Claim No. CFI-016-2017
THE DUBAI INTERNATIONAL FINANCIAL CENTRE
COURTS
In the name of His Highness Sheikh Mohammad Bin Rashid Al Maktoum,
Ruler
IN THE
COURT
ON APPEAL FROM THE SMALL CLAIMS
TRIBUNAL
BEFORE H.E. JUSTICE OMAR AL MUHAIRI
BETWEEN
MASHREQ AL ISLAMI FINANCE COMPANY PJSC
(formerly AL BADR ISLAMIC FINANCE COMPANY PJSC)
Claimant
and
MR BABAR REHMAN
Defendant
Hearing: 12 March 2019
Counsel: Mr Peter Smith and Mr Jonathan Brooks for the Claimant
Respondent failed to attend
Judgment: 21 March 2019
JUDGMENT OF H.E. JUSTICE OMAR AL MUHAIRI
UPONreviewing the Claimant’s claim dated 30 March 2017;
UPONthe listing of the Trial for this dispute on 12 March 2019;
UPONthe non-attendance of the Defendant and of his legal representatives at the Trial;
UPONhaving reviewed the documents included in the Court
UPONhaving heard counsel for the Claimant at trial;
IT IS HEREBY ORDERED THAT:
1.The Defence is struck out pursuant to Rule 35.14(3) of the Rules of the DIFC Courts
2. Judgment is hereby entered in favour of the Claimant as against the Defendant in the sum of AED 321,427.12 (the “Judgment Sum”), comprising:
a. AED 4,639.41 in satisfaction of outstanding Advance Rental Payments;
b. AED 152,815.44 in satisfaction of outstanding Ijara fixed rent;
c. AED 159,119.36 in satisfaction of outstanding Ijara variable rent; and
d. AED 4,852.91 in satisfaction of outstanding insurance charges.
3. The Defendant shall pay to the Claimant the Judgment Sum within 28 days of the date of this Judgment.
4. Pursuant to Practice Direction No. 4 of 2017, simple interest on the Judgment Sum shall accrue at a rate of 9% per annum from the date of this Judgment.
5. The Court declares that:
a. The Ijara Agreement dated 19 July 2007 as between the parties was validly terminated by notice on 25 September 2016.
a. The Defendant does not have any interest in the unit located at 1513 Liberty House, Dubai International Financial Centre, Dubai, UAE
c. The Claimant is the sole legal and beneficial owner of the Unit.
d. The DIFC
e. The DIFC Real Property Registrar may issue a new title deed for the Unit in the name of the Claimant alone, omitting any reference to the Defendant.
6. The Defendant shall pay the Claimant’s costs of these proceedings on such a basis and in such specific amount or amounts as this Court shall determine following consideration of the Claimant’s costs submissions to be filed.
Issued By:
Ayesha Bin Kalban
Assistant Registrar
Date of Issue: 24 March 2019
At: 10am
JUDGMENT
Procedural Background
1.The Claimant, Mashreq Al Islami Finance Company PJSC (formerly Al Badr Islamic Finance Company PJSC) (hereafter the “Claimant”) filed its Claim on 30 March 2017 seeking declaratory relief regarding the alleged termination of an Ijara Mosufa Agreement (hereafter the “Ijara Agreement”) entered into between the parties for the rental/ownership of a DIFC property located at Unit #1513, Liberty House, DIFC, Dubai (the “Unit”), as well as monetary sums allegedly owed by the Defendant, Mr Babar Rehman (hereafter the “Defendant”).
2. The Claimant subsequently filed for Default Judgment on 26 April 2017 after providing a Certificate of Service
3. Having determined that the requirements of RDC Part 13 were met, Default Judgment was issued on 7 May 2017 via the Order of Judicial Officer Maha Al Merhairi (the “Default Judgment”). The Default Judgment provided the following:
a. The Ijara Agreement dated 19 July 2007 was declared terminated by notice on 25 September 2016.
b. The Defendant was declared not to have any interest in the relevant Unit effective from 25 September 2016.
c. The Claimant was declared the sole legal and beneficial owner of the Unit.
d. The DIFC Real Property Registrar was declared to have relevant authority to deregister any and all interests in the name of the Defendant with respect to the Unit and may issue a new title deed in the name of the Claimant alone.
e. The Defendant was found liable to the Claimant various sums payable within 14 days of issuance of the Default Judgment, to include:
i. AED 161,602.00 being the unpaid rent due under the Ijara Agreement.
ii. Interest at a rate of 2.47% in the sum of AED 7,826.32 as of 26 April 2017 and accruing at a daily rate of AED 10.94 from that day forward.
iii. AED 392,828.62 being the Claimant’s legal costs.
