Claim No. CA 001/2011
THE DUBAI INTERNATIONAL FINANCIAL CENTRE
COURTS
Court
In the name of His Highness Sheikh Mohammad Bin Rashid Al Maktoum,
Ruler
of DubaiRuler
IN THE
COURT
OF APPEALCourt
BEFORE DEPUTY
CHIEF JUSTICE
SIR ANTHONY COLMANChief Justice
JUSTICE DAVID WILLIAMS AND H.E. JUSTICE OMAR AL MUHAIRI
BETWEEN
National Bonds Corporation PJSC
Appellant
-v-
(1)Taaleem PJSC
(2)Deyaar Development PJSC
Respondents
Hearing Date: 21 March 2011
Counsel: Michael Black QC and Nicholas Tse instructed by Hikmat Fayad & Associates for the Appellant.
Vernon Flynn QC and Tom Montague-Smith instructed by Hogan Lovells (Middle East) LLP for the First Respondent
Jim Delkousis of DLA Piper Middle East LLP for the Second Respondent
Judgment: 5 May 2011
JUDGMENT
1. This is an appeal from a Judgment of Justice Sir John Chadwick dated 21 November 2010.
2. The proceedings before him arose out of the
Claimant
's ("Taaleem")'s claim for declarations that it is not indebted to National Bonds Corporation PJSC ("NBC") in the sum of AED 236,595,031.07 or at all under an agreement dated 6 July 2008 and that by virtue of a novation between Taaleem, NBC and Deyaar Development PJSC ("Deyaar") it has since 31 August 2008 had no interest in property known as Sky Gardens in the
DIFC
area and is not liable for any finance provided by NBC for an interest in such property before or after that date. Deyaar counterclaims for orders against Taaleem that it pay AED 183,508,531.40 to Deyaar and a declaration that, until payment, Taaleem holds the property on trust.
Claimant
DIFC
3. The applications heard by Justice Sir John Chadwick were (1) by NBC whereby it challenged the jurisdiction of the
DIFC Courts
to hear the claim against it and (2) by Deyaar that NBC be joined as co-defendant to the counterclaim. Justice Sir John Chadwick held that the DIFC Courts did have jurisdiction and that NBC should be joined as co-defendant to Deyaar's counterclaim. NBC appeals against both Orders.
DIFC Courts
4. The applicant, NBC, contends that this
Court
lacks jurisdiction over the claim on the primary ground that there is a jurisdiction agreement incorporated in a Murabaha Agreement dated 6 July 2008 which, on its proper construction, selects the Courts of non-DIFC Dubai as the agreed forum for the determination of all disputes arising under that contract between it and Taaleem.
Court
5. Before considering the wording of the jurisdiction clause, it is necessary, for reasons which we shall explain, to set out the contractual and factual context in which the Agreement is said to have been entered into.
6. In 2007 NBC owned 20 per cent of the share capital of Madaares PJSC, a private company whose business consisted of improving educational standards in Dubai and the wider Middle East by setting up and running new schools. Taaleem had already set up new schools in Dubai and in June 2007 Madaares acquired Taaleem. Taaleem, having previously incurred substantial accumulated losses, wished to identify profitable short-term investments which it would realise in order to reduce such losses on its balance sheet before the end of its next financial year — namely 31 August 2008. NBC and another shareholder in Madaares, namely Amlak Finance, were aware of Taaleem's investment wishes and developed an investment structure one purpose of which would be to enable Taaleem to benefit from short-term capital gains.
7. On 9 June 2008 Amlak Sky Gardens LLC, "ASG", a subsidiary of Amlak Finance, entered into a unit sale and purchase agreement whereby it purchased most of the apartments in Sky Gardens, a building located in the DIFC. We refer to the apartments collectively as "the Property". The seller was First Dubai Real Estate Development KSCC "First Dubai". ASG had previously paid two 5% deposits of AED 164,037,650 to First Dubai. These payments by ASG were funded as to 33.33% by NBC, which also funded Amlak Finance in respect of its share of payments which would become due in future under the Sale and Purchase Agreement.
8. On 18 June 2008 NBC informed Taaleem that it could procure and finance a 33% "interest" in the Property and that title to such interest would be held and registered under the Sale and Purchase Agreement in the name of ASG. It is said that NBC arranged the necessary documentation for Taaleem's acquisition of such interest and undertook to provide such finance as Taaleem could need for its share of the payments that could in future have to be made under the Sale and Purchase Agreement but on the basis that Taaleem's interest in the Property could be sold at a profit by 31 August 2008.
