaged. ITF accepted that, in principle, the court had a discretion but contended that it should not be exercised in circumstances where the matter was the subject of detailed statutory provisions, all the more so since Article 10 of Law No.1 provides:

"10.Extent of court intervention.

In matters governed by this Law, no DIFC Courts shall intervene except to the extent so provided in this Law."

The background

8. ITF entered into a Share Subscription Agreement ("SSA") dated 22 September 2006 with Broadlink Research FZ LLC ("Broadlink"), by which it was to provide US$3 million funding in exchange for 35% of the shareholding in Broadlink. Dr Hamid Najafi and Mr Michael Cummiskey were also parties to the SSA as Guarantors. Both Broadlink and the Guarantors gave warranties in respect of Broadlink's ability to fulfil the SSA (and an associated Shareholders Agreement) and its financial capability to satisfy its obligations (including compliance with the warranties).

9. Broadlink was a company incorporated in a Dubai "free zone" known as the Dubai Silicon Oasis on 21 June 2006. Dr Najifi was the CEO and Mr Cummiskey was a Director. They were the sole shareholders. The company was established as a vehicle for the commercialisation of a new mobile phone known as the D100 "Sprite" phone. The D100 was aimed primarily at children and, pursuant to a licensing agreement with Disney Corporation, the phones were to be branded with Disney characters.

10. The ITF investment of $3 million was payable in three tranches. The final tranche was not paid, as ITF considered that the conditions for making it had not been met (in particular those relating to Broadlink's ability to pay for the manufacture of sufficient mobile handsets to deliver to Vodaphone). Among the provisions of the SSA was Clause 7 which provided as follows:

"FAILURE TO COMPLETE BY LONGSTOP DATE

If the conditions for payment of each of the tranches specified in Clause 3.1 shall not have been satisfied, or waived in accordance with Clause 6, or shall have become in the opinion of [ITF] incapable of satisfaction within 12 months from the Effective Date [ITF] may, without prejudice to any other right or remedy which it may have pursuant to this Agreement, by written notice (exercisable for a period ending 3 months after the first anniversary of the Effective Date) require each of the Guarantors to purchase from [ITF] all of its Shares for cash at a price equal to the amounts actually invested by [ITF] in accordance with Clause 3.1 plus a premium which would equate to 25% per annum of the amounts actually invested by [ITF]."

11. The effect of this provision was that, if by the first anniversary of the Effective Date (i.e. 22 September 2007), the conditions for making each of the payments had not been satisfied or waived, ITF would have the right to serve notice on the Guarantors requiring them to repurchase all of ITF's shares for 125% of the amount actually invested. ITF's right to exercise the option thus accrued on 22 September 2007 and expired three months later on 21 December 2007.

12. In approximately August/September 2007, ITF retained DWS in regard to its investment in Broadlink. The option was not exercised. ITF contend that DWS negligently failed to advise ITF in regard to the existence or exercise of the option. DWS contends that ITF was fully aware of the option and chose not to exercise it to avoid an adverse impact on the future exploitation of the license granted by Disney.

13. On 20 October 2010 ITF instructed DWS to commence ICC arbitration proceedings against the Guarantors in accordance with the dispute resolution terms of the SSA. DWS were, in due course, replaced by Messrs Dewey & LeBoeuf. On 25 July 2011, the sole arbitrator found for ITF and awarded recovery of the initial investment together with interest and costs in the total sum of $3,426,553.45.

14. The present proceedings were commenced on 14 July 2010 claiming damages for the loss of the right to exercise the option, plus the costs of the arbitration. Before they were served, DWS commenced arbitration proceedings under the auspices of the LCIA, seeking a declaration of non- liability. ITF acknowledged service of those proceedings on 10 August 2010 and on 24 August issued the present application. Such application was then stayed by agreement pending the outcome of the ICC arbitration.

DWS's terms of business

15. The basis of DWS's application is by way of reliance on terms of business said to have been attached to an engagement letter dated 30 September 2007. Clause 22 of the version relied upon reads as follows:

22.Governing law and jurisdictionThe laws of Dubai and the federal laws of the UAE

UAE
govern all the agreements and arrangements between you and Denton Wilde Sapte relating to our services. If any claim, dispute or difference of any kind whatsoever (for example, any question regarding their existence, validity or termination) arises out of or in connection with those agreements or arrangements, you and we each agree to submit to the exclusive jurisdiction of the Dubai courts. However, we may, at our sole option, refer the claim, dispute or difference to arbitration in London before a single arbitrator.

