Claim No. CA 014/2019 THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS
Claim No. CA 014/2019
THE DUBAI INTERNATIONAL FINANCIAL CENTRE
In the name of His Highness Sheikh Mohammad Bin Rashid Al Maktoum,
BEFORE JUSTICE WAYNE MARTIN, H.E. JUSTICE ALI AL MADHANI AND H.E. JUSTICE SHAMLAN AL SAWALEHI
IDBI BANK LIMITED
(1) AMIRA C FOODS INTERNATIONAL DMCC
(2) A K GLOGAL BUSINESS FZE
MR KARAN A CHANANA
Third Party/Additional Respondent
|Hearing||: 1 June 2020|
|Counsel||: Roger Masefield QC instructed by Allen & Overy for the Appellant|
Tom Montagu-Smith QC and Matthew Watson instructed by Taylor Wessing for the First Respondent
|Judgment||: 6 July 2020|
UPONthe Order of Justice Roger Giles dated 11 December 2019 granting permission to appeal
AND UPONhearing counsel for the Appellant and counsel for the Respondents in a hearing on 1 June 2020
AND UPONreading the submissions and evidence filed and recorded on the Court
IT IS HEREBY ORDERED THAT:
1. The Reduced Margin Ground (Ground 1) and the Counterclaim
2. The Reputational Damage Ground (Ground 2) is allowed. In this respect, the decision of the Judge
3. The parties are invited to present written submissions with respect to the appropriate orders made in relation to the costs of the appeal in light of this disposition.
Date of issue: 6 July 2020
JUSTICE WAYNE MARTIN
1. This is an appeal from the Judgment of Justice Roger Giles in which he assessed damages
2. The Bank appeals, with the permission of the Judge, on four grounds (“Grounds of Appeal”).
3. Ground 1 (the “Reduced Margin Ground”) challenges the Judge’s award of damages in the amount of USD$2,287,636 in respect of the increased cost to Amira of acquiring rice from suppliers other than A K Global Business FZE (“A K Global”), the second respondent,1because A K Global refused to fill contracts to supply rice to Amira because of the Bank’s breach of contract.
4. Ground 2 (the “Reputational Damage Ground”) challenges the Judge’s award of USD$10,000,000 in respect of the damage to Amira’s reputation flowing from the Bank’s breach of contract.
5. Grounds 3 and 4 (the “Counterclaim Grounds”) challenge the Judge’s dismissal of the counterclaim
6. For the reasons which follow, the Reduced Margin Ground and the Counterclaim Grounds lack merit and should be dismissed. However, the Reputational Damage Ground should be upheld and the damages awarded to Amira in respect of that component of its claim is reduced from USD$10,000,000 to USD$500,000.
The facts found
7. It is appropriate to set the scene for a detailed consideration of the Grounds of Appeal with an overview of the facts found by the Judge3 and a brief account of the history of the litigation.
8. Amira was established in Dubai in November 2009. It became a major international producer of packaged food and supplier of Indian basmati rice. It is a subsidiary of Amira Nature Foods Limited (“ANFI”), a company listed on the New York Stock Exchange. Mr Karan Chanana is the Chairman and Chief Executive Officer of ANFI. He is also the majority shareholder in the ANFI Group.
9. There was unchallenged expert evidence4, to the effect that over the four financial years ending in 2018, Amira provided approximately 50% of ANFI’s revenue and 40% of its gross profit, with the exception of the financial year ending 2018, when ANFI’s revenues from sources other than Amira fell significantly and ANFI made a gross loss of approximately USD$65,000,000.
10. The Bank is a global bank with headquarters in India and a branch in Dubai.
11. Amira’s main clients for the sale of rice in the Middle East were Kuwait Supply Co and Kuwait Flour Mills & Bakeries Co (together“Kuwait Flour”), which are entities under the control of the Government
12. By a letter dated 27 May 2014, the Bank offered Amira credit facilities of USD$8,000,000, by way of overdraft/bill discounting up to USD$3,000,000, and letters of credit/buyer’s credit up to USD$5,000,000. Under the terms of the letter, funds advanced on overdraft were repayable on demand, and Buyer’s Credits were to be extended for a maximum period of 90 days.
13. The facilities offered in the letter were formalised in a facilities agreement dated 11 August 2014 (the“Facilities Agreement”). It will be necessary to consider the precise terms of the Facilities Agreement in the context of the Counterclaim Grounds of appeal. For present purposes it is sufficient to note that the Facilities Agreement, like the letter which preceded it, also provided for the provision of funds on overdraft and by way of Buyer’s Credits with a term of not more than 90 days.
14. There were various communications between Amira and the Bank relating to the precise terms and limits of the facilities provided by the Bank in the years which followed. It is unnecessary to chronicle those communications in any detail, and sufficient to note that in early 2018 the facilities remained in place, governed by the terms of the Facilities Agreement.
15. The buyer’s credit facility provided by the Bank to Amira was, in effect, a revolving line of credit. Under the arrangements pertaining to the buyers credits (using A K Global and Kuwait Flour as examples) at Amira’s request, the Bank would issue a letter in which it irrevocably undertook to pay Amira’s supplier, A K Global, the price due for the rice supplied upon the receipt of funds from Kuwait Flour in respect of shipments of rice (which might be previous shipments the subject of earlier buyers credits). A K Global would rely on that undertaking and ship rice to Kuwait Flour at Amira’s direction. As the Buyer’s Credits had a term of 90 days, funds advanced by the Bank to A K Global by way of payment for shipments of rice made by that supplier had to be repaid within 90 days from payments made to the Bank by Kuwait Flour in respect of shipments of rice which it received. As long as the trade continued at a regular pace, this would occur as a matter of course. As each buyer’s credit was discharged by the receipt of funds from Kuwait Flour, fresh buyer’s credits would be issued (within the limit of the facility), facilitating the continuing supply of rice by A K Global.
The rice contracts
16. As at early 2018, Amira had contracted to supply rice to Kuwait Flour under Contract RC-116.2016 at a price of USD$1,398 per Metric Tonne (MT). In order to supply rice pursuant to that contract, on 9 January 2018 Amira entered into a contract with A K Global to purchase 30,000 MT of rice at a price of USD$1,287.50 per MT. In his evidence Mr Chanana described this contract as an “umbrella contract”, on the basis that the rice to be supplied by A K Global pursuant to its terms would be made up of a number of separate consignments of rice at differing prices which, when combined, would aggregate to the supply of 30,000 MT at an average price of USD$1,287.50 per MT.
The irrevocable letter of 11 February 2018
17. Consistently with the general arrangements which we have described, at Amira’s request, on 11 February 2018 the Bank provided a letter to Amira irrevocably undertaking to pay A K Global the amount due in respect of rice to be supplied. Amira provided that letter to A K Global, which commenced loading rice for shipment to Kuwait Flour.
18. On 14 February 2018 the Bank advised Amira that USD$4,194,000 had been received from Kuwait Flour. Again consistently with the arrangements which we have described, Amira requested the Bank to pay almost all of those funds (USD$4,134.000) to A K Global in respect of rice supplied, and to provide fresh Buyer’s Credits for further rice to be supplied by A K Global.
19. However, the Bank failed to make the payments to A K Global which Amira had requested. Although nothing turns on it, the Judge found that the Bank’s failure to pay came about as a consequence of the Dubai office of the Bank misunderstanding a direction from the head office of the Bank relating to Buyer’s Credits. The misunderstanding also caused the Bank to refuse to issue further Buyer’s Credits in favour of Amira.
20. The Bank’s failure to pay A K Global and its refusal to provide further Buyer’s Credits to Amira created significant difficulties for Amira very quickly. By 20 February 2018 A K Global stopped loading further shipments for consignment because of delay in payment, notwithstanding the irrevocable undertaking previously given by the Bank. Urgent meetings took place between representatives of Amira and officers of the Bank. In the course of those meetings the Bank referred to Buyer’s Credits which were due for payment on 26 February 2018. Amira sought an extension of the time for payment of those amounts, which was refused by the Bank.
Direct payment from Kuwait Flour to A K Global
21. In order to resolve the impasse created by the Bank’s refusal to honour its irrevocable letter of undertaking, arrangements were made for Kuwait Flour to pay A K Global direct for rice suppled. Because Amira was omitted from the supply chain in respect of these consignments, it lost the profits which it would otherwise have derived from those sales.
22. Further, as a result of the Bank’s failure to honour its irrevocable undertaking, A K Global refused to supply any further rice to Amira. At that time, A K Global had supplied 16,400 MT out of the 30,000 MT that were to be supplied to Amira at an average price of USD$1,287.50. Because that price was an average price over the entire 30,000 MT, the remaining 13,600 MT was not necessarily to be supplied at that average price. In fact the remaining rice was to be supplied by AK Global in two tranches – 6,700 MT at USD$1289 per MT and 6900 MT at USD$1,154.56 per MT. Amira replaced the 13,600 MT of rice which A K Global declined to supply by acquiring 4,000 MT from TIA Agro Trading DMCC (TIA Agro) at a price of USD$1,389 per MT, and a further 9,600 MT from Impulse International Trading FZE (Impulse), also at a price of USD$1,389 per MT.
A new contract with Kuwait Flour
23. On 1 May 2018, Amira entered into a new contract with Kuwait Flour – Contract RC-118.2017 for the supply of rice at a price of USD$1,549 per MT – an increase over the price of USD$1,398 per MT payable under the previous contract. The 13,600 MT of rice which was not supplied by A K Global but acquired from TIA Agro and Impulse was supplied to Kuwait Flour at the new contract price of USD$1,549 (as compared to the old contract price of USD$1,398).
The Bank’s requests
24. In the meantime, by letter of 27 February 2018 the Bank wrote to Amira pointing out that the Buyer’s Credits due on 26 February 2018 and which totalled USD$2,604,435.40 had not been paid. The letter went on to point out that after the application of remittances received (presumably from Kuwait Flour) in respect of Buyer’s Credits due on earlier dates, and which had been applied in partial reduction of the amount due on 26 February 2018, there remained a shortfall of USD$2,240,000.
25. On 22 April 2018, the Bank wrote again to Amira referring to the failure to pay the buyer’s credits due on 26 February 2018 and asserting that Amira’s account was “irregular” to the total extent of USD$1,536,242.46. The Bank requested Amira to clear that amount immediately.
26. On 1 May 2018 the Bank wrote in more formal terms to Amira referring to the Facilities Agreement, the failure to pay the buyer’s credits due on 26 February 2018, and other matters said to constitute an “Event of Default”. The letter asserted that:
“In view of the above and since, the Borrower has committed defaults in the payment of due amounts of the Facilities, interest and other moneys and also in observance and performance of the other conditions of the Credit Facilities Agreement, IDBI Bank, has become entitled to recall its entire principal amounts of the Facilities, interest and other monies due in respect thereof.”
27. The letter called upon Amira to pay the total balance outstanding under the various facilities being USD$2,319,025.34.
28. The proceedings were commenced in the Court of First Instance on 30 April 2018. The claimants were Amira and A K Global. A K Global sought an order that the Bank pay it USD$4,134,000, being the amount which Amira directed the Bank to pay to A K Global pursuant to the irrevocable undertaking given by the Bank in its letter of 11 February 2018, following the receipt of funds by the Bank from Kuwait Flour on 14 February 2018. Amira claimed damages under various heads, including for damage to its commercial reputation.