9. Taaleem plead that, in reliance on NBC's promises and representations, on 7 July 2008, it received and signed the Tripartite Agreement. This was a contract between it, Amlak Finance and DIFC Investments LLC under which Taaleem agreed to pay by post-dated cheques 33% of the instalments and liabilities incurred by ASG under the Sale and Purchase Agreement amounting in total to AED 541,324,245. DIFC Investments was the last to sign the Tripartite Agreement and did so at its offices in the DIFC.
10. The Tripartite Agreement, having stated in paragraph (C) of the Recitals that the parties to it had such each agreed to pay all instalments and liabilities in relation to the Property in an agreed "Equity Ratio", then stated in paragraph (D):
"In the circumstances the Parties have agreed that notwithstanding the legal ownership of the Property in the name of Amlak Sky Gardens LLC, beneficial ownership of the Property shall be vested in Amiak, DIFCI and Taaleem in proportion to their Equity Ratios. Amlak, being the appointed manager of Amlak Sky Gardens LLC has therefore agreed to hold its legal interest in the Property on trust for itself. DIFCI and Taaleem in their respective Equity Ratios and otherwise on the terms and conditions set out below, whereby DIFCI and Taaleem have agreed to issue post-dated cheques in favour of Amlak in proportion to their Equity Ratio."
11. The Tripartite Agreement also provided as follows:
2. "The Parties shall be entitled to receive all proceeds of sale and other benefits arising in respect of the Property at all times in their respective Equity Ratios at the end of each month.
3. The Parties agree that they shall be liable for all debts and other liabilities in relation to the Property in their Equity Ratio. In the event of any Party being held solely liable for any amount in relation to the Property, the other Parties shall fully indemnify that Party such that the liabilities shall be borne equally between them all in their Equity Ratio.
4. No party shall sell, transfer, pledge, charge, mortgage, encumber, give or sell any option or otherwise deal with or dispose of its interest in the Property or any of the rights, benefits or obligations attaching thereto except with the prior written consent of all of the other Parties.
5. If any Party wishes to sell its interests in the Property it must give the other parties written notice of its intention to sell its interests and the other Parties shall have the first option of purchasing that interest between them in the ratio of their Equity Ratios at the current market value, such value to be agreed or in default of agreement fixed by an independent valuer.
7. The Parties shall do, execute and perform and shall procure to be done, executed and performed all such further acts, documents and things as may be agreed from Taaleem in their respective Equity Ratios.
14. Any dispute or claim arising out of or relating to this Agreement which is not resolved through good faith discussions between the Parties shall be settled by referring such reference to an independent arbitrator who shall be appointed by agreement between the Parties. In the event of such agreement not being reached either party may request the Chairman of the London Chamber of Commerce to appoint an Arbitrator, the decision of whom shall be final.
This Agreement shall be governed by and construed in accordance with the law
the Law
12. Under the Sale and Purchase Agreement, ASG was liable to pay instalments of AED 246,056,475 on 15 July, 15 September and 15 November 2008 and 15 January, 15 March and 15 May 2009. NBC paid Taaleem's 33% share of the 15 July instalment and on 6 August 2008 Taaleem sent to Amlak Finance its post-dated cheques for its share of the four subsequent instalments, NBC having previously undertaken to fund such cheques when they were presented.
13. From about 20 April 2008 NBC began to investigate and arrange for the disposal of Taaleem's interest in the Property. Its efforts were not fruitful by the deadline of 31 August 2008 and it was not until 19 October 2008 that NBC informed Tasleem that it could confirm that Deyaar, the Second
Defendant
, was to be the purchaser of Taaleem's interest in the Property for a total gross consideration of AED 612.8 million, thereby enabling Taaleem to realise a net profit of AED 70 million after deduction of NBC's financing charges for instalments which NBC had paid on Taaleem's behalf up to 31 August 2008 "as per a Murabaha financing arrangement". The disposal of Taaleem's share in the Property as to be accomplished by means of ASG as legal owner selling to Deyaar 33% of the total area of the Property, namely 154,664 sq feet. Deyaar would become liable to pay NBC's financing cost on the 15 September 2008 instalment of the purchase price of the Property already paid to First Dubai on behalf of Taaleem. It was suggested by NBC's legal advisers (Taylor Wessing) that the proposed transaction could be quickly achieved through an amendment to the original Tripartite Agreement.
Defendant
14. It is further pleaded that on 26 October 2008 NBC gave Taaleem an assurance that NBC was seeking to close the transaction with Deyaar within a week.
15. It was at this time that Taaleem received and signed the Murabaha Agreement, back-dated to 6 July 2008, the day before the Tripartite Agreement was dated.
16. This was an Islamic financing document. The recitals state as follows:
"Whereas the Buyer had requested the Seller to purchase the Property as more particularly described in Annexure 1 (the "Property"), and promised to buy from the Seller after the Seller has obtained title to, and possession of, the Property;
Whereas pursuant to the Buyer's Promise to Purchase dated 7 July 2008, the Seller has purchased the Property and acquired title to, and possession of, the Property.