If we exercise this option:

(a) the language to be used in the arbitral proceedings will be English;

(b) the arbitration will be decided under London Court
Court
of International Arbitration (LCIA) rules from time to time in force;
(c) we will, jointly with you, appoint the arbitrator not later than 30 days after we send you written notice to do so;
(d) if you and we cannot agree on the appointment of an arbitrator within 30 days, the arbitrator will be appointed on application by either of us to the LCIA;
(e) the arbitrator's award will be final and binding; and

(f) judgment on any award may be entered, or either party may apply for judicial acceptance of the award and an order for enforcement in any court with jurisdiction.

Engagement of DWS

16. It was DWS's case that it sent its letter of engagement and terms of business by fax on 30 September 2007. The fax was dispatched at 12:13. An e-mail was sent, on the same day, at 12:18 with the letter and terms of business attached. The e-mail was addressed to Mr Rami Bazzi with copies to "J. Semos" and "Adadic" of Injazat Capital Ltd ("ICL") the First Claimants.

It is the claimants' position that these communications were not received and, in any event, the terms were not accepted. The primary evidence on this topic was from Mr Bazzi. He makes four points in his witness statement:
(a) He did not recall receiving either the letter of engagement or the terms of business;
(b) A search of both hard copy and electronic files failed to unearth either document;
(c) An earlier engagement of DWS in February 2003 was based on terms applying English law and English jurisdiction (also with a London arbitration option);
(d) He received no notice of any change to the application of Dubai law and the jurisdiction of the Dubai Courts
Dubai Courts
. If he had been notified, he would have refused such terms.

17. The position of DWS on this issue is as follows:

(a) The terms and conditions were clearly forwarded by fax as is verified by the fax report confirming the transmission of 11 pages;
(b) The e-mail had two PDF attachments and was sent to Mr Bazzi and to two other people at ICL;
(c) It is accepted that the terms of the letter accurately record the scope of DWS's instruction;
(d) The terms of business had been in use by DWS for Dubai business for some years;
(e) Mr Bazzi was party to e-mail exchanges in February 2008 in regard to a discount on fees charged by DWS. During the course of those exchanges reference was made by DWS to the terms and a further copy sent without comment let alone complaint from ITF.

18. Against this background, it was contended by DWS that there was no arguable case for challenging the existence of the arbitration option, or at least the prospects of successfully challenging its existence were so remote as to justify leaving the matter to the arbitrators if the point was in due course pursued and thus the proceedings should be stayed. It was ITF's submission that the appropriate course was to order the issue to be tried.

Jurisdiction

Jurisdiction

19. It is common ground that subject to the jurisdiction clause the claim falls within the jurisdiction of the DIFC Courts by virtue of Law No. 12 of 2004, as amended by Law No. 16 of 2011. It is also common ground that, if forming part of the contract of retainer, the arbitration option contained within the jurisdiction clause constitutes a valid "opt-out", seeKhorafi et al v. Bank Sarasin-Alpen (ME) Ltd and another[CA No: 003/2011].

20. As already noted, there is further common ground to the effect that reliance on Article 13 of the Law No.1 of 2008 is misconceived, since by virtue of Article 7 it does not apply where, as here, the seat of the arbitration is outside the DIFC. It follows that there is no obligation on the court to stay the proceedings on the basis that the action is the subject of an arbitration agreement (on the assumption that such was agreed).

21. It is fair to say that this constitutes on the face of it a failure to implement the terms of the New York Convention to which the Emirates are a party. Article II of the Convention requires the recognition of any agreement in writing to submit disputes to arbitration. Thus Article II (3) reads:

3. The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.

22. For the sake of example this requirement is duly reflected in the English Arbitration Act. Section 9 provides for a mandatory stay and Section 2(2) expressly applies that section "even if the seat of the arbitration is outside England and Wales or Northern Ireland or no seat has been designated or determined".

23. I should add that, faced with the express terms of Article 13 of Law. No. 1, DWS sought to argue that its scope should be construed in a manner compliant with the New York Convention and for this purpose prayed in aid the decision of the English Court of Appeal inSalomon v. Commissioners of Customs & Excisesupra. There is indeed a presumption that legislation is drafted in a manner consistent with treaty obligations. But there is no ambiguity in regard to the terms of Article 13 of Law No. 1. Indeed Article 7 focuses on those Articles which apply where the seat is other than the DIFC. These include Articles 14 and 15 but no reference is made to Article 13. The position is accordingly clear.

24. Having in effect (and rightly) accepted that conclusion, counsel for DWS advanced an alternative argument to the effect that the opt-out provision in Law No. 12 of 2004, as amended by Law No. 16, included a submission to another jurisdiction on the basis that "any other court" included a reference to an arbitration tribunal or court.

25. I reject this argument. In its ordinary meaning a court is a state court of law presided over by a judge. It is true that the selected form of arbitration was to be conducted under the auspices of the London Court of International Arbitration. But it is not a "court" in a meaningful way, merely an arbitral organisation which provides administrative machinery for the conduct of arbitrations. There is no better indication of this being the correct approach than Article 2 of the UNCITRAL Model Law on International Commercial Arbitration (1985):

"(b) "arbitral tribunal" means a sole arbitrator or a panel of arbitrators

(c) "court" means a body or organ of the judicial system of a State."