4. It was not until 28 January 2018 that the Defendant filed his Application seeking to set aside
5. After submissions from the parties, a Hearing on the Set Aside Application was scheduled for 27 March 2018. The Hearing was adjourned due to the Defendant’s legal representative
6. The Set Aside Order required that the Default Judgment be set aside based on the Defendant’s real prospect of successfully defending the claim. The Claimant was given 14 days to file its Particulars of Claim and strike out
The Claimant’s Arguments
12. Firstly, the Claimant has argued that the DIFC Courts have jurisdiction over this dispute as it concerns a property located within the DIFC and the Ijara Agreement was to be partly performed within the DIFC. The Claimant cites Article 5(A)(1)(b) and (c) and Aticle 5(A)(2) of the judicial authority law
13. The Claimant contends that the wording contained within the Ijara Agreement, stating that it would be governed by and construed in accordance with the laws of the Emirate of Dubai and the federal laws of the Unite Arab Emirates at clause 18, does not eliminate the applicability of DIFC Law to this dispute.
14. The Claimant articulates the relevant background of the dispute as follows:
a. In July 2007, the Claimant entered into an agreement with the Defendant to finance the purchase of the Unit. The Defendant had already entered into a sale and purchase agreement with the Unit developer and he approached the Claimant for a loan to fund the remaining purchase price after he had paid a deposit of AED 80,424. The purchase price for the Unit was AED 804,232.
b. On 1 July 2007, the Defendant applied to the Claimant’s predecessor company for an Ijara residence finance loan in the amount of AED 723,809, which was 90% of the purchase price, with a loan period of 20 years at a profit rate set at 3.79% plus LIBOR.
c. The parties executed the Ijara Agreement on 23 July 2007. Pursuant to the Ijara Agreement, the Claimant paid the loan amount to the Unit developer and took title over the Unit, promising to lease the Unit to the Defendant for the life of the Ijara Agreement. After full payment from the Defendant of the sums due to the Claimant, the Claimant would return title for the Unit to the Defendant. The Defendant signed an irrevocable standing order for the fixed rental payments for both the first lease period and subsequent lease periods, as defined in the Ijara Agreement. As a result of the Ijara Agreement, the Defendant assigned his rights according to the sale and purchase agreement to the Claimant and the Defendant also provided a security cheque to the Claimant.
d. The Defendant took possession of the Unit in June 2009, which triggered a change in the payments due under the Ijara Agreement. The Defendant’s first delinquent payment was 28 June 2009, being the day of the first fixed rental payment (as opposed to the advanced rental payments). This default triggered the Claimant’s entitlements under clause 7 of the Ijara Agreement.
e. In May 2009, the Claimant attempted to encash the security cheque, however it was returned without payment.
f. The Claimant decided to forbear the defaults, rather than foreclose the Ijara Agreement. For 7 years, the Claimant attempted to receive payment from the Defendant, making numerous and strenuous efforts to do so.
g. By 2016, the Claimant decided to accept the Defendant’s repudiation of the Ijara Agreement by serving upon the Defendant a notice terminating the agreement on 25 September 2016 (hereafter the “Termination Notice”). The Termination Notice was served in accordance with clause 12 of the Ijara Agreement in addition to other methods of service. The Claimant then initiated the current proceedings in March 2017.
15. The Claimant identifies the key issues in the case to be as follows:
a. Has the Defendant failed to make any of the monthly payments due under the Ijara Agreement and for how long have such delayed payments been outstanding?
b. Was the Claimant entitled to serve the Termination Notice because the Defendant had not made all the required monthly rent payments?
c. What costs did the Claimant incur in relation to any payment defaults by the Defendant?
d. Is the Claimant entitled to recover all of the costs claimed from the Defendant under the Ijara Agreement?