29. The matter came on for urgent hearing on 13 May 2018. A K Global sought, and was granted, judgment on its claim against the Bank for USD$4,134,000. Justice Sir Jeremy Cooke found that there was no disputed issue of fact nor any credible justification for the Bank’s failure to pay A K Global the sum of USD$4,134,000 pursuant to the irrevocable undertaking given in the letter of 11 February 2018. He therefore granted judgment against the Bank in favour of A K Global in that amount. The Bank paid the amount due under that judgment, after which A K Global has taken no further part in these proceedings5.
30. As regards Amira, Justice Cooke observed that the question of damages which might arise from the Bank’s breach of its undertaking and the assessment of loss gave rise to questions which could not be decided on an urgent basis and which would have to be dealt with in some other manner6. Justice Cooke also granted injunctive relief sought by Amira to restrain the Bank from presenting (again) cheques drawn by Amira which the Bank held as part of its security for the facilities granted to Amira.
The Bank’s further requests
31. On 17 May 2018 the Bank’s solicitors wrote to Amira’s solicitors noting (correctly) that Justice Cooke had left open the question of the proper characterisation of the payment to be made by the Bank to A K Global pursuant to his order under the terms of the Facilities Agreement. The Bank proposed that the payment should be characterised as an advance under the overdraft facility and reserved its right to demand immediate repayment by Amira of the advance pursuant to clause 5.5 and 5.6 of the Facilities Agreement. Nevertheless, the Bank offered to consider a repayment plan in respect of the advance which would be made pursuant to the order of the Court.
32. In the letter the Bank’s solicitors reiterated earlier claims made by the Bank to the effect that the failure to pay the Buyer’s Credits due on 26 February 2018 constituted an Event of Default under clause 14.1 of the Facilities Agreement, and reserved the Bank’s rights in respect of that Event of Default. The Bank offered to consider a waiver of that Event of Default provided the outstanding sum was paid in full within 7 days of the date of the letter. The letter concluded with an assertion that:
“For the avoidance of doubt, failure by the Borrower to make payment of the above sums in full shall constitute an Event of Default.”7
33. On 21 May 2018, the Bank’s solicitors wrote again to Amira’s solicitors enquiring as to the time at which a substantive response would be provided to the letter of 17 May 2018, and also enquiring whether Amira intended to pay the amounts outstanding in respect of the Buyer’s Credits by the date specified in the letter of 17 May 2018.
34. On 24 May 2018, the Bank’s solicitors wrote again to Amira’s solicitors. In this letter, the amount said to be outstanding in respect of the Buyer’s Credits, resulting from non-payment of the credits due on 26 February 2018 was defined as “the Amount” and specified to be USD$2,215,934.40. In the letter, it was asserted that Amira’s failure to pay the amount due on the original due date of 26 February 2018 constituted an Event of Default under clause 14.1 of the Facilities Agreement, which was a continuing default. The letter reiterated that unless the Amount was paid in full that day (24 May 2018):
“The Bank reserves all its rights in respect of that Event of Default, including (without limitation) to apply default interest on the Amount pursuant to clause 9.4 of the Facilities Agreement and to demand immediate repayment of all Outstanding Amounts under the Facilities Agreement pursuant to clause 14.2.”8
The letter also noted that no proposal had been received from Amira with Respect to repayment of the amount paid to A K Global pursuant to the order of the Court.
35. On 24 May 2018 solicitors acting on behalf of Amira responded to the three letters from the Bank’s solicitors. In that response the solicitors asserted that the moneys paid by the Bank pursuant to the order of the Court was the consequence of the Bank’s breach and did not give rise to an advance under the terms of the Facilities Agreement. It was further asserted that the failure to pay the Buyer’s Credits due on 26 February 2018 was also the consequence of the Bank’s breach and could not therefore be treated as an Event of Default. It was proposed that the Bank should extend the credit available to Amira under the Facilities Agreement. It was also asserted that the Bank’s failure to meet its obligations had damaged Amira’s reputation and made it more difficult to obtain a new credit facility with another bank.
36. On 27 May 2018 the Bank’s solicitors wrote again to Amira’s solicitors. In this letter it was asserted that in order to protect the Bank’s position:
“In accordance with clause 14.1(a)(ii) of the Facilities Agreement, the Bank hereby provides the Borrower with three (3) Business Days from the date of this letter to pay the Amount in full, i.e. by Wednesday 30 May 2018. If the Amount is not paid by this deadline, the Bank reserves its right to call an Event of Default pursuant to clause 14.1 of the Facilities Agreement, and to exercise all its rights under the Facilities Agreement, including (without limitation):
(a) to declare all Outstanding Amounts immediately due and payable together with accrued interest; cancel any unutilized portion of the Facility; and, invoke all legal remedies (pursuant to clause 14.2 of the Facilities Agreement); and
(b) to apply default interest on the Amount (pursuant to clause 9.4 of the Facilities Agreement).”9
37. It is clear that the “Amount” in this letter refers to the term defined in earlier correspondence, which is the net amount outstanding in relation to the Buyer’s Credits due to be paid on 26 February 2018 – namely, USD$2,215,934.40.
38. On 30 May 2018, Amira’s solicitors wrote to the Bank’s solicitors denying that the Bank had the right“to call an Event of Default pursuant to clause 14.1 of the Facilities Agreement”10.
39. On 6 June 2018 the Bank’s solicitors wrote again to Amira’s solicitors. In that letter reference was made to the earlier correspondence in which Amira was notified that an amount was due under the Facilities Agreement in respect of the Buyer’s Credits which had been due and payable since 26 February 2018. It was asserted in the letter that Amira’s failure to pay that amount constituted a continuing non-payment Event of Default under clause 14.1 of the Facilities Agreement. Notice was given to the effect that non-payment of the Amount due constituted an Event of Default pursuant to clause 14.1 of the Facilities Agreement and that in accordance with clause 14.2 of the Facilities Agreement the Bank declared all Outstanding Amounts to be immediately due and payable, and that default interest would be applied on the Outstanding Amounts pursuant to clause 9.4 of the Facilities Agreement. A schedule of the amount said to comprise to the “Outstanding Amounts” was provided in the letter, totalling USD$6,421,224.71 (excluding interest since 1 February 2018).
40. On 24 June 2018 solicitors acting on behalf of the Bank made demand under a guarantee of its credit facilities provided by a related company of Amira and Mr Chanana.
41. On 28 June 2018 A K Global wrote to Amira confirming receipt of the payment of USD$4,134,000 but advising that A K Global had decided not to do any more business with Amira and that all pending contracts were cancelled.
The Judgment under Appeal – An overview
42. It is desirable to provide the context for a consideration of the grounds of appeal with an overview of the Judgment as a whole.
43. The Judge made findings of fact with respect to the Facilities Agreement, the Buyer’s Credits, the irrevocable letter of undertaking (the“Irrevocable Letter”) and the contracts for the acquisition of rice from A K Global and the sale of rice to Kuwait Flour which are consistent with the facts we have set out above.
44. The Judge found that A K Global decided not to do any more business with Amira because of the Bank’s failure to honour the Irrevocable Letter11. In this context the Judge referred to a letter from A K Global to Mr Gandhi dated 11 July 2019 (a few weeks before the trial). In that letter it was asserted:
“I confirm that 16,400 MT were supplied to Amira out of the 30,000 MT contracted. The remainder of the 30,000 MT would have been supplied to Amira had it not been for the revocation of IDBI’s Irrevocable Letter.
The revocation of IDBI’s Irrevocable Letter caused us to have significant concerns about the future of Amira’s business. The revocation became common knowledge in our industry and resulted in a breakdown of trust, we therefore required future payments against stock already shipped to be made directly to A K Global from KFM [Kuwait Flour Mills] rather than through Amira’s banking process.
Due to the revocation of IDBI’s Irrevocable Letter, we were worried that Amira would be closed down and so once we had received payment for the shipments already made, we declined to continue future business with Amira.”12
45. The Judge inferred from the date of the letter that Amira probably asked A K Global to write the letter in order that it might be used in the proceedings. He also observed:
“Mr Gandhi and Mr Chanana were obvious targets if it was to be suggested that they had prevailed on A K Global to write in more favourable terms than were warranted. Mr Chanana gave some rather obscure evidence that the letter came when Mr Gandhi “reached out” to A K Global and asked them to start business again. Neither he nor Mr Gandhi was asked any more about the origins of the letter. It was not suggested to Mr Gandhi, or to Mr Chanana, that they asked A K Global to write in favourable terms, and the Bank had no basis for inviting the Court to disregard it as a statement of no or little weight.”13
46. The Judge went on to refer to the rule in Browne v Dunn14, and observed that, as a rule rooted in procedural fairness, it was as applicable in the DIFC Courts
47. The Judge first considered Amira’s claim for the profit which it lost because Kuwait Flour dealt directly with A K Global following the Bank’s breach. He assessed the profit lost in the amount of USD$303,500 and awarded that amount to Amira.
48. The Judge next addressed a claim by Amira which has been consistently described as a claim for “reduced margin”. The claim derives from the fact that by reason of the Bank’s breach, A K Global refused to supply 13,600 MT of rice, which were to be supplied at a price of USD$1,289 per MT in respect of 6,700 MT of rice, and at a price of USD$1,154.56 per MT for the balance of 6,900 MT16. By reason of A K Global’s refusal to supply these tonnages, it was necessary for Amira to source the rice from alternative suppliers- TIA Agro and Impulse – at a price of USD$1,389 per MT. The cost of acquiring that rice from those alternative suppliers was therefore USD$2,287,636 higher than if the rice had been supplied by A K Global.
49. So, although the claim has been consistently characterised as a claim for “reduced margin” on proper analysis it is in truth a claim for the increased cost of acquiring trading stock. Viewed in that way, the price at which the rice was ultimately sold is irrelevant to the claim. This mischaracterisation of the claim appears to have led at least one of the expert witnesses, and the Bank, to respond to the claim in a manner which was wrong in principle.
50. The Bank’s first response to the claim was an assertion that the loss was not foreseeable at the time of breach17. The Judge rejected that contention and this aspect of his decision has not been challenged on appeal.
51. An aspect of the Bank’s submissions with respect to foreseeability focused upon the time at which the substitute rice was obtained, which had the consequence that the rice in fact acquired came from the crop of a different year to the rice which would have been supplied by AK Global. Although the Judge was not convinced of that proposition as a matter of fact, he rejected this aspect of the argument with respect to foreseeability in any event because it was not put to Mr Chanana or Mr Gandhi that there was any material difference between the rice which was to have been supplied by A K Global, and the rice which was in fact supplied by TIA Agro and Impulse. On appeal, counsel for the Bank accepted that there was no material difference between the specifications or other characteristics of the rice supplied under the various contracts.
52. The Bank’s second line of defence to this aspect of Amira’s claim was essentially presented through the report of its expert witness, Mr Fritzsche. Mr Fritzsche produced in evidence a matrix which suggested that the rice which was acquired from TIA Agro and Impulse was sold under the new contract with Kuwait Flour signed on 1 May 2018 at a higher price than the rice sold under the previous contact with Kuwait Flour. Mr Fritzsche performed calculations which suggested that when account is taken of the increased margin as a result of the higher price under the new contract, in fact Amira earned more profit than it would have earned if it had sold to Kuwait Flour under the previous contract (and therefore at a reduced price) 13,600 MT of rice acquired from A K Global at the prices applicable under Amira’s contract with that company.