26. In any event, the question of parallel proceedings before a court on the one hand and an arbitral tribunal on the other falls entirely within the scope of Law No.1 of 2008. There is no room for construing Law No. 12 to cover the same ground. It follows that the basis for seeking a stay as advanced in the Defendant's application notice dated 24 August 2010 must fail since it follows from all this that DWS cannot successfully rely on Law No. 1 of 2008, the 1958 Convention or Law No. 12 of 2004.

Dubai Courts

27. This led to a further submission by DWS that the provisions of DIFC Law in this field were irrelevant. There had been, it was contended, a double opt-out. Clause 22 of its Terms of Business constituted a submission to the law and jurisdiction of the Dubai Courts. By this, it was contended, was meant the courts of Dubai other than the DIFC. In turn, there had been an exercise of a recognised option to refer the claim away from the courts of Dubai to arbitration.

28. I am not persuaded by this submission. It is right that a distinction can be drawn between the Dubai Courts as established under Dubai Law No. 3 of 1992 and the courts of the DIFC established under Law No. 12 of 2004. This is exemplified by the provisions concerning the execution of DIFC judgments through the Dubai Courts. But the issue calling for determination is what the parties intended by reference to the Dubai Courts. For this purpose, the burden is on DWS to establish that it constituted an agreement to contract out of the DIFC Courts:National Bonds Corporation v. Taaleem et alCA001/2011.

29. It is right that a similar reference to "the Courts of Dubai" was construed inHardt v. Damac(CFI 036/2009) as a reference to the non-DIFC Courts. But the background circumstances in which the present contract was entered into and the context in which the words were used leads on balance to the conclusion that the reference is to the DIFC Courts:

(a) The SSA (and the Shareholders Agreement) were both entered into within the DIFC and were subject to DIFC law.

(b) DWS was retained to give advice on issues arising under those agreements in regard to the potential claim against Broadlink and the Guarantors.
(c) ITF is located in the DIFC.
(d) DWS has been licensed to practice within the DIFC since June 2007.
(e) The contract was for the provision of legal advice within the DIFC.
(f) Both the SSA and the retainer were in English.
(g) DWS's intentions as expressed by Michael Kerr in his witness statement are irrelevant.

Signature of arbitration clause

30. In case I am wrong about this I must turn to the submission of ITF that, even assuming that DWS is correct that parties have adopted non-DIFC law and accorded jurisdiction to the non-DIFC Courts, the option to arbitrate was invalid. The courses open to the Court are set out in the judgment of the English Court of Appeal inAl-Naimi v. Islamic Press[2000] 1 Lloyds Rep 522 by way of approval of a passage in the judgment of H.H. Judge

Judge
Humphrey Lloyd inBirse Construction Ltd. v. St. David Ltd[1999] B L R 194:

"It is common ground that the following courses are open to me:

1. To determine, on the affidavit evidence that has been filed, that an arbitration agreement was made between the parties, in which case the proceedings will be stayed …
2. To stay the proceedings but on the basis that the arbitrator will decide the question of whether or not there is an arbitration agreement …
3. Not to decide the question immediately but to order an issue to be tried …
4. To decide that there is no arbitration agreement and to dismiss the application to stay."

31. The only reservation that might be made with regard to that passage is in relation to paragraph 3. InAlbon v. Naza(No.3) [2007] 2 AllER 1075, Lightman J concluded that, absent resolution of the question whether an arbitration had been concluded, any stay must be pursuant to the Court's inherent jurisdiction rather than its statutory powers under the Arbitration Act 1996.

32. It was ITF's position that the arbitration clause was manifestly invalid as a matter of non-DIFC law. The basis of this submission was the proposition that, under UAE Federal Law, an arbitration clause must both be in writing and be signed by both parties. Article 203(2) of Law No. 11 of 1992 (in effect the Civil Procedure Code) provides that an "arbitration agreement may be proved only in writing." It was ITF's case that this provision has been interpreted as requiring that, to be valid, the agreement must be signed by an authorised representative of both parties.

33. In support of this proposition, ITF put before the Court an article by Bin Shabib & Associates entitled "Arbitration Clauses incorporated by reference to other documents". It contains the following observations:

"Arbitration by reference to unsigned terms and conditions that may be available on request or publicly.

