Claim No: SCT 223/2023
IN THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS
IN THE COURT OF FIRST INSTANCE
BETWEEN
MIPIL
Claimant/Appellant
and
(1) MIWERT
(2) MEROB
Defendants/Respondents
ORDER WITH REASONS OF H.E. DEPUTY CHIEF JUSTICE ALI AL MADHANI
UPON the Judgment of H.E. Justice Nassir Al Nasser dated 11 August 2023 (the “Judgment”)
AND UPON the Appellant’s Appeal Notice dated 25 August 2023 seeking permission to Appeal the Judgment (the “Permission Application”)
AND UPON reviewing the evidence filed by both parties on the Court file
AND UPON hearing from the parties at the hearing scheduled before me on 27 September 2023 (the “Hearing”)
AND UPON the Settlement Agreement issued by the Small Claims Tribunal as a Consent Order dated 1 April 2022 (the “Consent Order” or “Settlement Agreement”)
IT IS HEREBY ORDERED THAT:
1. The Permission Application is dismissed because the Appellant failed to discharge its burden of proof under RDC 53.91 substantiating that its claim has a real prospect of success or there are any other compelling grounds why the appeal should be heard.
2. The Appellant was successful in establishing that the First Respondent remains liable in these proceedings in the absence of any variation to the SPA or the Settlement Agreement.
3. The Judgment will be upheld save for the liability issue of the First Respondent found under paragraph 38-40 of the Judgment.
Issued by:
Delvin Sumo
SCT Judge and Assistant Registrar
Date of Issue: 10 October 2023
Date or Reissue: 12 October 2023
At: 1pm
SCHEDULE OF REASONS
1. This application is a permission to appeal filed by the Appellant against the Judgment of H.E. Justice Nassir Al Nasser (the “Judge”) of 11 August 2023 on four grounds which pertains to the Judge’s findings on issues of quantum and liability.
2. The first ground of appeal relates to the Judge’s findings under paragraph 40 of the Judgment which the Appellants says that the Judge had made an error when deciding that the Claimant is not entitled to pursue its damages claim against the First Defendant due to a lack of legal standing because the liability of the Markuand Mugit (the “target companies”) had been conferred solely to the Second Respondent. The Appellants stipulates that the Judge cannot reach his conclusion on the basis of a confirmation by the Second Defendant and failed to give any weight to the Consent Order which demonstrates that the First Respondent remains a party to the agreements with the Appellant and in the absence of a variation to those agreements, the Judge had incorrectly dismissed the claims against the First Defendant.
3. The second ground of appeal relates to paragraph 45 of the Judgment which deals with the failure to perform obligations within the time period set out under the Settlement Agreement. The Appellant says that his obligations under Settlement Agreement, namely clause 4.1(b) had been fulfilled and evidence to that extent had not been exhibited to the Court demonstrating that the Appellant had in fact contacted the holding bank account of the target companies updating it of the new assigned signatories that should be added to the bank portal. The Appellant takes an issue with the fact that this particular evidence had not been considered by the Judge in arriving at his decision.
4. The third ground of appeal, the Appellant puts forward that both Respondents failed to fulfil their obligation under clause 4.2 of the Settlement Agreement, namely, to replace and return all landlord cheques signed by the Appellant within the agreed time period set out in the Settlement Agreement which compelled the Appellant in pursuing this matter as an enforcement claim against the Respondents before the DIFC Courts in January 2023 (ENF-001-2023). The Appellant also argues that the Respondents failed to remove the Appellant’s name from the target companies trade license and ignored all proceedings issued by the owner of the target companies before the Rent Dispute Centre in Dubai (the “RDCD”) which resulted in a travel ban against the Appellant and a payment of AED 68,634 made to RDCD by the Appellant on behalf of the Respondents.
5. The third ground of appeal deals with the fact that the Judge failed to address the claim of damages that had been sought by the Appellant in its initial claim form, including but not limited to, the loss of profit as a result of the travel ban, translation costs, fees incurred in providing a power of attorney to the lawyers to deal with the RDCD claim, hotel booking in KSA, and fraudulent utilisation of the Appellant’s name in filing tax return with the Federal Tax Authority. As such, the Appellant says that any reliance on Article 77 and Article 78 of the DIFC Contract Law is misplaced in this case.