Whereas following the Seller's notification to the Buyer of the purchase of the Property, the Buyer is willing to fulfill its promise to purchase the Property from the Seller in accordance with the terms of the Promise and this Agreement."
17. Annexure 1 states under the heading "Specific Duties/Description of the Property" the words: SKY GARDENS TOWER, DUBAI INTERNATIONAL CENTRE, DUBAI,
UNITED ARAB EMIRATES.
18. The Murabaha Agreement then provided:
"1. Importance of Recitals
The above Recitals and the appendices shall form integral parts of this Agreement.
2. Sale of Property
In consideration of the Sale Price defined in Clause 3.1 below and in accordance with the terms and conditions of the Promise and this Agreement, the Seller hereby sells (by way of Murabaha) to Buyer and the Buyer purchases the Property as more particularly described in Annexure 1.
3. Sale Price and Terms of Payment
3.1. The sale price of the Property ("Sale Price") by way of Murabaha under this Agreement is AED 136,823,760.12 with the following breakdown:
Cost Price 135,331,061.50 Actual expenses: NIL Profit: 1,492,698,62 Sale Price 136,823,760.12 The Seller hereby confirms that the Sale Price including its components, actual expenses and supporting invoices are correct. The Buyer hereby acknowledges the adequacy and sufficiency of the Sale Price and unconditionally accepts the Seller's right to receive the Sale Price in accordance with the terms and conditions of the Promise and this Agreement."
19. The Agreement further provided:
"13. Governing LawThis Agreement is governed by the laws of Dubai, UAE
to the extent these laws are not inconsistent with the principles of Sharia (as set out in the Sharia Standards published by Accounting and Auditing Organisation of Islamic Financial Institutions and/or Islamic Fiqh Academy of Organisation of Islamic Conference), in which case the principles of Sharia will prevail.UAE14. Jurisdiction
Jurisdiction14.1 Each of the Parties irrevocably agrees for the benefit of the Seller that the courts of Dubai, UAE shall have jurisdiction to hear and determine any suit, action or proceedings, and to settle any disputes which may arise out of or in connection with this Agreement (respectively "Proceedings" and "Disputes") and for such purposes, irrevocably submits to the jurisdiction of such courts.
14.2 Appropriate Forum
The Buyer irrevocably waives any objection which it might now or hereafter have to the courts referred to in Clause [14.1] being nominated as the forum to hear and determine any Proceedings and to settle any Disputes and agrees not to claim that any such court is not a convenient or an appropriate forum."
20. It is to be observed that the "cost price" of the Property purportedly sold by NBC to Taaleem (AED 135,331,061.50) is equivalent to the aggregate of the two amounts of 33% funding provided by NBC to ASG for part of the 5% deposits paid to First Dubai, as explained in paragraph (18) above together with the amount of AED 81,198,637 paid by NBC to ASG on 12 July 2008 in respect of the 33% share of the 15 July 2008 instalment payable by ASG to First Dubai under the Sale and Purchase Agreement (see paragraph (7) above). These amounts had been advanced to Taaleem by NBC under the transaction already described. Thus the function of the Murabaha Agreement was to record retrospectively that NBC had from 6 July 2008 placed at the disposition of Taaleem the 33% share in the Property which NBC had hitherto controlled and that NBC had advanced to Taaleem its share of the instalment payments which had been made to ASG and thence paid to First Dubai up to 31 August 2008, but to employ for this purpose the cosmetic device of a sale and purchase of the property agreement under which the amount of interest which would otherwise have been payable to NBC in respect of its loan to Taaleem could be described as "profit" on the sale and purchase.
21. There is no evidence as to where the Murabaha Agreement was signed, but as neither Taaleem nor NBC are located in the DIFC, it seems highly improbable that it was entered into there.
22. Following signature of the Murabaha Agreement, it is pleaded that on 2 November 2008 Deyaar confirmed that it would pay to Taaleem the premium of AED 72,141,913 for the right to purchase Taaleem's share of the Property and that Deyaar actually paid it on 4 December 2008. It is further pleaded that this completed the agreement as to the novation whereby, as between NBC, Taaleem and Deyaar, the last took over Taaleem's rights and obligations in respect of the Property. All that remained was for NBC's lawyers to produce the documentation necessary to record the substitution of Deyaar for Taaleem as owner of a one third beneficial interest in the Property. Part of the novation agreement involved Deyaar taking over Taaleem's liability to NBC under the Murabaha Agreement.
23. The Particulars of Claim allege that, due to the collapse in the property market by December 2008, Deyaar attempted thereafter to extricate itself from the novation agreement and that, by April 2009, it had failed further to execute or perform that agreement, including, apparently, performance of the Assigned Murabaha Agreement.