53. The Judge identified some errors in the calculation and applied the prices applicable under the particular contracts with A K Global to recalculate the difference in profit and concluded that if Mr Fritzsche’s approach was taken, Amira would have earned USD$234,036 less by way of profit selling rice acquired from TIA Agro and Impulse to Kuwait Flour under the price applicable from 1 May 2018, than it would have derived from selling rice supplied by A K Global at the prices applicable to Amira’s contracts with that company to Kuwait Flour at the price which applied to sales of rice before 1 May 2018.
54. It is important to note that there is no evidence, nor any finding by the trial Judge, nor has it been contended by the Bank that if rice had been supplied by A K Global under its contracts with Amira it would have been sold to Kuwait Flour at the prices applicable prior to 1 May 2018. To the contrary, the Judge found that the rice supplied by TIA Agro and Impulse was a replacement for the rice that would have been supplied by A K Global but for the Bank’s breach, and that finding has not been challenged.18
55. This is a somewhat convoluted and confusing way of identifying the real issue raised by the Bank’s contention, which is whether Amira’s claim for the increased cost of acquiring rice from suppliers other than A K Global should be reduced because Amira was in fact able to sell that rice at a better sale price than the price applicable at the time of the Bank’s breach. If that proposition is accepted, Amira’s damages under this head would be reduced from USD$2,287,636 to USD$234,036.
56. The trial Judge was critical of the lack of legal analysis and prior authority provided by the parties in relation to this issue19. He referred to cases which he had himself identified, to the effect that benefits accruing to a plaintiff as a direct result of the breach of which he or she complains must be brought to account in assessing his or her damages.20
57. The Judge also referred to cases dealing with the measure of damages for the non-delivery of goods, which establish the principle that the ordinary measure of damage is the difference between the market price of the goods at the contractual time for delivery as compared to the contract price – consistently with the principle that the measure is the amount which the buyer must pay in order to put himself in the position in which he would have been had the contract been performed.21 The Judge noted that a different principle would apply in a case in which the buyer was contractually obliged to on sell the particular goods which were to have been supplied to it. In such a case the damage would be the difference between the purchase price and the re-sale price.22
58. The Judge noted that there was no evidence to the effect that Amira was contractually bound to sell the rice which was to have been supplied by A K Global to Kuwait Flour at the contract price applicable to such sales prior to 1 May 2018. Accordingly, although he noted that this was not a case involving a claim for non-delivery of goods, he considered the same principle to be applicable – namely, the consequence of the Bank’s breach was that Amira had to go into the marketplace to obtain the rice which A K Global declined to supply and suffered loss by reason of the difference in the price which it had to pay in the marketplace as compared to the price which it would have paid to A K Global. In his view the increased sale price to Kuwait Flour was simply not relevant.23
59. The Judge noted that the principles he had identified at common law were consistent with the provisions of Articles 9 and 10 of the DIFC
60. For these reasons the Judge awarded Amira the full amount claimed under this head – namely, USD$2,287,636.
61. The Judge then considered Amira’s claim for loss suffered in respect of a prospective transaction for the sale of soybean meal to a buyer in Bangladesh which Amira asserted did not proceed because of the Bank’s breach. The Judge dismissed this claim because he was not satisfied that the transaction did not proceed because of the Bank’s breach. In particular, the evidence of the negotiations with the Bangladeshi buyer was vague, and there was no direct evidence of Amira’s inability to obtain letters of credit in relation to the relatively small amounts involved in this prospective transaction.24 That conclusion has not been challenged.
62. The Judge then addressed Amira’s claim for compensation for damage to its commercial reputation caused by its failure to meet its irrevocable undertaking.
63. At trial Amira sought to quantify this head of claim by reference to the reduction in the market capitalization of its parent company, ANFI, by reason of the drop in its share price from USD$4.04 on 14 February 2018 to USD$1.50 on or around 12 October 2018. This approach was always doomed to fail – Amira did not hold shares in ANFI, Amira only represented a portion of ANFI’s total business, and of course ANFI’s share price could be affected by many extraneous factors entirely unrelated to the Bank’s breach – as was demonstrated by the significant drop in gross revenues and its incurring of a significant loss in the financial year preceding the Bank’s breach. Amira’s expert, Mr Peters, cast considerable doubt on the proposition that the drop in ANFI’s share price could be considered as a proxy measure of the loss suffered by Amira. Those doubts were reinforced and expanded by the Bank’s expert witness, Mr Fritzsche. The Judge described “these demolitions” of Amira’s claim based upon the drop in the share price of ANFI as “convincing”.25Amira has not challenged that conclusion.
64. In the course of his consideration of this aspect of Amira’s claim, the Judge noted that:
“Amira did not seek to establish a loss of business from accounting information in the nature of decline in sales.”26
65. The Judge referred to the well established principle that in the case of wrongful dishonour of a cheque by a banker, the client can recover reasonable compensation for the injury to his credit without pleading or proving special damage.27
66. In that context, the Judge set out the essential components of the reasoning which resulted in his assessment of the damage to be awarded under this head in the following terms:28
“The failure to pay in accordance with the Irrevocable Letter is akin to the position of failure to meet a cheque. The Bank did not contest the principle, it submitted that there was “simply no evidence at all to assist the Court” in coming to a figure for damages. It said that Article 11(1) of the Damages Law called for reasonable certainty and that the Court should not strike a figure when it was open to Amira to demonstrate a loss of business not by generalities and uncertain comparisons, but by more direct linking of loss of business with the Bank’s breach and analysis of its trading figures to come to a rationally-founded figure. It further submitted where this could have been done but was not the Court should not be robust in Amira’s favour.
It is too much to say that there was no evidence on which the Court could act, but the evidence was in a number of respects unsatisfactory. The only descent into detail of loss of trade was Mr Gandhi saying:
“We have lost another one of our key clients, a Seychelles trading company, who has indicated that they no longer want to continue business with [Amira]. I am aware that this is probably as a result of the reputational damage [Amira] has suffered since [the Bank’s] breach of the Irrevocable Letter.”
This instance was linked with the Bank’s breach only by Mr Gandhi’s unexplained awareness that it was “probably” a result of reputational damage. Mr Chanana’s assertion of lost confidence of suppliers, customers and other trading partners was not backed up or further explained. Amira did contract with TIA Agro and Impulse/SR Agro, it is true for a higher price but in fact reselling to Kuwait Flour also for a higher price. The evidence was unclear on Amira’s continuation of its business of purchase and resale of rice in other respects, but it must have continued. As noted earlier in these reasons, refusal of other banks to provide alternative funding is not necessarily due to the Bank’s breach of the obligations, as distinct for example, from the Bank’s more general refusal of further credit facilities.
This is not to deny some reputational damage and some effect on Amira’s trading. But the assistance in determining its extent is compromised by the lack of accounting information in the nature of decline in sales.
The bare figures given by Mr Gandhi, while indicative of a downturn in business, are not well related to an effect of reputational damage.
Amira’s invitation to robust finding of causation must be read with the requirement in Article 11(1) of the Damages Law that loss must be established with a reasonable degree of certainty. Albeit that the requirement is with the rather contradictory qualification through Article 11(3) permitting assessment of the amount of damages at the discretion of the Court where the damages cannot be ascertained with a sufficient degree of certainty.
As noted in TVM Capital at , difficulty in quantifying damages does not relieve a Court from the responsibility of estimating them as best it can, this is reflected in Article 11(3). The Article encompasses the awarding of general damages for loss of business reputation in accordance with Kpohraror, which the Bank did not dispute. I am satisfied that Amira should receive damages under this head of claim, but in the unsatisfactory state of the evidence, the damages should be assessed not robustly but with restraint. I accept that there was damage to Amira’s reputation, and that there was some effect on its trading. As an attempt at a rational basis, I take the diminished profit figure in Mr Gandhi’s evidence of approximately USD$23 million, and discount it for uncertainty in the affect on future business of the Bank’s failure to honour the irrevocable letter. The damages should be USD$10 million.”29
67. The Judge then considered Amira’s claim for damage as a result of the diversion of management time occasioned by the Bank’s breach. The Judge awarded the relatively modest sum of USD$12,655 under this head. That award is not challenged.
68. Next the Judge considered Amira’s claim for reimbursement of interest paid under protest. He concluded that interest referable to the amount of the Buyer’s Credits due on 26 February 2018 should be repaid to Amira. That conclusion has not been challenged.
69. The Judge then turned to the counterclaims against Amira and Mr Chanana for the total amount said to be outstanding under the facilities granted by the Bank to Amira which were said, at the time of trial, to amount to USD$7,306,092.84.30
70. The Judge referred to Amira’s defence to this claim, which was essentially to the effect that the Bank’s claim was based upon the occurrence of an Event of Default. The only Event of Default identified on the evidence or pleaded in the Bank’s counterclaim was Amira’s failure to pay the Buyer’s Credits due on 26 February 2018. That failure was said by Amira to be caused by the Bank’s breach, and the Bank could not rely on its own breach with the result that the amounts were not due and payable.
71. The Judge observed:
“This might be thought a technical defence. The Debt remained unpaid, and if the defence were upheld it could be made payable and recovered by the Bank in fresh proceedings. However, the defence was taken, which I must rule on according to law, there may be other defences available if fresh proceedings are brought.”31
72. The Judge noted that the Bank responded to this defence in a number of ways. It asserted that it was not confined to failure to pay the Buyer’s Credits which became due on 26 February 2018 as the only Event of Default on either the evidence or its pleading, and was entitled to rely on other Events of Default. Alternatively, the Bank asserted that it could in any event recover the amounts outstanding irrespective of whether there had been an Event of Default, and that its pleading was adequate for recovery on that basis. The Judge then referred to clause 14 of the Facilities Agreement, which includes provision for the giving of notice of the occurrence of an Event of Default and specifies the consequences of giving such a notice. The Judge then reviewed the correspondence between the parties which we have set out above and concluded that the only notice of an Event of Default within the meaning of clause 14(2) of the Facilities Agreement was the letter of 6 June 2018, and the only Event of Default specified in that letter was the non-payment of the Buyer’s Credits due for repayment on 26 February 2018.
73. The Judge rejected the Bank’s submission to the effect that on the proper construction of the Facilities Agreement it could rely on Events of Default which were not the subject of a notice under clause 14.2.
74. The Judge then analysed the pleadings and concluded that the only Event of Default which the Bank had pleaded as the basis for its claim to the entire amount outstanding was the alleged failure to pay the Buyer’s Credits due for payment on 26 February 2018.
75. The Judge then concluded that the cause of Amira’s failure to pay the Buyer’s Credits due on 26 February 2018 was the Bank’s breach. That conclusion has not been challenged. It followed that the Bank could not rely on its own breach as the basis for its claim – either at common law or under Article 78 of the DIFC Contract Law.32
76. The Judge then turned to the Bank’s alternative submission to the effect that even if the Bank could not rely on failure to repay the Buyer’s Credits due on 26 February 2018, if they had been replaced by fresh Buyer’s Credits, those Credits would have been repayable in 90 days and an equivalent amount would have been payable without demand in late May 2018. The Bank further submitted that amounts advanced on overdraft were repayable on demand, and its letters amounted to demand for repayment.
77. The Judge noted that Amira responded to this submission by observing that there was no evidence that fresh Buyer’s Credits were in fact issued and that entitlement to recovery of amounts advanced on overdraft on demand irrespective of the occurrence of an Event of Default had not been pleaded.