6. The fourth ground of appeal is the Judge’s decision in relation to quantum under paragraph 56 of the Order which the Appellant considers inappropriate for the Judge to exercise his discretion under Rule 53.79 of the Rules of the DIFC Courts (the “RDC”) in not awarding the Appellants particularly in light of the Respondents abuse of process, failing to comply with its obligations under the Consent Order, the travel ban issued against the Appellant as a result of the Respondents continued failure to comply with the RDCD’s claim and proceedings issued by failure to pay rent.
Discussion and analysis
7. I have carefully reviewed all submissions of all parties including oral submissions at the hearing of this Permission Application (the “Hearing”) and if I omit reference to an argument or an authority that had been relied on this does not mean that it has been overlooked or not considered. I will not repeat the facts of this case as it has been dealt with in the Judgment. I will deal and address each ground below.
8. As a starting point, it should be noted that a permission to appeal may only be granted provided that the Court considers that the appeal would have real prospect of success or there is some other compelling reason why the appeal should be heard by virtue of RDC 53.91.
9. I will deal with the issue of liability of the First Respondent and whether that had been discharged to an extent that the Appellant can no longer pursue any legal action against him.
10. I agree with the Appellant in that the Judge had erred in its decision, the SPA and the Settlement Agreement has not been varied to an extent that the Second Respondent’s liability has been discharged, both Respondents are jointly and severally liable under the SPA and the Settlement Agreement and in the absence of any variation clearly discharging the First Respondent’s liability, the Appellant remains entitled to advance his claims legally against the First Respondent.
11. Turning to the material issue which the Court needs to consider is to what extent may the Claimant rely on Article 77 of the DIFC Contract Law in light of its own failures to comply with its own contractual obligations under the SPA and the Settlement Agreement.
Contractual obligations of the Appellant
12. The Appellant says that he had fulfilled all of its contractual obligations under the Settlement Agreement by initiating correspondence with the holding bank of the target companies. In support of this proposition, the Appellant relies on the email chain of 4 April 2022 sent by him to Mashreq Bank asserting that is sufficient to discharge its obligations as a seller under the Settlement Agreement. The question before this Court is to what extent may the Appellant rely on the wording “initiating of change of signatory” of the holding bank of the target companies contained under clause 4.1 of the Settlement Agreement. It is undisputed that the Settlement Agreement has been drafted by the Appellant.
13. It is my opinion that “initiating change of signatories” could have rival interpretations and when the Court is attempting to interpret the competing meanings of an ambiguous provision in a contract, it will only be concerned in identifying the true intention of the parties by reference to “what a reasonable commercial person having all background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean”.Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101, [para 14]. Undoubtedly, for the purposes of the SPA and the Settlement Agreement, the intention of the Respondents was to acquire a business without any hidden liabilities, having identified all key information relevant to the business and any inherent risks to determine whether the value of the business has been estimated accurately. From a seller’s perspective in share purchase transaction, their main objective is to sell their shares in a business and assisting the potential buyers in managing and liaising with the relevant third parties of the target companies (landlord, holding back account, other governmental bodies) to ensure a complete full transfer of the business to ultimately allow the buyer to reinstate normal course of business with little disruption.
14. The Respondents assert that following the Appellant’s email to Mashreq Bank with respect to the change of signatories of the target companies, the Respondents compiled and uploaded all required documents as requested by Mashreq Bank, however, a full validation process for the purposes of granting the Respondents complete access to the bank account was frustrated because the relevant OTP code which is regularly generated by the bank on access remains with the Appellant.
15. Based on the Second Respondent’s assertion, the holding bank account remains in the possession of the Appellant and a handover is yet to be completed which compels the conclusion that the Appellant still has full access to the bank account balance of the target companies which clearly was not the objective of the Respondents when entering into SPA or the Settlement Agreement with the Appellant.
16. As such, it is appropriate to conclude that the Appellant failed to comply with its own contractual obligations under the Settlement Agreement and this breach continues to cause disruption to a normal business practice which the Respondents did not anticipate or in fact envisage would happen when they initially entered into the SPA. As such it is my opinion that a mere “initiation” of correspondence with the holding bank of the target companies to provide an update of the new signatories is the bare minimum as to what might be expected by the seller in a sale of shares transaction.