If the reference to an arbitration clause is not contained within a standard unchangeable document but is instead within a variable and / or unilateral document, such as a company's standard terms and conditions, the resulting reference to arbitration is ineffective and the arbitration clause will be exposed to potential invalidity. Once again the significance placed by UAE jurisprudence on the waiver of a party's fundamental right to litigate in favour of arbitration comes into play as only an unequivocal forfeiture will suffice. Therefore an indirect attempt to include an arbitration clause located in an external document (e.g. a company's terms and conditions) which is unsigned and - in theory - liable to unilateral modification at any time, will not suffice.

This position applies even if the terms and conditions that include an arbitration clause are set out on the reverse of a contractual document but remain - in contrast with the remaining page(s) thereof - unsigned. Although in that latter scenario the terms and conditions remain unchanged (as they form part of the body of a contractual agreement), yet the fact that they do not bear the stamp or signature - ideally both - of the parties, will almost certainly be interpreted by the UAE Courts as an express reluctance to wilfully enter into an arbitration agreement, as opposed to and inadvertent consent to do so."

34. There was no material put before the court by DWS on this topic to contrary effect or at all. I have no reason to reject the views expressed in that article. It follows that I accept that, even if contrary to my view, the non-DIFC Courts have been accorded jurisdiction by the parties, the arbitration option is manifestly invalid and thus no stay could be legitimate.

Residual discretion

35. The better view, as already determined, is that the DIFC Courts retain jurisdiction subject to the arbitration option. Is it appropriate to stay the proceedings as a matter of discretion despite the fact that there is no mandatory stay under Article 13? In this regard DWS rely upon the following matters:

(a) It is fully recognised that parties are entitled to select the forum for determination of their disputes.
(b) Such is consistent both with the adoption of the New York Convention and with the general business purposes of the DIFC.
(c) The selected forum of arbitration is one of world-wide renown.
(d) On the assumption that there is a valid arbitration clause, there are no good grounds for failing to hold the parties to their bargain even if there is no obligation to do so.
(e) In short the justice of the matter and business common sense clearly support the granting of a stay.

36. The response by ITF is primarily by reference to the decision of the English Court of Appeal inEtri Fans Ltd v. NMB (UK) Ltd[1987] 1 WLR 1110 which it invites this court to follow. That case concerned an application for a stay under Section 1 of the Arbitration Act 1975. In fact the applicant could not pray in aid the section as it had not been sued in relation to the matter which it had been agreed should be referred to arbitration, but was applying to become a party. As regards the submission that the application could be advanced under the court's inherent jurisdiction, Lord Woolf accepted that such residual jurisdiction existed but stated the following:

"….because here the area covered by that inherent jurisdiction has been the subject of detailed and precise Parliamentary intervention, the circumstances in which the court will grant a stay under its inherent jurisdiction in situations dealt with by the statutory provisions but where it could or would not do so in exercise of its statutory jurisdiction, will be rare. The jurisdiction is truly a residual one principally confined to dealing with cases not contemplated by the statutory provisions."

37. Can it really be said that the court is not entitled to exercise its residual discretion in the face of the terms of Law No. 1? I confess a reluctance so to conclude because of its implications for perfectly straightforward arbitration clauses with a seat outside the DIFC. Indeed it could be said that there is some good sense in imposing a mandatory stay for DIFC arbitrations and allowing a discretionary stay for non-DIFC arbitrations.

38. But that could so easily have been the structure of Law No. 1. In contrast Law No. 1 directly grapples with the issue. It states in terms which provisions apply to non-domestic arbitrations (Article 7) and declares that the court's powers are restricted to those stated in the Law (Article 10). I am accordingly driven to the conclusion that this "detailed and precise" legislation makes it clear that applications of the present kind (which were notably advanced initially by reference to Article 13) are not open.

Validity

39. For the sake of completeness I must now turn to the question of whether, if I am wrong and there is in principle a discretionary jurisdiction to stay the proceedings under DIFC law on the basis that DWS has exercised an option to refer the matter to arbitration, a stay is appropriate where ITF have asserted that no valid arbitration agreement was entered into.

40. For my part I would regard this case as a paradigm example of where it is appropriate to determine on the evidence filed that an arbitration agreement was duly concluded:

(a) It is clear from the fax sheet that copies of the letter of engagement and the terms of business were duly sent to Mr Bazzi.

(b) In addition it is clear that the contemporary e-mail had the documents attached.

(c) Whilst Mr Bazzi does not recollect receiving either, it was quite some time ago and concerned topics on which a very senior executive would be unlikely to have any particular interest or concern.

(d) The e-mail went to two colleagues of Mr Bazzi. They have made no comment.

(e) Whilst copies have not been unearthed in the files by a new employee, it is clear that adequate notice of the terms was given.

(f) No complaint or even comment was made when the terms of business were resent as part of the negotiations on fees.

Conclusion

41. It follows that I would have granted a stay if there were jurisdiction to do so. But for all the reasons set out earlier I refuse the application.

Justice Sir David Steel

Date of Issue: 7 March 2012


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