The Nature of Taaleem's Claim
24. On 5 April 2010 NBC claimed payment of the sum of AED 236,595,031.07 said to be due to it "under a Wakala Agreement" signed by Taaleem on 6 July 2008. It is accepted by NBC that this was a mistaken description of the Murabaha Agreement signed on that same date. It is not explained how the figure has been calculated. It is substantially in excess of the capital sum expressed in that Agreement. It has also been alleged by NBC that Taaleem, as one of the legal owners of the Property, must honour the payment obligations in that Agreement. There is no pleaded claim by NBC and the contents of its letter of 5 April are sketchy to say the least. Although this Court has been informed that NBC has mounted proceedings for monetary relief in the
Dubai Courts
, currently stayed, we have not seen its pleaded case.
Dubai Courts
25. In the face of this claim, Taaleem has mounted the present proceedings in which it claims in paragraph 35 of the Particulars of Claim the following declaratory relief:
(a) A declaration that it is not indebted to NBC in the sum of AED 236,595,031.07 or at all under a Wakala Agreement.
(b) That Taaleem and Deyaar concluded a transaction with NBC whereby the 33% interest in the Property at Sky Gardens was transferred along with associated financing obligations, and so Taaleem is entitled to retain an agreed premium of AED 72,141,913 paid by Deyaar on 4 December 2008 by cheque
(c) That by virtue of a novation agreed with NBC and Deyaar (as more particularly described above), as from 31 August 2008 Taaleem no longer has any interest in property located within the DIFC, nor is it liable for any finance provided by NBC for such interest in property located within the DIFC before or after that date."
26. Although (a) and (c) and in part (b) are claims for negative relief, they sufficiently identify the substance of the substantive and positive claims at which these declarations are directed, that is to say allegations by NBC that Taaleem is indebted to it under the Murabaha Agreement, that Taaleem's interest in the Property has not been effectively transferred by Taaleem to Deyaar and that Taaleem in consequence remains liable to NCB for payments which NBC has made in respect of Taaleem's continuing 33% share in the Property.
The Meaning and Effect of the Jurisdiction Clause in the Murabaha Agreement
27. Justice Sir John Chadwick concluded that the effect of Clause 14.1 of the Murabaha Agreement was to agree to the jurisdiction of whichever of the DIFC or non-DIFC Dubai Courts had jurisdiction under the relevant Dubai legislation. At paragraph 13 of his Judgment he said:
"The premise on which that challenge is based is that clause 14.1 of the Murabaha agreement contains an agreement between the parties, to which effect should be given pursuant to Article 5(A)(2) of the judicial authority law, to submit disputes under the Murabaha agreement to the Dubai Courts rather than to the DIFC Courts. But that is to equate the phrase "the courts of Dubai, UAE" with the "Dubai Courts" to the exclusion of the "DIFC Courts". As I have explained, on a proper understanding of the position within the Emirate of Dubai, both Dubai Courts and DIFC Courts are "courts of Dubai". Absent some compelling context — which does not exist in the present case — there is no basis for holding that the phrase "courts of Dubai, UAE" means the Dubai Courts rather than the DIFC Courts. It follows that the premise is flawed. The better view is that, by the use of that phrase in the Murabaha agreement, the parties have agreed to litigate disputes in Dubai, rather than somewhere else, but without choosing which between the two court systems in Dubai: that is to say, they have agreed to submit their disputes to whichever of the Dubai Courts and the DIFC Courts has jurisdiction under the laws of Dubai. Those laws include Dubai Law No. 9 of 2004, and the Judicial Authority Law. And, as I have said, the question which of the Dubai Courts and the DIFC Courts has jurisdiction over the dispute under the laws of Dubai now falls to be decided with regard to the Protocol of jurisdiction."Judicial Authority Law
28. He then went on to consider whether the decision of the DIFC Courts of First Instance inHardt v DamacCFI 36/2009 compelled a different construction of the jurisdiction clause in this case. His consideration of that decision was necessary because the argument by NBC before him was confined to reliance on the analysis of the meaning of the jurisdiction clause in that case. In essence, that argument was that the basis of the Judgment inHardtwas that the ordinary and natural meaning of "Courts of Dubai" in a jurisdiction clause was the Courts of non-DIFC Dubai. Justice Sir John Chadwick considered that the decision inHardtdid not compel him to reach the same construction of the clause in the present case and, in particular, did not preclude his construction of "Courts of Dubai" as not entailing a prior selection of either the DIFC Courts or the non-DIFC Courts but rather meaning a prior selection of whichever of the Courts — DIFC or non-DIFC in Dubai might have jurisdiction over a given dispute or claim.