16. The Claimant explains that the Ijara Agreement provided for four periods of payments: (1) Advance Rental Payments due from the formation of the Ijara Agreement until handover of the Unit, (2) First Lease Period payments starting from the handover of the Unit, due on the 28thof the month; (3) revolving lease periods commencing from the end of the First Lease Period; and (4) Fixed Rent payable under the Irrevocable Standing Order and Variable Rent continued at the previous rate of 3.95% plus 1 year EIBOR. The Claimant argues that the Defendant fell into arrears as of 28 June 2009, when he failed to make the payment required of the first lease period. The Defendant made sporadic payments until 17 February 2016, however these payments were not enough to cover the total outstanding due.
17. The Claimant argues that it has carefully calculated the total sums due from the Defendant pursuant to the various schedules of payments, taking into account the payments actually received from the Defendant from 3 September 2007 through 24 March 2016. The Claimant contends that there is no reason to disbelieve the Claimant’s representation of the payments made by the Defendant considering that the Claimant has calculated that the Defendant paid significantly more than the Defendant himself claims.
18. Furthermore, the Claimant argues that the Defendant has not provided a sufficient defence for his failure to make full payment of the amounts due under the Ijara Agreement. The Defendant let the Unit out for rental payments and any loss the Defendant may experience on his rental investment does not excuse his payments to the Claimant. Any attempts to renegotiate the Ijara Agreement by the Defendant also do not excuse him from full payment under the original Agreement.
19. As to the Termination Notice, the Claimant contends that it was served above and beyond the Claimant’s requirements. While the Defendant contends that he did not receive it, the Claimant argues that it was properly served. In any event, the Defendant must have become aware by at least October 2017 when he discovered the ongoing enforcement proceedings. The Claimant is permitted by clause 7.2 of the Ijara Agreement to terminate in the event of the Defendant’s default.
20. As regards the costs incurred by the Claimant as a result of the Defendant’s default, the Claimant cites clause 4.1 of the Ijara Agreement with obliges the Defendant “without prejudice to the [Claimant’s] other rights” to “compensate [the Claimant] for the actual loss suffered” by the Claimant. Considering that the Defendant’s obligations to pay the rental sums and “all other amounts under this Agreement” are agreed to be “absolute and unconditional”, as per clause 4.3, the Claimant’s costs incurred in relation to any payment defaults are calculated by aggregating the sums owed at the date of default, including all principal and profit elements as well as administrative costs.
21. The Claimant also makes arguments to strike out certain of the Defendant’s references to Sharia Law. However, with reference to the Strike Out Application, I will not repeat those arguments here.
The Strike Out Application
22. The Defendant argues that handover of the Unit was delayed by more than eight months. Furthermore, the Defendant argues that he was seriously affected by the financial crisis and he was not able to restructure his Ijara Agreement, in spite of numerous attempts to request such consideration from the Claimant. The Defendant argues that the “Principles of Islamic Finance were not followed in this particular case and despite numerous payments from 2009 to 2016 [the] outstanding amount kept increasing which is unjustified.” The Defendant also contests the Claimant’s presentation of the sums paid and owed by the Defendant. Finally, the Defendant claims he never received the Termination Notice sent by the Claimant.
23. However, I must take note of RDC 35.14 at this time. RDC 35.14 states:
“35.14
The Court may proceed with a trial in the absence of a party but:
(1) if no party attends the trial, it may strike out the whole of the proceedings;
(2) if the claimant does not attend, it may strike out his claim and any defence to counterclaim. The defendant may prove any counterclaim at trial and obtain judgment on his counterclaim and for costs; and
(3) if a defendant does not attend, it may strike out his defence or counterclaim (or both). The claimant may prove his claim at trial and obtain judgment on his claim and for costs.”
24. The Claimant made specific reference to RDC 35.14(3) at the Trial, upon confirmation that the Defendant had failed to attend. I deemed it appropriate to grant the Claimant’s Strike Out Application. In any event, RDC 35.14(3) does not require application from the opposing party. Instead, the Court may act of its own initiative in this regard.