78. The Judge rejected the Bank’s claim based on hypothetical Buyer’s Credits as “incongruous”33 and rejected the Bank’s claim for recovery of the entire amount outstanding on the basis of demand irrespective of an Event of Default on the basis that it was not pleaded in the Bank’s counterclaim which “rested upon an Event of Default making the debt payable”.34
79. It followed from the Judge’s dismissal of the Bank’s counterclaim against Amira that the Bank’s counterclaim against Mr Chanana as guarantor was also dismissed.35
80. Mr Chanana had brought a counterclaim against the Bank. The Judge dismissed that counterclaim. As that dismissal is not challenged, it is unnecessary to consider the reasons for it.
81. In the result, the sum of the amounts awarded by the Judge in favour of Amira was USD$12,603,791 and judgment was entered for that amount.36
THE GROUNDS OF APPEAL
The Reduced Margin Ground
82. In its first Ground of Appeal the Bank challenges the Judge’s conclusion that the price at which the rice which was acquired by Amira from other suppliers after A K Global refused to supply was irrelevant to the assessment of Amira’s damages, which were to be calculated solely by reference to the increased cost of acquisition.
83. Perhaps in reaction to the Judge’s criticism of the paucity of the legal analysis provided to him in relation to this issue, the written submissions of the parties on appeal are replete with reference to prior authority. In their written submissions the parties have undertaken detailed analyses of the differing nuances in the various judgments to which they each refer. There are two reasons why it is unnecessary to undertake a detailed analysis of those authorities in these reasons:
(a) the assessment of damages in this case is governed by the DIFC Damages Law; and
(b) on the issue which is central to this Ground of Appeal the authorities speak with one voice and, consistently with the DIFC Damages Law, stipulate that before any benefit is brought to account in the reduction of damages, it must be causally connected to the breach of which the claimant
84. I have already noted that each of Article 9 and Article 10 of the Damages Law use terminology which mandates a causal connection between the breach for which damages are being awarded, and any benefit which is to be applied in reduction of those damages.
85. In terms of the cases, taking just some of the many authorities cited as examples, in its submissions in support of permission to appeal the Bank cited a passage from the judgment of Viscount Haldane LC in British Westinghouse v Underground Railway37, which includes the statement that:
“The subsequent transaction, if to be taken into account, must be one arising out of the consequences of the breach and in the ordinary course of business.”
86. In the same written submissions, reliance was placed upon a passage inMcGregor on Damages38, in which the learned authors, after referring to Viscount Haldane’s formulation observed that:
“The important practical question is therefore to ascertain
what subsequent transactions of the claimant are to be regarded as arising out of the consequences of the wrong …”
87. Notwithstanding the unequivocal emphasis upon the need for a causal connection between the breach and benefit in the passages cited, in the Bank’s submissions in support of permission to appeal they are followed with this proposition:
“It follows that steps taken by the claimant, after the breach39 and in the ordinary course of his business which have mitigated or avoided any loss, are taken into account by the Court when assessing damages, and are not treated as collateral benefit or res inter alios acta.”40
88. With respect, this proposition is clearly wrong and contrary to the authorities which are said to support it. The proposition substitutes the clear requirement for a causal connection with an alternative requirement merely for a temporal connection – namely, the benefit being derived from action taken after the breach. Obviously, there must be such a temporal connection, because action taken before the breach cannot be caused by the breach. The question mandated by the authorities is one of causation, not one of timing. So, the assertion in the same submissions to the effect that the decision inWilliams v Agius41stands for the proposition that the time at which the action giving rise to the benefit is taken is critical misses the point – the point of that decision is that in order to be brought to account in reduction of damages, it must arise from some action taken in consequence of the breach – such as action taken in the course of mitigation, and obviously that cannot be the case if the action is taken prior to breach.
89. Because of this flawed view of relevant legal principle in the written submissions to which we have referred, no attempt was made to suggest any causal connection between the Bank’s breach and the benefit of the increased price under the new contract with Kuwait Flour – rather the fact that the new contract was entered into after the Bank’s breach was said to be sufficient, of itself, to require the benefit of the increased price to be brought into account in reduction of Amira’s damages.
90. Understandably, in its written submissions in opposition to the grant of permission to appeal, Amira drew attention to the requirement for a causal connection between the breach and the benefit said to have been derived in both the Damages Law, and in more recent authorities including Fulton Shipping Inc v Globalia Business Travel SAU (The New Flamenco)42and Assetco plc v Grant Thornton UK LLP.43
91. The Bank responded to Amira’s reliance upon these authorities in its written submissions in support of its appeal. In those submissions reference is made to the asserted distinction between legal causation and factual causation to sustain the proposition that it was sufficient for the Bank to establish that the higher price derived under the new contract with Kuwait Flour arose “out of the consequences of the breach and in the ordinary course of business”.44Notwithstanding this explicit acceptance of a causal connection, in these written submissions, like the earlier submissions, the Bank makes no attempt to establish a casual connection between the breach and the new contract with Kuwait Flour on the evidence or the findings of the Judge. To the contrary, it is asserted that the increased cost to Amira of obtaining the rice from an alternative supplier was inextricably linked with the higher price derived under the new contract with Kuwait Flour:
“\…since they post date the breach, arise in the ordinary course of the trader’s business and relate directly to the interest allegedly injured (namely the alleged loss of margin).”45
92. So, in both sets of written submissions the only connection between the Bank’s breach and the benefit of Amira’s new contract with Kuwait Flour identified by the Bank is temporal – that is, the fact that the new contract came after the breach. It might perhaps be inferred from the passage quoted immediately above that the repeated characterisation of this aspect of Amira’s claim as a claim for reduced margin has induced the erroneous belief that the price at which the rice was sold is somehow relevant to the quantification of the claim when, as we have noted, consistently with the view taken by the Judge, the claim is more properly characterised as a claim for the increased cost of acquiring trading stock.
93. During argument on the appeal senior counsel for the Bank took a more subtle and nuanced approach to this Ground of Appeal. He accepted that if the action giving rise to the relevant benefit would have been taken irrespective of breach, the benefit is not brought to account. However, he submitted that there was a nexus between the Bank’s breach and the new contract with Kuwait Flour on the basis that, following the Bank’s breach, Amira had a choice – it could either cease to supply Kuwait Flour with rice or it could continue to supply rice to Kuwait Flour notwithstanding the Bank’s breach. It decided to take the later course, and proceeded to acquire rice from TIA Agro and Impulse, and to negotiate a new contract with Kuwait Flour under which that rice was sold. Thus, the increased price under the new contract with Kuwait Flour was said to be causally related to the Bank’s breach.
94. Although this argument has much greater attraction than the purely temporal arguments advanced in the written submissions in support of this Ground of Appeal, the attraction is, with respect, superficial, and disappears upon analysis. Essentially, that is because it is illusory to speak in terms of Amira having to make a choice following the Bank’s breach. Amira was engaged in the business of trading in food commodities. Kuwait Flour was one of its major customers. Obviously if it wished to remain in business it needed to continue to sell commodities to its customers, including Kuwait Flour. Shutting down the business in response to the Bank’s breach would have been an entirely disproportionate overreaction. If Amira had taken that course it is inconceivable that it would have been compensated by the Court for the loss of the entire value of its business. The new contract with Kuwait Flour was undertaken in the ordinary course of Amira’s business and there is no evidence to suggest that it was related in any way to the Bank’s breach, or to any step taken by Amira in mitigation of the consequences of the Bank’s breach .
95. On the somewhat scanty evidence pertaining to this Ground of Appeal, but for the Bank’s breach, Amira would have acquired 13,600 MT of rice from A K Global at prices significantly less than the price at which an equivalent quantity of rice was obtained from TIA Agro and Impulse. The difference between the price which would have been paid to A K Global for that rice, and the price that was in fact paid to TIA Agro and Impulse is the amount required to put Amira in the position in which it would have been but for the Bank’s breach. That amount is the appropriate measure of Amira’s loss, as the Judge found. The Judge was correct to conclude that the price at which the rice was ultimately sold by Amira is irrelevant to the assessment of its loss.
96. No doubt the Bank could have explored the question of any connection between its breach and the new contract with Kuwait Flour in crossexamination of Mr Gandhi and Mr Chanana. It did not do so. The only evidence adduced by the Bank in support of the proposition it advances under this Ground of Appeal was the expert evidence of Mr Fritzsche. In the absence of any evidence, it cannot be inferred that the improved price negotiated by Amira in the new contract with Kuwait Flour had any connection whatever with the Bank’s breach. It follows that, consistently with the legal principles accepted by all parties to the appeal, there is no basis for reducing the damages payable to Amira by reference to the increased price in the new sale contract with Kuwait Flour. This Ground of Appeal must be dismissed.
The Reputational Damage Ground
97. In its written submissions in support of permission to appeal on this Ground, the Bank asserted that the Judge had erred by conflating and confusing aspects of Amira’s claim properly characterised as claims for special damages, and Amira’s claim for general damages for damage to its commercial reputation. Our review of the Judge’s reasons shows that there is no basis for this assertion. The Judge stated clearly and explicitly that he was assessing compensation for damage to Amira’s commercial reputation which was presumed without proof of actual damage and drew an analogy with the cases dealing with the consequences of a Bank’s wrongful dishonour of a cheque.46 This aspect of the Bank’s argument on this Ground was properly abandoned (at least implicitly) in subsequent written submissions.
98. In the result, the Bank’s arguments in support of this Ground came down to four basic propositions:
(a) as a matter of principle, assessments of presumed harm to commercial reputation should be modest and undertaken with restraint;
(b) that principle was all the more applicable in a case such as this, where the claimant not only failed to put on evidence of its trading performance before and after the breach from which some assessment of the impact of the damage to its reputation might be made, but also failed to comply with an order for disclosure of documents relating to that trading performance thereby precluding investigation of that issue by the defendant;
(c) the evidence adduced by Amira of damage to its commercial reputation was vague and unsubstantiated and carried little or no weight; and
(d) review of a series of cases said to be analogous going back to the middle of the 19th Century suggests that there is no case in which an award of this kind has exceeded the contemporary equivalent of about USD$450,000 (after the awards in those cases are adjusted for inflation).
99. I will deal with each of the first three propositions in more detail below. The fourth proposition can be dealt with briefly. The cases to which the Bank referred in its submissions are not of any significant assistance. They range over a very long period of time and occurred in very different commercial circumstances. Each turns very much upon its own particular facts and circumstances. Either individually or collectively, they do not establish anything more than that an award of USD$10,000,000 by way of general damages for presumed harm to commercial reputation is very high indeed – but that much is obvious.
100. Amira joins issue with each of the Bank’s arguments and we will deal with Amira’s contentions as we deal with each aspect of the Bank’s argument. Amira also advances a number of other contentions which are conveniently dealt with before we return to a detailed consideration of the Bank’s arguments.
101. Amira submits that the cases establish that there is some relationship between the amount of the financial instrument and the damages awarded. There are two answers to this proposition. First, such a relationship is not at all apparent from the cases to which reference is made. Second, it is difficult to see why, as a matter of either logic or principle, damage to commercial reputation should be measured by reference to the amount of the financial instrument dishonoured. So, for example, it is difficult to see why the damage suffered by reason of the dishonour of a cheque for, say, $100,000 would be any different to the damage suffered by reason of the dishonour of a cheque for, say, $500,000. Of course, the amount of the financial instrument dishonoured might provide indirect guidance to the size of the relevant commercial enterprise, and therefore to the potential value of its reputation, but the relevant matters are the size of the enterprise and the value of its reputation, not the amount of the instrument dishonoured.