29. Before considering the criticisms of that Judgment which Mr Michael Black QC, on behalf of the Appellant, has raised in this case, it is necessary to have in mind the following fundamental considerations.
30. Firstly, whenever the DIFC Courts has to determine an issue as to its jurisdiction in the face of an argument based on Article 5(A)(2) of Law No.12 of 2004 the underlying exercise is to ascertain whether there has been an agreement to confer jurisdiction in respect of the dispute in question on some other Court. That involves ascertaining (i) what the parties mutually intended when at the time when they entered into the agreement they used words indentifying their chosen Court and (ii) whether the dispute giving rise to the claim in question falls within the scope of the words which they have used to delineate the class of disputes in respect of which they have agreed to confer jurisdiction on their chosen Court. In relation to this threshold exercise the legal burden rests on that party who asserts that the parties have contracted out of the jurisdiction of the DIFC Courts. In respect of (i) the test to be applied is the ordinary and natural meaning of the words of the jurisdiction agreement as they would have been mutually understood by the parties when they entered into that agreement. That mutual understanding is to be ascertained from all the circumstances in which the agreement was entered into, its nature and the context in which the words were used.
31. Secondly, if the DIFC Courts is not persuaded that the parties have agreed by the jurisdiction agreement to confer jurisdiction on that Court in respect of the dispute giving rise to the claim, the Court must be satisfied that it does indeed have jurisdiction in respect of the claim by reference to the provisions of Article 5(A)(1) of Law No. 12 of 2004. Unless the dispute falls within the scope of that Article, it is not open to the parties to confer jurisdiction, on the Court by agreement. Accordingly, unless the Court is satisfied that it has jurisdiction, it must decline to exercise it: see the analogous jurisdictional problem with regard to the effect of a deemed submission to the jurisdiction, by operation ofRDC 12.5discussed in paragraphs 32 to 38 of the judgment inHardt v DamacCFI 036/2009.
32. It is against this background that the decision of the Court inHardt v Damacis to be understood. In that case the law and jurisdiction clause provided as follows:
"This clause provides as follows:This Agreement is made in the English language and the rights of the Parties hereunder shall be governed by the Laws of the United Arab Emirates and the Laws of Dubai and the Parties agree that any legal action or proceedings with respect to this Agreement shall be subject to the exclusive jurisdiction of the Courts of Dubai, United Arab Emirates."
33. The primary issue was whether by the use of that phraseology the parties had agreed to confer exclusive jurisdiction in respect of "any legal action or proceedings with respect to that Agreement" on the non-DIFC Dubai Courts. In concluding that this was the effect of the clause, the Court derived its construction of the words used from a number of material surrounding circumstances. These included the following:
(1) The clause appeared in identical form in each of 37 standard form contracts for the disposal of interests in realty located in four developments of which one was located in the DIFC and three in Dubai outside the DIFC. In entering into those contracts the Claimant dealt with the same Damac Group representatives in each case.
(2) It was improbable that the mutual intention was to give a different meaning to the same words in the same standard form contracts.
(3) It was improbable that the mutual intention was to disassociate the selected forum from the selected body of law in any given contract that is to say, if the parties had selected the Law of non-DIFC Dubai, it was to be inferred that the mutual intention was to confer jurisdiction on the Courts of non-DIFC Dubai
(4) With regard to the contracts for the sale of non-DIFC realty, it was improbable that the parties would have selected DIFC Law or the DIFC Courts, those contracts having been entered into outside the DIFC with non-DIFC companies.
(5) With regard to the contracts relating to the sale of realty in the DIFC, there being in force at the time when they were entered into, non-DIFC Land Law, but only the Land Law of non-DIFC Dubai, the law applicable to those contracts must be inferred to be the basis of non-DIFC Dubai.
(6) In those circumstances the natural meaning of "the Courts of Dubai" was the non-DIFC Courts of Dubai.
(7) The proper inference was therefore that the parties had selected non-DIFC Law and the non-DIFC Courts by the law and jurisdiction agreements in respect of the DIFC-realty.
34. In his Judgment, in the present case, Justice Sir John Chadwick observed at paragraph 15 that it had not been argued inHardt v Damacthat the words of the jurisdiction clause were to be construed as wide enough to amount to a selection of either the non-DIFC Dubai Courts or the DIFC Courts according to which might have jurisdiction in any particular case. That observation was entirely correct.
35. The
Judge
then considered that, in view of the fact that the facts and claims pleaded in the Particulars of Claim inHardt v Damacdid not fall within the exclusive jurisdiction of the DIFC Courts but, presumably, fell within the jurisdiction of the non-DIFC Dubai Courts, the result would have been the same inHardteven if the argument had been accepted that "Courts of Dubai" meantbothDIFCandnon-DIFC Dubai Courts, depending on which was accorded jurisdiction under
Dubai Law No.9
of 2004, the Judicial Authority Law: see paragraph 17 of the Judgment. Hence that decision did not compel him to construe "Courts of Dubai" in this case as referring to the non-DIFC Dubai Courts.