17. Further, in the normal course of a share purchase transaction, when a company is undergoing an acquisition transaction, this process is usually contingent on extensive due diligence for the purpose of providing the buyer with the snapshot of the company’s outstanding liabilities which the buyer may be exposed to, and it would also clarify key information about the seller that would be relevant to directly assess and impact the buyer’s decision in the acquisition of the relevant company. During oral submissions, both Respondents submitted that the Appellant denied them access to relevant employee information and restricted any site visits of the target companies and were only in the position to identify certain inherent liabilities following the signing of the SPA. In support of the Respondents assertion, they rely on the Appellant’s failure in notifying them of unsettled labour camps rent of AED 27,000 which had been outstanding during the management of the Appellant, a default in payment for the benefit of the nominated UAE Sponsor of Mugit in the sum of AED 35,000 which any attempt of an amicable solution has not been initiated by the Appellant, denied access to all social media platforms and emails of the target companies when the Respondents expected that all digital assets to be part of the target companies assets and anticipated that they would have been handed over because the purchase price of the target companies included digital assets. As such, it is appropriate to conclude that the Appellant did not act in good faith during this transaction and it raises the question, had the Respondents audited or investigated the target companies thoroughly with the required legal assistance would they have entered into a SPA with the Appellant.
18. In conclusion, I do not consider that the email chain of 4 April 2022 offers much in the way of assistance to the Appellant, the email chain merely states that the Respondents should be added as signatories, but the completion process has not been finalised by the Appellant at the point of that email. It is not just for the Appellant to rely on the wording “initiate” the process of change of signatories because it was clear that the Respondents intended to have full access and control of the bank account of the target companies and did not anticipate that the Appellant’s duty would only be confined to a very brief email chain to Mashreq Bank, rather expected his obligations as a seller would be discharged at the point when they were able to have full control of the target companies bank account.
19. Accordingly, and based on the above, it was not misplaced for the Judge to conclude that the Appellant was not in a position to rely on Article 77 of the DIFC Contract seeking to invoke the Court’s assistance compelling the Respondents to perform their duties under the Settlement Agreement wherein fact he failed to comply and complete its conditions precedents under the SPA and the Settlement Agreement.
Loss of Profit
20. The Appellant seeks monetary damages against the Respondent for loss of profit as a result of the RDCD matter issued against him which purportedly led to a travel ban against the Appellant due to an unsettled debt which should have been paid by the Respondents. In order for the Appellant to succeed on the loss of profit claim, it must demonstrate to the Court that the sought monetary damages are in fact attributable to the Respondents’ failure in ignoring the RDCD case issued by the landlord of the target companies.
21. The Appellant asserted that he had arranged formal meetings with key investors in the Kingdom of Saudi Arabia to discuss his education venture project and to finalise terms with the relevant investors. However, due to the travel ban issued against him which led to cancellation of non-refundable flights and hotel stay for two nights and it is on that basis the Appellant seeks to recover loss of profit from the Respondents.
22. It should be noted that the Appellant has not offered the Court with any evidence to substantiate that a formal position has been offered to the Appellant in KSA, the Court had the opportunity to assess the relevant evidence submitted by the Appellant, but nothing pointed to a formal position which required the Appellant to leave the UAE and be physically present in KSA on 2 May 2023 for the investors negotiations.
23. The Appellant argues that “but for” the Respondents’ non-compliance with their obligations in relation to the outstanding debt owed to the landlord of the target companies which resulted in the owner issuing a claim under RDCD, and given that the outstanding debt remained unpaid, the Appellant had a travel ban issued against him. Despite what the Appellant suggests that its burden of proof has been discharged, I disagree with that assertion, because a prepared excel spreadsheet and non-refundable flights on 2 May to travel to KSA with no formal offer by the Ministry of Education, certainly does not discharge the Appellant’s burden to enable him to claim for loss of profit. If the scheduled trip to KSA was in fact a work trip, as far as the evidence is concerned, it appears that the Ministry of Education was keen to reschedule meetings with the proposed investors to a convenient time that would suit the Appellant. As such, I fail to see the link between the alleged travel ban and the trip that was voluntarily scheduled by the Appellant on those dates.