25. With reference to RDC 35.14(3), I find it appropriate in this circumstance to grant the Claimant’s Strike Out Application, to strike out the Defendant’s defence, and to proceed on the basis of the Claimant’s oral and written submissions only. This is appropriate in the circumstances considering that the Defendant was fully aware of the Trial schedule and still failed to attend or to send his legal representatives.
Discussion
26. Given that the Defence has been struck out in full, the relevant assessment required in this matter is limited to a determination of whether the Claimant has proven its case by a preponderance of the evidence. While the Defence has been struck out, it is not assumed that the Claimant will be successful on its case. Instead, the Claimant must still have proven its claims in its oral and written submissions.
27. Firstly, I find that the DIFC Courts have jurisdiction over this dispute and that DIFC Law governs the matter, as per the Claimant’s arguments. Even had I considered the Defence, the Defendant makes no objection to these preliminary issues.
28. I find it undisputed that the Claimant and Defendant entered into the Ijara Agreement as detailed by the Claimant. This is a valid agreement, the terms of which governed the relationship between the parties. I find that the Claimant has proven that the Defendant went into default as early as June 2009, but that the Defendant continued to make sporadic and insufficient payments until February 2016. I find that the Claimant has proven these facts with adequate documentation, including detailed and seemingly accurate reports of the Defendant’s history of payments.
29. I find that the Claimant’s has proven that its reading of the terms of the Ijara Agreement to allow full payment through termination in the case of a default is a legally acceptable reading of those terms. Specifically, the Claimant’s interpretation of clauses 7.2, 4.1, 4.3 is acceptable and valid in the circumstances. Thus, the Defendant is responsible for the outstanding sums as defined and calculated by the Claimant, in order to fulfill his obligations under the Ijara Agreement.
30. Finally, the Termination Notice is deemed to have been validly served on the Defendant, as per the Claimant’s evidence. Thus, the Termination Notice was effective to terminate the Ijara Agreement as of 25 September 2016. Pursuant to that valid termination, the Defendant does not have any interest in the Unit such that the Claimant is the sole legal and beneficial owner of the Unit.
31. The DIFC Real Property Registrar is thus enabled and empowered to deregister any and all interests in the name of the Defendant with respect to the Unit from the DIFC Real Property Register. As such, the DIFC Real Property Registrar is enabled and empowered to issue a new title deed for the Unit in the name of the Claimant alone, omitting any reference to the Defendant.
32. As to the specific sums owed by the Defendant to the Claimant, the Claimant has submitted that the total judgment sum is AED 321,427.12, based upon the Defendant’s history of payments and the schedule of payments required in the Ijara Agreement. The Claimant’s calculations are deemed valid based upon a preponderance of the evidence, and I therefore find in favour of the Claimant as against the Defendant in the sum of AED 321,427.12 (hereafter the “Judgment Sum”), comprising:
a. AED 4,639.41 in satisfaction of outstanding Advance Rental Payments;
b. AED 152,815.44 in satisfaction of outstanding Ijara fixed rent;
c. AED 159,119.36 in satisfaction of outstanding Ijara variable rent; and
d. AED 4,852.91 in satisfaction of outstanding insurance charges.
33. Finally, pursuant to Practice Direction No. 4 of 2017, simple interest on the Judgment Sum shall accrue at a rate of 9% per annum from the date of this order.
34. In summary, the Claimant has submitted plentiful proof that its Claim is valid based on its reading of the Ijara Agreement. The Claimant’s calculations, based upon detailed payment records, have been shown to be valid. As the Claimant’s reading of the Agreement is legally permissible and as there is no valid defence entered into the Court record, I find for the Claimant based upon a preponderance of the evidence.
Costs
35. The Defendant shall pay the Claimant’s costs of these proceedings on such a basis and in such specific amount or amounts as this Court shall determine following consideration of the Claimant’s costs submissions to be filed.
Conclusion
36. In sum, the Claimant’s claims are granted in full with the Defendant responsible for the Claimant’s costs of these proceedings.
Issued by:
Ayesha Bin Kalban
Assistant Registrar
Date of issue: 24 March 2019
Time: 10am