Judge
Dubai Law No.9
36. Mr Black's criticism of the Judge's reasoning and his deployment of the decision inHardton behalf of NBC in this case is based in essence on the proposition that it was concluded inHardtthat "Courts of Dubai" meant, in the natural meaning of those words "Courts of non-DIFC Dubai" and that whenever these words were used in a law and jurisdiction clause, as in this case, they should be given the same meaning. In support of this argument for a uniform approach to construction, he relied on the need for certainty in commercial contracts and pointed out that there would be great commercial confusion if in jurisdiction clauses the same words had different meanings in different contracts.
37. It is right to emphasise that references inHardtto the words in question, in their natural meaning, referring to the non-DIFC Courts of Dubai are to that meaning within the range of possible natural meanings which in the particular circumstances of that case the words must be taken to have. But those particular circumstances are not present in this case. This Court, therefore, has to arrive at that particular meaning of those words within the range of their natural and ordinary meaning which, having regard to all the material circumstances inthiscase, most closely reflects the mutual intention of the parties.
Discussion
38. When commercial parties enter into a law and jurisdiction agreement, usually contained in a clause in a contract disposing of their respective rights and obligations with regard to a particular transaction, their uppermost purpose is to identify with certainty a governing law which is invariable and a Court to which they can refer for determination any kind of dispute which falls within the scope of jurisdiction delineated by their agreement. This process of selection necessarily concludes with one body of law from the outset, as distinct from variable bodies of law. That reflects the basic and well-established principle under the Common Law that an agreement for a floating proper Law will not be an effective choice of law agreement: seeAmin Rasheed Shipping Corporation v Kuwait Insurance Co[1984] A.C. 50, per Lord Diplock at p.65 and, as further developed by Bingham L.J inEl Pont de Nemours & Co. And Endo Laboratories Inc. v agnew[1987] Lloyd's Rep. 585 at page 592:
"The service of suit clause did contain a reference to New York, which is the proper law for which the insurers contend. There are three points to be made. First, a clause of this type is not inconsistent with an English proper law, where that is otherwise to be inferred: see Armadora Occidental SA and Others v Horace Mann Insurance Co [1977] 2 Lloyd's Rep 406; [1977] 1 WLR 520. Second, the drafting of this clause appears to contemplate that the proper law of the contract may float until exercise of an option by the insured. But this is not a concept to which an English court could give effect, since the rights and obligations of contracting parties crystallize when a contract is made (subject to consensual variation thereafter), and contracts can only crystallize with reference to an existing proper law since they cannot exist in a legal vacuum: Amin Rasheed at pp 370 and 65C; Amar Shipping Co Ltd v Caisse Algerienne d'Assurance et de Reassurance [1980] 2 Lloyd's Rep 450; [1981] 1 WLR 207. It may, I suppose, be theoretically possible for a proper law to be retrospectively varied on exercise of a contractual option, but that does not dispense with the need for a pre-existing proper law, and since the option has not been exercised it is not in any event this case. Third, the intended effect of this clause, providing for determination of disputes in accordance with the law of the court in which the insurer is sued, does not suggest that the law of any State of the Union is already proper law. Certainly the provision for service on New York agents does not support that inference, because service may be made upon them no matter in which State the suit is brought."
39. It can, therefore, be inferred with reasonable confidence that where at the moment of contracting the parties select the Laws of Dubai as the governing law they intend to select either Civil Law Dubai Law, as applied in the non-DIFC Courts, or Common Law Dubai Law, as applied in the DIFC Courts. The one selection which, in our judgment, it can confidently be asserted would not have been made by either party would have been such body of law as was applied in such Court as was accorded jurisdiction over a given future dispute by the general laws of the Emirate of Dubai, depending on whether the dispute fell inside or outside Article 5(A)(1) of Law No.12 of 2004. The assumption that in a clause such as this the parties could have mutually intended to disassociate the body of law governing the contract from the court upon which they conferred jurisdiction is, in our view, although theoretically possible, distinctly implausible. Their selection of one body of law can thus be assumed to reflect their agreement to confer jurisdiction on the Courts of that one place where that body of law will be applied. Since their selection of a body of law must be immutable unless the contract is subsequently varied, there must be the very strongest inference that their selection of a Court applying that body of law is also intended to be immutable.