102. In dealing with Amira’s proposition the Bank submitted that the size of the claimant for damages of this kind should not increase the magnitude of the award, and that the cases suggested that the courts
103. Second, Amira submits that a more liberal approach to the award of damages is taken under DIFC law. Amira supports that proposition by reference to Article 40(2) of the Damages Law which confers a discretion to award multiple damages – a concept contrary to common law principle. However, no question of the award of multiple damages arises in this case, and it is drawing far too long a bow from Article 40 to suggest that it sheds any light on the proper approach to the assessment of the appropriate level of compensation for damage to commercial reputation in this case.
104. Amira also draws attention to the characteristics of an assessment of the kind impugned, which necessarily involve elements of discretion and evaluation – sometimes described as multifactorial assessments. Amira submits, correctly, that it is well established that appellate courts are slow to interfere with decisions of this character, and will only do so if it is apparent that the Judge has made a mistake of law or applied a wrong principle, or the conclusion is so far outside the range of conclusions reasonably open as to sustain an inference of error. These principles have been accepted in this Court47, and will be applied in relation to this ground in this appeal.
105. Amira also submits by reference to authority, that awards of this kind must be “sufficient to mark beyond the shadow of doubt the complete lack of justification for making the aspersion”.48This principle can be accepted, but it must also be accepted that an award of much less than USD$10,000,000 would be sufficient to reinforce the clear and unequivocal finding of the Court to the effect that the Bank’s conduct was entirely unjustified and would, to that extent, bolster Amira’s commercial reputation.
106. I return now to consider in more detail the particular propositions advanced by the Bank in support of this Ground of Appeal starting with the legal principles which emerge from the cases in this area.
LEGAL PRINCIPLES – THE CASES
Rolin v Steward, Public Officer of the East of England Bank49
107. The applicable legal principle can be found as early as 1854 in the decision in Rolin v Steward. The case involved a claim by customers against their bank, for wrongfully dishonouring a bill and a number of cheques. The case was tried before the then Chief Justice
“Should give the plaintiffs such temperate damages as they should
The jury awarded the plaintiffs £500 in damages.
108. An appeal was brought against that decision on the ground of jury misdirection. The court
“They ought to give, not nominal, nor excessive, but reasonable and temperate damages.”51
109. However, all members of the court expressed concern that the damages awarded may have been excessive, and reserved that question for further consideration.
Wilson v United Counties Bank Ltd52
110. Wilson v United Counties Bank is one of the cases to which the Judge referred. In that case a customer agreed with his bank that it would supervise the financial side of his business during his absence on military service
111. The House of Lords rejected the proposition that the customer was limited to the special damage he had suffered by reason of the loss of the value of his business, and affirmed the decision inRolin v Steward.53Lord Atkinson expressly adopted the language used by Lord Campbell in Rolin v Steward in the principle which he expressed:
“ … the refusal to honour the customer’s cheque while such funds are so available is held to be in itself so injurious to the customer’s credit, if he is a trader, as to entitle him – though no special damage be alleged or proved – not merely to recover nominal damages, but to recover in the shape of damages temperate and reasonable compensation for the injury thus done to his credit.”54
Kpohraror v Woolwich Building Society55
112. In Kpohraror v Woolwich Building Society, a customer claimed special damage in respect of the loss of profit on a particular transaction, and general damages for damage to reputation arising from a bank’s wrongful dishonour of his cheque. The claim for special damage was dismissed on the grounds that the loss was too remote.
113. The Court of Appeal rejected a submission that the customer was limited to nominal damages and reaffirmed the principle expressed in each of Rolin v Steward and Wilson v United Counties Bank Ltd. The Court also rejected the proposition that the principle was limited to customers who were “traders” although of course in this case there is no doubt that Amira was a “trader”.
Jameel (Mohammed) & Anor v Wall Street Journal Europe Sprl56
114. Jameel v Wall Street Journal involved claims for damages for defamation. One of the claimants was a trading company incorporated in Saudi Arabia. The company did not plead or prove special damage. The jury awarded the company £10,000 by way of damages. One of the questions in the appeal to the House of Lords was whether a trading corporation could recover damages in defamation without pleading or proving special damage. The Court answered that question in the affirmative, based on a series of previous decisions, and then considered whether the principle should be reviewed in light of the influence of European law pursuant to the European Convention on Human Rights and its provisions relation to freedom of expression.
115. After analysing the policy issues involved, Lord Bingham observed:
“I do not on balance consider that the existing rule should be changed, provided always that where a trading corporation has suffered no actual financial loss any damages awarded should be kept strictly within modest bounds.”57
116. Although no reference is made by his Lordship to the cases dealing with the award of general damages following a bank’s wrongful dishonour of a customer’s credit, the language used is strikingly similar to that used in the authorities in that area.
The cases – summary
117. This brief review of the authorities is sufficient to establish that the legal principle governing the award of general damages for damage to reputation following wrongful dishonour of a customer’s credit by a bank is not in doubt. In the language of the cases in this area, the damages ought to be “not nominal, nor excessive, but reasonable and temperate”. If an analogy is drawn to the area of defamation, the damages awarded “should be kept strictly within modest bounds”, at least in the absence of evidence that the damage to reputation has caused significant financial detriment.
Non-disclosure of documents relating to Amira’s trade subsequent to the Bank’s breach, and the paucity of evidence on that topic
118. The Bank accepts, at least implicitly, that Amira’s claim for damage to its commercial reputation is not to be equated with a claim for special damage, which must of course be alleged and proven by evidence. Nevertheless, the Bank submits that in order to justify anything more than a “modest” award under this head of damage, it was necessary for Amira to adduce evidence from which it could be concluded that the damage to its commercial reputation was sufficient to sustain a larger award. That proposition appears to be consistent with the authorities to which we have referred, and should be accepted.
119. The proposition is also consistent with Article 11 of the DIFC Damages Law, which provides:
“11. Certainty of Harm
(a) Compensation is due only for loss, including future loss, that is established with a reasonable degree of certainty.
(b) Compensation may be due for the loss of an opportunity in proportion to the probability of its occurrence.
(c) Where the amount of the damages cannot be established with a sufficient degree of certainty, the assessment is at the discretion of the Court.”
120. General damages for loss of commercial reputation are, by their very nature, incapable of quantification with certainty. Accordingly, the discretion conferred by Art. 11(c) is enlivened. However, in the exercise of that discretion, it is appropriate for the court to take into account the policy evident in Art. 11(a), to the effect that damages should be proven. The Judge referred to an apparent tension between these provisions in Art. 11. In our view that tension is resolved if the court takes into account the extent to which the claimant for damages has led evidence on matters upon which evidence could be led and which are relevant to the formulation of the discretionary judgment authorized by Art. 11(c), in the exercise of that discretion. So, to the extent that relevant evidence could have been led but wasn’t, the claimant cannot ask the court to assume that such evidence would have supported its claim, nor can the claimant invite the court to inflate the damages awarded on the basis that no relevant evidence was available to inform the exercise of the discretion.
121. The Bank further submits that a comparison of the pattern of Amira’s trade before and after the Bank’s breach is relevant to an assessment of the extent of the damage to Amira’s reputation by reason of the Bank’s breach. As will be seen, Amira implicitly accepted that approach in the evidence which was led from Mr Gandhi, to which we will shortly refer. Further, the proposition has the force of logic and should be accepted. Of course the weight and significance to be attached to the comparison of trading patterns before and after the Bank’s breach will depend upon the extent of any evidence which might suggest that the pattern of trade was affected by factors extraneous to the Bank’s breach.
122. It must also be accepted that a claimant for damages of this kind will always face difficulties establishing a causal connection between damage to reputation and any particular level of trade following breach. For example, even if trade remains at the same levels after breach, the possibility that the damage to reputation may have prevented an increase in trade cannot be excluded by evidence, because a claimant will usually never know what opportunities it missed by reason of the damage. Nevertheless, it will usually be difficult for a claimant to contend that the damage to reputation has been significant and justifies an award outside the range of a “reasonable and temperate” or “modest” award in the absence of evidence of a deterioration in trade.
123. Mr Gandhi is the Commercial Manager of Amira. The portion of his evidence to which we referred above is in his witness statement as follows:
“8.From the time I had joined to August 2014 the First
Annual Revenue of the First Claimant’s Business in AED Million
As a trained accountant I can attest that the diminution in the company’s gross profit has been as a result of the defendant’s breach. On the facts and my knowledge of the industry there does not appear to be any other matters that I am aware of that would cause a diminution in company’s gross profits.”
124. Mr Gandhi was not cross-examined to any significant extent on this evidence. In essence, apart from asking Mr Gandhi to confirm what he had written, the only question he was asked was to invite him to confirm that he had provided no documents in support of the projected revenue for the year ended 2019, which he did.58 In re-examination Mr Gandhi was asked what the projections were based on. He responded:
“It was based on our sales team target. … They will give us the information that they are planning this much orders, so based on that, we prepare the sales data – projections.”59
125. A number of general observations are usefully made with respect to this evidence.
126. First, the figures are expressed in AED. The difference between the gross profit asserted for the financial year ending 2018 (119.61) and the gross profit projected for the financial year ending 2019 (34.53) is the approximate equivalent of USD$23,000,000. This table is therefore the source of the Judge’s reference to Mr Gandhi’s evidence of diminished profit which was the starting point for his assessment of damages under this head.60
127. Second, the trial took place in the last days of July in 2019. Although there was no direct evidence on the point, Amira’s accounts for the financial years ending 2015 and 2017 were produced in evidence, and reveal that at least in those years its financial year ended on 31 March of the year in question. In the absence of evidence to the contrary, it seems reasonable to infer that this arrangement continued.
128. Two conclusions flow from this: first, a period of approximately 6 weeks immediately following the Bank’s breach would have been captured in the financial year ending 2018. However, there is no material difference in the revenue reported in that financial year and the revenue reported in the two preceding financial years; and second, Amira’s financial year ending 2019 would have closed almost 4 months prior to the trial. Amira provided no explanation for continuing to use projections for revenue and profit in respect of that financial year at the time of trial. Nor was any witness from Amira asked any question about that in cross-examination
129. Third, the figures reported in the bottom line of the table reflect “Gross Profit”. No explanation was proffered in evidence as to the components of this figure, or the basis upon which it was calculated. However, the accounts for the two financial years to which we have referred confirm that the expression appears to carry its ordinary meaning – that is, the difference between revenue derived from sales and the costs of goods sold. Accordingly, in order to ascertain Amira’s operating profit in any given year, it is necessary to deduct Amira’s operating expenses from the gross profit for that year. Mr Gandhi gave no evidence on that subject. However, review of the financial statements for the two years to which we have referred suggest that, very generally speaking, Amira’s operating expenses in those years ran at 20-25% of its revenue.
130. It follows from the latter observation that the figure of USD$23,000,000 which the Judge took as his starting point was the diminution in gross profit based on revenue projections for the financial year ending 2019. The relationship which gross profit projected for that year bore to actual operating profit would of course turn upon the accuracy of the revenue projections and the extent of the operating expenses in that year. Neither of these matters were addressed in the evidence.
131. Fourth, Mr Gandhi’s evidentiary assertion to the effect that he could attest that the diminution in gross profit was a result of the Bank’s breach because he was a trained accountant is of course illogical and of no weight – as senior counsel for Amira conceded on appeal.