24. Further, from a detailed assessment of the evidence, the Court may determine that the travel ban issued against the Appellant was based on the Appellant’s own omissions and contributory negligence as part of the process of the acquisition of the target companies. To elaborate on that point, the Appellant failed to provide the Respondents with clear information of the inherent risks associated with the business, failed to provide an overview background of the debt that ought to be settled to avoid any financial issues that may arise in future and failed to finalise the change of signatories process for the Respondents onto the bank accounts of the target companies. These omissions had an impact on the way the Respondents could have carried out their contractual obligations. The imposition of the travel ban was beyond the Respondents’ control and would not have been the case had the Appellant fulfilled its duties to the final stage and permitted an open channel of communication between him and the relevant third parties to notify and complete the change of owners of business.
25. As such this ground of appeal must be dismissed.
Contractual obligations of the Respondents
26. I will address and deal with ground two and three of appeal concurrently. It is my opinion that the Respondents acted in good faith in this share purchase transaction and were willing to comply with their contractual obligations particularly under clause 4.2 in order to close this transaction in a timely manner, however their obligations were contingent on the completion of the Appellant’s contractual obligations. For instance, the transfer of signatories of the holding bank account required the Appellant to provide an OTP code to Mashreq Bank to validate the completion process, which is currently withheld from the Respondents.
27. With respect to their obligation in returning post-dated cheques to the Appellant. It is undisputed between the parties that during the management of the Appellant there were three post-dated cheques made for the benefit of Executive Laundry’s landlord between 16 February – 30 May 2022 which was due for payment but had not been produced by the landlord on the request of the Appellant. Based on the Appellant’s request, it resulted in the Respondents depositing cash payment into the landlord’s bank account to ensure that rent had been paid accordingly.
28. As a starting point, the cash deposit to the landlord made by the Respondents clearly demonstrates their willingness in fulfilling with their contractual obligations and settling any outstanding debt to prevent any liability which could arise against the Appellant during the acquisition process. However, the Respondents admitted that they have been unable to retrieve those three posted-dated cheques from the landlord and return to the Appellant and it is on that basis which the Appellant says that they had failed to comply with their obligations under the Settlement Agreement.
29. The Respondents submitted at the Hearing that the landlord of Executive Laundry is currently withholding those three-post-dated cheques based on an unresolved debt issue with the Appellant. As such, the Respondents’ inability in providing and returning those cheques is beyond their control, rather it is a matter which the Appellant failed to resolute prior to the handover of the business. Therefore, in the absence of any clear mechanism in the Settlement Agreement which expressly deals with these issues, the Appellant should enter into direct communication with the landlord to retrieve those cheques and settle any unpaid debt.
30. With respect to the VAT violations issued by the Federal Tax Authority (the “FTA”) against the Appellant in which turn the Appellant is attempting to seek recovery of damages from the Respondents are, in my opinion, unfounded, speculative and unrelated to any negligence committed by the Respondents. The Appellant withheld the relevant log in details of the target companies preventing the Respondents from filing its annual tax return promptly, purportedly because divulging such information during the acquisition period is not permitted and allowing the Respondents to gain access using the Appellant’s credentials is a cybercrime against the Appellant. Further, once the Respondents pointed out the repercussions in failing to file the annual tax return, the Appellant threatened to pursue the Respondents should they use his credentials.
31. It is clear that the Appellant’s conduct hindered the Respondents from carrying out their legal obligations which ultimately resulted in a hefty fine of AED 9,000. It is confusing that the Appellant finds itself entitled to seek damages from the Respondents whilst the FTA’s fine only arose as a result of his contributory negligence and completely unrelated to the Respondents’ failure. As such, this ground of appeal does not offer the Appellant with any prospect of success, and it must be dismissed.
Costs
32. During oral submissions, the legal representative of the Appellant suggested that the Court should consider awarding the Appellant’s legal fees incurred to date in light of the Respondents’ abuse of process in failing to comply with its obligations under the Consent Order, the travel ban issued against the Appellant as a result of the Respondents continued failure to comply with the RDCD’s claim and proceedings issued by failure to pay rent.
33. This ground of appeal must be dismissed, as I have concluded that the Respondents have acted in good faith but were hindered to comply with their obligations as it was contingent on the completion of the Appellant’s obligations.