40. For these reasons, the approach to construction adopted by the Judge in this case should not be applied. Rather, it is necessary in order to ascertain whether the parties agreed to confer jurisdiction on the non-DIFC Courts to construe the law and jurisdiction clause by reference to all the circumstances material to ascertaining the mutual intention of the parties at the time when they entered into the Murabaha Agreement including, in particular, the contractual setting of that contract within the transaction relating to the Sky Gardens Development, comprising in particular the Tripartite Agreement Novation.
41. Starting with the terms of the Murabaha Agreement itself, there was certainly no actual sale and purchase of the "Property" as defined in Annexure 1, namely Sky Gardens Tower in its entirety. Rather the credit facility granted by NBC to Taaleem which gave rise to the indebtedness of Taaleem reflected in the "sale price" of the Property had been made available to Taaleem and incurred by it to enable it to participate in the wider Tripartite Agreement whereby it became a beneficial owner of 33% of ASG's legal interest in those residential units purchased from First Dubai.
42. Clause 14.2 of the Murabaha Agreement is a provision designed to protect the operation of the Jurisdiction Clause. It is repeated here for convenience:
"Appropriate ForumThe Buyer irrevocably waives any objection which it might now or hereafter have to the courts referred to in clause [14.1] being nominated as the forum to hear and determine any Proceedings and to settle any Disputes and agrees not to claim that any such court is not a convenient or an appropriate forum."
43. It is clearly intended to prevent Taaleem from arguing in the relevant Dubai Court that "such court is not a convenient or appropriate forum". However, that argument would not be anticipated in the non-DIFC Courts. That is because the forum non conveniens principle has no application in that Court. It must, therefore, be aimed at a situation where NBC has started proceedings in the DIFC Courts and Taaleem has invited that Court to exercise its discretion against exercising jurisdiction. This pre-supposes that it was the mutual perception that it was the jurisdiction of the DIFC Courts which might need protection, not that of the non-DIFC Dubai Court. That is certainly a pointer against the intended meaning of the jurisdiction clause being to select the non-DIFC Dubai Court.
44. Further, although the sale of the Property by NBC to Taaleem which purported to be the subject of the Murabaha Agreement was a cosmetic device to mask a loan agreement, there did underlie that loan the disposal to Taaleem by NBC of contractual rights in respect of 33% of the Property in circumstances where NBC effectively controlled the disposal of those rights. What NBC was doing was to facilitate the participation of Taaleem in this Tripartite Agreement under which it was recognised that Taaleem would be one of the three beneficiaries for whom ASG held the Property on trust.
45. The Tripartite Agreement by clause 15 provided that it shall be "governed by and construed in accordance with the law applicable in Dubai". At clause 14 it included an arbitration clause with a default appointment mechanism involving appointment by the Chairman of the London Chamber of Commerce.
46. Given that the property underlying the Tripartite Agreement was located in the DIFC and that the function of that Agreement was to regulate the relationship between the beneficiaries under the trust, a legal institution unknown to the Civil Law administered in the non-DIFC Courts of Dubai but fully applicable under the law administered in the DIFC Courts, it is to be inferred that the reference to the laws of Dubai in clause 14 was intended to refer to DIFC law rather than non-DIFC law. Intelligent commercial parties advised by an English solicitor would not have entered into an agreement in respect of the regulation of interests under a trust and incorporated into it a governing law provision which made it subject to a body of law to which the concept of a trust was unknown.
47. It is, therefore, to be concluded that the reference to the "Laws of Dubai" in clause 14 of the Tripartite Agreement was a reference to the law of the DIFC and not to the laws of non-DIFC Dubai.
48. Accordingly, given that the alleged novation agreement was directed to the substitution of Deyaar for Taaleem under the Tripartite Agreement, in the absence of any express agreement as to the governing law of that agreement, it is to be inferred that the novation agreement was intended to be governed by the same law as the Tripartite Agreement, since the subject matter of the novation agreement was such beneficial rights in the Property as Taaleem had acquired. It is, therefore, to be concluded that DIFC Law was the putative proper law of the alleged novation agreement.
49. Against this transactional background it is, in our judgment, highly improbable that the parties to the Murabaha Agreement would have mutually intended that it should be governed by non-DIFC Dubai law. After all, NBC had previously been directly involved in a central role in facilitating the creation of the Tripartite Agreement and the novation to both of which Taaleem was a party. It is thus to be inferred that when it came to negotiation of the Murabaha Agreement the mutual intention was that the reference in clause 13 to the "laws of Dubai" as the governing law should be to the same body of laws as governed the other contracts within the transaction relating to Taaleem and the Property.
50. If that conclusion is correct, as we believe it to be, the analysis of the meaning of "Courts of Dubai" in clause 14.1 should clearly take into account that the Murabaha Agreement was governed by the law of the DIFC and, as we have already indicated, the intrinsic improbability of the parties agreeing to refer disputes to the non-DIFC Dubai Courts when the contract from which such disputes could be expected to arise was governed by DIFC law.