132. In the course of argument on the appeal, senior counsel for Amira submitted that because Mr Gandhi described the table as demonstrating Amira’s financial performance over the last 5 years, including the year ending 2019, his evidence should be construed as an assertion that the projected revenue for that year corresponded with actual revenue. That submission must be rejected. The table itself clearly specifies that revenue for the year following the Bank’s breach is a projection, not actual revenue. In re-examination Mr Gandhi confirmed that the revenue figure for that year was based on the targets used by the sales team, from which projections were prepared. Given that the financial year had ended almost 4 months before the trial, if Amira wished to lead evidence of the extent to which those projections corresponded to revenue actually received, counsel only had to ask.
133. There is no reason to think that Amira would have been unable to lead evidence at trial of the actual revenue derived from sales following the Bank’s breach, which could have been compared to its revenues from sales prior to the Bank’s breach. The assessment of the damage to its commercial reputation had to be undertaken on the basis that it inexplicably failed to lead that evidence, and also inexplicably failed to comply with an order of that court requiring it to disclose to the Bank documents which would have revealed its actual revenues following the Bank’s breach (see below).
134. So, in these many respects, Mr Gandhi’s evidence on this topic was quite unsatisfactory, as the Judge observed. Nevertheless, apart from the one question to which we have referred, the evidence was not tested to any significant extent by cross-examination, notwithstanding the general assertion that the table demonstrated the performance of Amira’s business and Mr Gandhi’s assertion that there were no other matters of which he was aware that could have caused a diminution in Amira’s gross profit.
135. As the Judge observed, the rule in Browne v Dunn operates to prevent a party challenging the evidence given by a witness without putting appropriate questions to that effect to the witness. However, the rule does not apply to require cross-examining counsel to ask questions which would give weight and legitimacy to evidence which is, on its face, of little or no value. There is a nice question in this case as to which side of the line counsel for the Bank’s failure to cross-examine on these matters falls.
136. That question needs to be assessed in the context of Amira’s failure to comply with orders made prior to trial for disclosure of documents relating to its trading performance.
137. On 31 January 2019 Amira was ordered to disclose relevant accounting information to the Bank. It failed to do so. No explanation has been proffered for that failure. On the other hand, it seems that the Bank made no effort to enforce the order, and it is clear that no questions were asked of any witness from Amira in relation to Amira’s non-compliance with the order of the court.
138. So, in summary, in order to obtain an award for damage to commercial reputation which was any more than “modest” or “temperate” one would have expected Amira to provide tangible and cogent evidence of the extent of that damage. An obvious source of evidence on that topic is a comparison of Amira’s trading before and after the Bank’s breach. However, Amira failed to comply with an order of the court directing it to disclose to the Bank documents on that subject, and the evidence which it adduced on that topic was unsatisfactory in many respects, as the Judge noted. No evidence was adduced of Amira’s actual trading revenues following the Bank’s breach. On the other hand, unsatisfactory though it was, the evidence which was led was not directly challenged by the Bank in cross-examination. This deprived the Judge of the opportunity to see the evidence put to the test, and deprived Amira of the opportunity to substantiate, through answers in cross-examination, the propositions advanced by Mr Gandhi in the most general of terms.
139. There is no doubt that the positions adopted by the parties placed the Judge in a difficult position. However, in our view, with the greatest of respect, the various unsatisfactory aspects of this evidence meant that it does not provide an appropriate starting point for a consideration of the amount to be awarded to Amira for damage to its commercial reputation. Consistently with the authorities to which we have referred, cogent evidence would be required to justify an award that was not “modest” or “temperate” and in our view, the evidence of Mr Gandhi lacked cogency for the reasons we have given.
140. However, this portion of Mr Gandhi’s evidence was not the only evidence on the subject of damage to Amira’s commercial reputation. Before addressing the question of whether the Judge’s award for this head of damage fell outside the range reasonably open to him, it is necessary to evaluate the other evidence on that topic, to which we will now turn.
141. Not included in this review is any analysis of the evidence relating to Amira’s primary proposition at trial on this topic namely, that the drop in ANFI’s market capitalisation should be regarded as a proxy measure of the damage to its commercial reputation. The Judge described that proposition as having been “demolished”61 and Amira has not challenged that conclusion.
Other evidence relating to damage to Amira’s commercial reputation
142. At the Court’s request\ the parties have provided schedules setting out all the evidence which they contend is relevant to the assessment of the damage to Amira’s commercial reputation by reason of the Bank’s breach. In this section we will review the evidence identified in those schedules.
Mr Kumar’s evidence
143. Mr Kumar is the CEO of the DIFC branch of the Bank. In crossexamination he stated that the Central Bank ( UAE
Evidence of Mr Chanana
144. In Mr Chanana’s second witness statement, he stated that he initially declined to tell Kuwait Flour the reason why it was necessary to pay A K Global direct, as he did not want to damage Amira’s commercial relationship with Kuwait Flour.63
145. In the same statement Mr Chanana asserted:
“The First Claimant’s (Amira’s) suppliers and customers and other trading partners have lost confidence in the First Claimant’s business and ability to meet contractual obligations. This loss of confidence is directly linked to the Defendant’s breach of the Irrevocable Letter and refusal to extend credit arrangements.”64
146. Those assertions are made in such general and conclusory terms as to be of limited evidentiary value. For example, the statement appears to presume that Amira’s suppliers and customers lost confidence in Amira’s ability to meet contractual obligations because of the Bank’s breach without providing any evidence that suppliers and customers were aware of the Bank’s dishonour of Amira’s credit. Nor is there any indication of which suppliers and customers are said to have lost confidence, nor is that assertion sought to be demonstrated by Mr Chanana’s identification of any customer who traded with Amira prior to the Bank’s breach but who ceased trading with Amira after the Bank’s breach , or any supplier other than A K Global which declined to trade following the Bank’s breach.
147. However, as with all the evidence of Mr Chanana and Mr Gandhi to which we refer in this section, there was no cross-examination whatever upon it.
148. Mr Chanana also referred in his evidence to A K Global’s refusal to continue to supply to Amira. As we have noted, the Judge found that A K Global’s refusal to supply was caused by the Bank’s breach, and that finding has not been challenged.
149. In relation to Kuwait Flour, although it is clear from Mr Chanana’s evidence that there were some difficulties in the relationship when that customer was requested to pay Amira’s supplier direct, it is clear from Mr Chanana’s evidence that Kuwait Flour ultimately continued to acquire product from Amira.
150. In his third witness statement, Mr Chanana referred to the letter of 24 May 2018 from Amira’s lawyers to the Bank’s lawyers advising that Amira required time to secure alternative financing. In that context Mr Chanana asserted:
“We have tried to seek alternative funding but each new bank that we approach refuses to provide financing. I believe that this has been caused by the defendant’s default of the Irrevocable Letter and refusal to issue Letters of Undertaking despite being obliged to do so. The inability to secure financing from other banks has caused the First Claimant damage.”65
As we have noted, the Judge observed that the evidence did not establish whether the disinclination of other banks to provide credit was due to the Bank’s breach, on the one hand, or the Bank’s legitimate refusal to extend Amira’s credit on the other.
Evidence of Mr Gandhi
151. I have already dealt with the evidence given by Mr Gandhi at para 8 of his witness statement.
152. In his statement he also referred to the deterioration in Amira’s relationship with A K Global. It is unnecessary to deal with that evidence in any detail as the Judge’s finding that A K Global ceased to do business with Amira as a consequence of the Bank’s breach has not been challenged. Mr Gandhi went on to assert that Amira has not been able to find other suppliers which would provide the same opportunity for margin as provided in the contract for the acquisition of 30,000 MT from A K Global.66However, Mr Gandhi makes no attempt to explain why this would be so and does not refer to any other contract for the acquisition of rice other than the acquisitions from TIA Agro and Impulse. Amira has been compensated for the loss suffered by reason of A K Global’s refusal to supply the balance of the rice due under the 30,000 MT contract by the award unsuccessfully challenged in the first ground of appeal.
153. Mr Gandhi also gave evidence in relation to Amira’s claim for lost profit on the prospective sale of soybean meal to a customer in Bangladesh. As the trial Judge’s decision to reject this aspect of Amira’s claim has not been challenged, it is unnecessary to consider this evidence in any detail.
154. Mr Gandhi also gave evidence in the following terms:
“From in and around early March 2018 the first claimant met with a number of banks to seek alternative sources of funding. I first met with Commercial Bank of Dubai who refused to provide us with the Facility that we were seeking.
Every bank that the First Claimant has approached since March of last year has refused to provide the First Claimant with alternative funding. It would appear that the banks are refusing to lend to the First Claimant. As I met with the banks, I was able to work out the estimates of setting up replacement facilities. These are estimates that will materialise with a bank that is willing to provide us with financing.
The Bank of Baroda is the only bank that is assisting with the First Claimant’s financing, however the First Claimant has always required an additional Facility to sustain the business model that it had before it engaged with the Defendant.
The effect of not having the IDBI Facility has meant that there has been considerable difficulty in generating sales. For example, I have two sales staff … who have told me on a number of occasions that they are unable to generate long term sales without the knowledge of the ability to secure a buyer’s credits facility or a proper functioning revolving facility.”67
155. As we have noted several times, the Judge observed that the refusal of other Banks to provide alternative funding is not necessarily due to the Bank’s breach of its obligations as distinct, for example, from its more general refusal of further credit facilities. (which the Bank was entitled to do).68 However, given the failure to challenge this evidence in crossexamination, and Mr Kumar’s evidence that other banks were notified of Amira’s default, it is reasonable to infer that there was a causal connection between the Bank’s breach and at least some of the difficulties experienced by Amira in obtaining alternative sources of credit.
156. Mr Gandhi also stated:
“On around 9 August 2018 we were able to renew financing from the Bank of Baroda.
The Bank of Baroda Facilities have been insufficient for Amira’s business model. In my knowledge the business has not recovered since the Defendant’s breach of the Irrevocable Letter and withdrawal of credit facilities.
We have lost another one of our key clients Seychelles Trading Company who has indicated that they no longer want to continue business with the First Claimant. I am aware that this is probably as a result of the reputational damage the First Claimant has suffered since the Defendant’s breach of the Irrevocable Letter.
We have currently contracted with S R Agro as a supplier to ship rice to Kuwait Flour, however the margin under this contract is still reduced compared to margins under the contracts with the Second Claimant (A K Global).”69
157. The Judge was sceptical of the evidence relating to the Seychelles customer, noting that it was linked with the Bank’s breach only by Mr Gandhi’s unexplained awareness that it was “probably” a result of reputational damage.70The Judge also observed that Mr Gandhi’s assertion of loss of confidence of suppliers, customers and other trading partners was not backed up or further explained.
The letter from A K Global
158. Set out above71the relevant portion of the letter from A K Global to Mr Gandhi written shortly before the trial. The letter includes the assertion that the revocation the Irrevocable Letter by the Bank became common knowledge in the industry and resulted in a breakdown of trust. As we have noted, the Judge concluded that it was not open to the Bank to assert that Amira had procured a letter in more favourable terms than was the fact, because that proposition was not put to either Mr Gandhi or Mr Chanana.
159. It follows that the letter provides some evidence that the Bank’s refusal of Amira’s credit became common knowledge within the industry, and upon the hearing of the appeal, senior counsel for the Bank accepted such a finding should be made.
Summary of the evidence on damage to reputation
160. In very general terms, the other evidence relating to the damage to Amira’s commercial reputation can be characterised in the same terms as the evidence given by Mr Gandhi with respect to the volume of Amira’s trade analysed in detail in the preceding section. On the one hand, the evidence is stated in very general and unsubstantiated terms, uncorroborated by detail or documentation and in conclusory terms which lack explanation or amplification. However, on the other hand, the evidence was not challenged in any respect by crossexamination.
161. Doing the best we can to summarise the general effect of the evidence, the following emerges:
(a) the market in which Amira trades became generally aware of the Bank’s refusal of Amira’s credit;
(b) Amira’s major customer, Kuwait Flour, continued to buy product from Amira;
(c) A K Global, a major supplier to Amira, refused to do further business with Amira because of the Bank’s breach, and this may have had an impact upon the profit margin available to Amira after buying product from other suppliers;
(d) the Bank placed information with respect to actions of Amira which it considered constituted defaults in a register available to other Banks in UAE, and notified the Reserve Bank of India of Amira’s alleged default;
(e) At least in part as a result of the Bank’s breach, Amira experienced difficulty in obtaining credit from other sources, and although it succeeded in obtaining credit from Bank of Baroda, the level of credit provided did not facilitate trade to the same extent as the credit previously provided by the Bank;
(f) the evidence only nominates one customer declining to trade with Amira, being an unidentified customer in the Seychelles, the loss of which was “probably” attributed to the Bank’s breach;
(g) projections of gross revenue made by the marketing team for the financial year 2019 were significantly less than the revenue recorded as received in previous financial years, but there was no evidence as to the actual revenue received or volume of trade during the financial year ending in 2019 and Amira failed to disclose documents on that topic which it was ordered to produce by the Court; and
(h) prior to the Bank’s breach, Amira was a large and successful commercial enterprise, with a substantial and valuable commercial reputation
Analysis of this Ground of Appeal
162. The appropriate starting point for this Ground of Appeal is the legal principle established by the cases to which we have referred – namely, that in general, an award of general damages under this head is to be “modest” or “ reasonable and temperate”. Although “modesty” and “temperance” are to be assessed in the context of the size of the trading enterprise, and an inference properly drawn from that size with respect to the value and extent of its commercial reputation, there does not appear to be any basis upon which an award of USD$10,000,000 could be described using the terminology used in the authorities. The question upon which this ground of appeal turns therefore, is whether the evidence to which we have referred justified an award of that magnitude, or perhaps more correctly, whether the evidence placed an award of that magnitude within the range of awards reasonably open to the Judge.
163. In our view, the evidence which we have summarised above did justify an award greater than that which would ordinarily be countenanced as either “modest” or “reasonable and temperate”. Although the evidence upon which Amira relied had many deficiencies, significant weight must be attached to the fact that it was not challenged by cross-examination at all, apart from one question asked of Mr Gandhi with respect to documents relating to the profit projections made by Amira’s sales teams.
164. However, as we have already noted, the inadequacies of the evidence with respect to the so-called “diminished profit” of USD$23,000,000 are such that it does not provide an appropriate starting point for a valuation of the damage to Amira’s commercial reputation. In our respectful view the Judge fell into error by taking that evidence as his starting point, notwithstanding his recognition of its deficiencies. Had he received the benefit of the various authorities to which this Court was taken on appeal, the preferable course would have been to start from the assumption that an award would be made in a modest or temperate amount, and then adjusting that amount upwards by reference to the evidence of the extent of the damage to Amira’s commercial reputation, and its impact upon Amira’s commercial activities, being the evidence which we have reviewed above
165. Approaching the matter in that way, we do not consider that an award of USD$10,000,000 was within the range of awards reasonably open to the Judge on the evidence. As we have noted, we accept and apply the well-established principles relating to the disinclination of appellate courts to interfere with evaluative or discretionary judgments made by trial Judges
The Counterclaim Grounds of Appeal
166. As we have noted, the Judge dismissed the Bank’s counterclaim against Amira and Mr Chanana as guarantor because:
(a) the only Event of Default upon which the Bank could rely in order to base its claim for payment of the entire amount said to be outstanding is the failure to repay the Buyer’s Credits due on 26 February 2018;
(b) Amira’s failure to repay the Buyer’s Credits due on 26 February 2018 was caused by the Bank’s breach;
(c) the Bank cannot rely upon its own breach as the basis for its claim; and
(d) the Bank’s claim to be entitled to repayment of the entire amount outstanding on demand irrespective of default was not open on the pleadings.
167. The Counterclaim Grounds of appeal do not challenge any aspect of the Judge’s conclusions with respect to the counterclaim based upon an Event of Default. Rather, they are limited to the proposition that the Judge should have upheld the counterclaim on the basis that the entire amount outstanding was repayable on demand, irrespective of default, and that demand was made. As the Bank makes no application to amend its counterclaim, in order to succeed on this Ground it must establish that it is open on its pleaded case or, perhaps, that the trial was conducted on some basis other than the pleadings, and that issue was joined on the case now presented on appeal.
The Facilities Agreement
168. It is desirable to set the context for a consideration of the pleadings, and the course taken at trial, with a consideration of the terms of the Facilities Agreement.
169. The Facilities Agreement is dated 1 August 2014. Although there were other documents passing between Amira and the Bank relating to the terms of their relationship, it is common ground that the Facilities Agreement continued to govern that relationship during 2018.
170. By clause 1 of the Agreement “Facilities” is defined to mean the LC/Buyer’s Credits Facility, Bill Discount Facility and the Overdraft Facility. By clause 2, the Bank agrees to make those Facilities available to Amira during the term of the Agreement, subject to its terms.
171. Clause 4 of the Agreement deals with Letters of Credit and Buyer’s Credit. That clause specifies the process to be followed by Amira when requesting the Bank to open a Letter of Credit or Buyer’s Credit, the commission payable to the Bank and payment by the Bank in respect of claims made under credits issued by it (described as a “Claim”).
172. Clause 4.12 provides:
“The Borrower shall immediately on demand pay to the Bank an amount equal to the amount of any Claim. Following a demand to pay, the Bank will be entitled without prior notice to the Borrower, to debit the amount of any Claim (together with any interest or other amounts due and payable in relation to such Claim) from the Current Account.”
173. Clause 5 of the Agreement is concerned with the Overdraft Facility. Clause 5.5 provides:
“All drawings under the Overdraft Facility are repayable on the Bank’s demand, together with all interest and other charges accrued to the date of repayment, without set off or counterclaim. …”
174. Clause 13 of the Agreement contains various undertakings by the Borrower, including undertakings in relation to the provision of financial statements and so on.
175. Clause 14 of the Agreement is headed “EVENTS OF DEFAULT”. Clause 14.1 specifies a series of events which constitute an Event of Default, including failure by the Borrower to pay any sum which it is obliged to pay.
176. Clause 14.2 provides:
“Upon the occurrence of an Event of Default and at any time thereafter, the Bank may by notice in writing to the Borrower:
(b) declare each Outstanding Amount under each Advance to be immediately due and payable whereupon each such Outstanding Amount(s) shall become so payable together with accrued interest thereon and any other sums owed to the Bank under this Agreement; and/or
(c) declare any unutilised portion of the Facilities to be cancelled …”
177. Clause 9.4 of the Agreement provides that interest is payable at penalty interest rates if the Borrower fails to pay any amounts payable under the Agreement.
The Bank’s Counterclaim
178. The Bank’s Counterclaim commences with a general assertion that Amira had failed to pay amounts due and payable to the Bank under the Facilities Agreement. That general assertion is particularised in the detailed allegations which follow. Specifically, the Bank pleads that Amira was obliged to pay various sums in respect of Buyer’s Credits, including the amount of USD$2,604,435.40 on 26 February 2018.72 The Bank asserts that no payment was received from Amira in respect of those credits on 26 February 2018 and that although some amounts were subsequently recovered against the amount due, part of the 26 February 2018 Buyer’s Credits remained outstanding.73
179. The Bank then pleads that under the Facilities Agreement, non-payment of amounts due by Amira constitutes an Event of Default. In that context the Bank pleads the express terms of clause 14.1 and 14.2 of the Facilities Agreement, to the extent relevant.
180. Later in the Counterclaim, the Bank again pleads that Amira did not pay the amounts outstanding in respect of the Buyer’s Credits due on 26 February 2018, and further pleads that Amira’s failure to pay those amounts constituted an Event of Default.74
181. By paragraph 42 of its Counterclaim, the Bank asserted that it had demanded payment in respect of the Buyer’s Credits due on 26 February 2018 by its letters, the relevant terms of which we have set out above. It is significant to note that the plea of demand is limited to the amounts due in respect of the Buyer’s Credits, not the entire Outstanding Amount. That assertion is consistent with the terms of the correspondence to which we have referred, with the exception of the letter of 1 May 2018, in which the Bank requested Amira to repay all amounts which had been advanced on all facilities, and which then totaled USD$2,319,025.34. However that letter predicated the request for repayment on the basis of an alleged failure to comply with the Facilities Agreement in a number of respects, including non-payment of the Buyers Credits due on 26 February 2018.
182. However, we digress to observe that the letter of 1 May 2018 was written before the Court had ordered the Bank to pay USD$4,134,000, and therefore did not make demand in respect of that amount.
183. In its Counterclaim the Bank pleads the advance of USD$4,134,000 which it made pursuant to the order of Justice Sir Jeremy Cooke and the correspondence which followed, and which we have also set out above. Unlike the letter of 1 May 2018, in that correspondence the Bank reverted to calling upon Amira to pay the amount outstanding in respect of the Buyers Credits due on 26 February 2018, on the basis that If Amira failed to do so, the Bank would give notice of an Event of Default pursuant to Cl. 14.2 of the Facilities Agreement, which would then trigger an obligation to repay all Outstanding Amounts and penalty interest pursuant to Cl. 9 of the Facilities Agreement.
184. The Bank then pleads that it gave notice of an Event of Default by its letter dated 6 June 2018, as a consequence of which it declared all Outstanding Amounts to be immediately due and payable, and applied default interest on the Outstanding Amounts.75
185. Paragraph 55 of the Counterclaim is in the following terms:
“Given the Event of Default, in accordance with clause 14.2 of the Facilities Agreement, the Defendant became entitled to demand immediate payment of all Outstanding Amounts under the Facilities Agreement.”
186. In the following paragraph the Bank pleads particulars of the Outstanding Amounts due at the date of notice of the Event of Default.
187. No reference whatever is made in the Counterclaim to the provisions of the Facilities Agreement upon which the Bank relies to sustain the Counterclaim Grounds of appeal – namely, clause 4.12 relating to Buyer’s Credits, and clause 5.5 relating to funds advanced on overdraft. The only references in the pleading to demands made by the Bank are:
(a) the requests made for Amira to pay the amount due in respect of the Buyer’s Credits due on 26 February 2018; and
(b) the demand made on the basis of an Event of Default on 6 June 2018.
There is no plea that demand was ever made for repayment of the entire amount outstanding under the various facilities independent of any Event of Default. The only plea of a demand by the Bank for the entire amount outstanding is quite explicitly based upon the entitlement to make such a demand by reason of an Event of Default – the only Event of Default pleaded being the non-payment of the Buyer’s Credits due on 26 February 2018.
188. The structure of the Bank’s counterclaim is entirely consistent with the correspondence between the parties which we have set out above. Apart from the letter of 1 May 2018, at all times prior to the order of the Court requiring the Bank to honour its Letter of Undertaking, the Bank requested Amira to make arrangements to pay the amount said to be outstanding in respect of the Buyer’s Credits due on 26 February 2018 only. All correspondence, including the letter of 1 May 2018, was predicated upon the assertion that Amira was in default under the Facilities Agreement. At no time did the Bank assert a right to repayment under all facilities irrespective of default.
189. After the order of the Court requiring payment to A K Global, the Bank reiterated the request for payment of the funds outstanding in respect of the Buyers Credits due on 26 February 2018 and also requested that Amira provide it with a proposal for repayment of the funds paid to A K Global pursuant to the Court order. These requests were accompanied by the assertion that unless they were met, the Bank would exercise the right conferred by the Facilities Agreement to treat Amira’s non-payment as an Event of Default, with the consequence that all Outstanding Amounts would become due and payable. The Bank carried out that threat by its letter of 6 June 2018 in which its demand to Amira is quite clearly and explicitly conditioned upon the occurrence of an Event of Default, being Amira’s failure to pay the Buyer’s Credits due on 26 February 2018.
190. The proposition that the Bank’s counterclaim can somehow be construed as containing the case which the Bank now seeks to put – namely, that it is entitled to repayment of the entire amount outstanding under the various facilities upon demand, irrespective of any Event of Default, and that such a demand was made has no support whatever in the terms of the pleading or the evidence.
191. The Bank further asserts, in support of these Grounds of Appeal, that it conducted its counterclaim on this basis during the trial at first instance. It seeks to support that proposition by reference to its written submissions prior to trial. In those submissions, the Bank asserted that Amira’s failure to pay the amounts due in respect of Buyer’s Credits on 26 February 2018 “constituted an Event of Default as at 6 June 2018”.76 The Bank then set out its entitlements upon the occurrence of an Event of Default pursuant to clause 14.2 of the Facility Agreement. The submissions assert that the Bank gave notice of an Event of Default on 6 June 2018 and that, as at that date, the Outstanding Amounts under the Facilities Agreement totalled USD$6,421,224.71.77
192. After dealing with what it apprehended to be Amira’s position in relation to the Counterclaim, the Bank reiterated its entitlement to “call an Event of Default on 6 June 2018”.78The Bank also asserted in its submissions that there were other Event of Default upon which it was entitled to rely.
193. In that context, paragraphs 55 and 56 of the Bank’s written Submissions at Trial assert:
“In any event, pursuant to clause 4.8 of the Facilities Agreement, Amira had irrevocably and unconditionally agreed to repay Buyer’s Credits on demand from the Bank and to indemnify the Bank and hold the Bank harmless from any loss or damage that may result:
“The Buyer irrevocably and unconditionally agrees to reimburse and indemnify the Bank and keep the Bank indemnified on first demand made … in respect of any and all sums which the Bank may from time to time pay or be under any actual present obligation to pay out in respect of any Letter of Credit/Buyer’s Credit.”
In light of all the above, the Bank was entitled to call an Event of Default on 6 June 2018.”
194. The Bank’s submission that these paragraphs reveal that it was conducting its case on the basis that the entire amount due under the Facility was repayable on demand irrespective of default is as insubstantial as its assertions with respect to its pleading. It is clear from reading the Bank’s written submissions as a whole that the Bank’s counterclaim was mounted entirely on the basis that there had been an Event or Events of Default which entitled the Bank to give notice on 6 June 2018. In the course of argument on the appeal, Senior Counsel for the Bank accepted that the written submissions at trial should be construed in this way. The reference to clause 4.8 of the Facilities Agreement in the written submissions is not matched by any assertion in the pleading, and is not the provision upon which the Bank relies for this Ground of Appeal – rather, the Bank relies on clause 4.12. But in any case, the critical point is that clause 4.8 is concerned only with demand in respect of amounts due under the Buyer’s Credit. The Bank’s counterclaim is for the entire amount said to be outstanding under all aspects of the Facility. It is clear from the way in which the written submissions are structured that the allegation of failure to pay under clause 4.8 of the Facilities Agreement, which can only relate to the Buyer’s Credits due on 26 February 2018, is simply another way of asserting that there was, as at 6 June 2018, an Event of Default.
195. Any possible doubt as to the manner in which the trial was conducted is dispelled by a consideration of the opening address of counsel for the Bank. In the course of that address, counsel79stated:
“We say the Bank’s counterclaim is very simple. The Bank has advanced money to the Borrower and the Borrower needs to repay that money with interest. If the Borrower does not pay on demand, then the guarantor must pay. So, simple. …“80
The following interchange then took place between Judge and counsel:
“Judge: Sorry, pay on demand? Is that right?
Counsel: Well, pay when due.
Judge: Pay when due. Does that depend on there being an Event of Default?
Counsel: Yes, yes, your Honour.
Judge: Pay following appropriate notice of an Event of Default. Would that be an accurate way of putting it?
Counsel: Yes, your Honour. …”81
196. A little later in the course of the opening address, there was discussion between counsel and the Judge as to whether the Bank was entitled to rely upon an Event of Default other than non-payment of the Buyer’s Credits due on 26 February 2018.82
197. Following the completion of the opening of counsel for the Bank, counsel for Amira rose and observed:
“I will be insisting quite strictly in asking your Honour to insist quite strictly on the pleadings as they have been put forward. …”
and in that context referred to the question of whether the Bank could rely on Events of Default other than non-payment of the Buyer’s Credits due on 26 February 2018. The Judge then observed that counsel for the Bank had been duly warned.
198. It seems clear from the Judge’s reasons that counsel for the Bank closed on the proposition that the Bank was entitled to payment in full on demand, irrespective of default, but it is clear from this review of the Bank’s pleading, its written submissions prior to trial, and the opening address of the Bank’s counsel, that the Bank’s closing address was the first occasion upon which that proposition was put. The Judge was therefore entirely correct to dismiss the argument on the basis that it was not open on the pleadings, or on the way the Bank’s case had been conducted during the trial. For the same reasons, the argument is not open to the Bank on appeal.
199. As we have noted, the Bank has not applied to amend its pleaded counterclaim, either at first instance or on appeal, in order to accommodate the argument it now seeks to advance. If it had made such an application, of course it would only have been allowed if it could be shown that Amira would suffer no prejudice by reason of the late amendment because the amendment can have had no impact upon the way in which the trial was conducted and raises only matters of law.
200. In the absence of an application to amend consideration of whether such an application would have been permitted is, of course, academic. However, it is worth noting that there would have been very considerable obstacles in the path of any such application. Brief reference to the obstacles that would have arisen if an application for amendment had been made will show that insistence upon adherence to the pleadings in this case is not some legal technicality, as senior counsel for the Bank submitted, but is rooted in principles of procedural fairness which require that each party know the case which has to be met, and must be given a full opportunity to meet that case.
201. The first obstacle that the Bank would have had to confront is to identify with precision the demand which it says enlivened its entitlement to payment of the entire amount outstanding. As we have noted, none of the correspondence from the Bank or its solicitors prior to 6 June 2018 can be characterised as an unequivocal demand for payment of the entire amount outstanding under the Facility irrespective of default. The letter of 6 June 2018 is, at least arguably, conditioned upon the Bank’s assertion that there had been an Event of Default. Whether or not that demand should, in all the circumstances as they were at that time, have been construed as an unconditional demand irrespective of any Event of Default is a matter to which evidence could no doubt have been directed, had that question been in issue at the time of trial.
202. Next, because the Bank’s case at trial was limited to an assertion that Amira was in breach by reason of non-payment of the Buyer’s Credits due on 26 February 2018, the evidence led by Amira in defence of that claim was limited to establishing that it was unable to pay the credits when due on 26 February 2018 because of the Bank’s breach. If the Bank had run a broader case, to the effect that Amira was liable to pay the entire amount due under the Facility on demand, and that demand had been made, it would have been open to Amira to lead evidence to the effect that its inability to meet that demand was also caused by the Bank’s breach. Amira would be denied that opportunity if the Bank were now permitted to run that case on appeal.
203. There is also the unresolved issue of the proper characterisation of the advance made by the Bank pursuant to the order of the Court. The Bank asserts that the advance should be treated as an advance by way of overdraft. Amira opposed that proposition in correspondence. Because it was not relevant to the case as pleaded by the Bank, the issue was not explored at trial in any way. It should not now be ventilated on appeal for the first time.
204. The Bank asserts that the only issues raised by the case it wishes to present under the Counterclaim Grounds of appeal are simple issues of construction which turn only upon the terms of the Facilities Agreement. There are two answers to that proposition. First, there is a real question as to whether the provisions of the Facilities Agreement should be construed as empowering the Bank to demand repayment at any time, entirely at its discretion. As we have observed, the Buyer’s Credits are a form of revolving credit line. The benefit of Buyer’s Credits to a customer of the Bank, like Amira, is that they enable suppliers to supply in confidence that they will be paid out of moneys remitted to the Bank by Amira’s customers. This reduces the amount of working capital which Amira is obliged to invest in its trading operations. This advantage would be completely lost if the Bank were at liberty to demand repayment from Amira as soon as funds had been advanced under the line of credit. The facts of this case demonstrate the drastic commercial consequences to a customer if the Bank terminates the line of credit without notice and demands immediate repayment in full. There is a real question as to whether the Facilities Agreement should be construed as permitting the Bank to act in this way. If raised at trial, that question could have been amplified by evidence with respect to the commercial consequences of the construction for which the Bank contends.
205. Second, at common law the Facilities Agreement would be construed by reference to the objective intention attributed to the parties from the words they have used in their agreement. However, under either DIFC law or UAE law, the actual or subject intention of the parties has a greater role to play.83 So, assuming that DIFC law is the law
206. Further, if the case which the Bank now seeks to put had been advanced at trial, it would have been open to Amira to defend the claim on the basis that the Bank was not acting in accordance with the duty of good faith implied under both DIFC and UAE law.86 If that issue had been raised at trial, it is a matter that would no doubt have been explored with the Bank’s witness, Mr Kumar. Permitting the Bank to put a new case on appeal for the first time would deny Amira the opportunity of presenting evidence with respect to that defence.
207. Finally, Amira asserts that if the case which the Bank now wishes to put had been raised at trial, it would have advanced a defence by way of estoppel by convention. Obviously that defence would need to be supported by evidence. Permitting the Bank to present this case on appeal would deny Amira that opportunity.
208. For all these reasons, confining the Bank’s case on its counterclaim to the case which it pleaded is not some legal technicality. To the contrary, permitting the Bank to present a wholly new case for the first time on appeal would be entirely unfair to Amira and the antithesis of justice.
209. For these reasons, the Judge was correct to reject the Bank’s assertion, raised for the first time in closing submissions, to the effect that its counterclaim should be upheld on the basis that all moneys were repayable on demand irrespective of default, and demand had been made. Both Counterclaim Grounds should therefore be dismissed.
SUMMARY AND CONCLUSION
210. The Reduced Margin Ground (Ground 1) and the Counterclaim Grounds (Grounds 3 and 4) should all be dismissed. However, the Reputational Damage Ground should be allowed. In this respect, the decision of the Judge to award Amira USD$10,000,000 for damage to its commercial reputation should be set aside, and in lieu thereof, Amira should be awarded USD$500,000 in respect of that aspect of its claim.
211. The parties should be invited to present written submissions with respect to the appropriate orders made in relation to the costs of the appeal in light of this disposition.
H.E JUSTICE ALI AL MADHANI
212. I agree with the above and have nothing further to add.
H.E. JUSTICE SHAMLAN AL SAWALEHI
213. I agree with the above and have nothing further to add.
Date of issue: 6 July 2020