51. However, there is one final consideration, raised by this Court in the course of argument which arises out of submissions strongly urged by Mr Black QC, on behalf of NBC, to the effect that it was more likely than not that the Court which was agreed to have jurisdiction would be that Court which was likely to have jurisdiction over typical disputes under the agreement.
52. Although the probability of a mutual intention to match the chosen forum of determination of disputes to the proper law of the contract, namely the Murabaha Agreement, is a strong pointer towards the selection of the DIFC Courts, there is an additional factor which could carry considerable weight in construing the jurisdiction clause. It is this. If disputes in respect of the contract incorporating the jurisdiction clause could be said to be substantially unlikely to fall within the jurisdiction of the DIFC Courts and substantially more likely to fall within that of the non-DIFC Courts, this would point strongly towards the conclusion that it was the mutual intention to select the non-DIFC Courts as the clause 14.1 forum.
53. It is to be observed that clause 14.1 is expressed as a jurisdiction agreement for the benefit of the Seller, that is NBC. Accordingly, one must test the hypothetically anticipated function of the jurisdiction clause specifically by reference to disputes as to whether Taaleem would be liable to make those payments which fell due under clause 4 of the Murabaha Agreement, that is to say disputes as to whether Taaleem had satisfied its obligations to repay NBC in respect of its indebtedness for the advance to enable it to participate in the Tripartite Agreement.
54. It is, therefore, at this point necessary to investigate whether disputes giving rise to claims by NBC against Taaleem in respect of such indebtedness could reasonably be foreseen to fall within Article 5(A)(1) of Law No. 12 of 2004 which provides as follows:
"(1) Without prejudice to paragraph 2 of this Article, the Court of First instance shall have the exclusive jurisdiction over:
(a) civil or commercial cases and disputes involving the Centre or any of the Centre's Bodies or any of the Centre's Establishments.
(b) civil or commercial cases and disputes arising from or related to a contract that has been executed or a transaction that has been concluded, in whole or part, in the Centre or an incident that has been occurred in the Centre.
(c) objections filed against decisions made by the Centre's Bodies, which are subject to objection in accordance with the Centre's Laws and Regulations.
(d) any application over which the Courts have jurisdiction in accordance with the Centre's Laws and Regulations;"
55. It is clear that such a dispute in respect of that indebtedness of Taaleem would not be one involving any Centre Establishment within (1)(a) for neither party to the Murabaha Agreement falls within that description, both of them being registered and carrying on business in non-DIFC Dubai.
56. In relation to (1)(b), the position is rather different. An omission or refusal by Taaleem to make those payments which fall due to NBC could doubtless be anticipated to give rise to a dispute "arising from or related to" the Murabaha Agreement. That agreement had not, however, been entered into in the DIFC.
57. However, the Tripartite Agreement could not have taken effect until all three parties had entered into it. The last party to do so, DIFC Investments LLC, according to the evidence executed it at its offices in the DIFC, whereupon it became binding on Taaleem and Amlak Finance. The Murabaha Agreement was in relation to Taaleem and NBC to be a part — albeit a temporary part — of the wider transaction comprising the Tripartite Agreement and the novation agreement. The comprehensive nature of the transaction arises from the fact that NBC was a key facilitator by means of its financing operations in both the Tripartite Agreement and the Murabaha Agreement and subsequently the novation agreement. The two former agreements were interdependent. The Murabaha Agreement recorded the financing facility without which Taaleem could never have entered into the Tripartite Agreement. In essence all three agreements were essential parts of a single package transaction.
58. Accordingly, the perspective of Taaleem and NBC when they entered into the Murabaha Agreement can be inferred to have been that any such disputed claims by NBC would be likely to arise from or be related to a transaction that had been concluded at least in part within the DIFC. Further, in as much as it is to be inferred that DIFC Investments had already partly performed at least some of its obligations under the Tripartite Agreement, the mutual perception would be that any future claim by NBC against Taaleem would arise or be related to a contract which had been executed in part in the DIFC.
59. In these circumstances the mutual perspective of the parties to the Murabaha Agreement would have been that those claims by NBC which were most likely to arise would fall within the exclusive jurisdiction of the DIFC Courts. In this connection, we refer, as did the Judge, to the passage from the Judgment inShihab Khalil v Shuaa Capital PSCCFI 017/2009 at paragraph 18:
"In order to bring himself within Article 5(A)(b) the Claimant would have to establish that his claim arose from or related to a contract that had been executed in the Centre or arose from or related to a transaction that had been concluded in the Centre or from an incident that had occurred in the Centre. In order to establish that the claim "arose from" or "related to" such a contract or transaction the claimant must, in my judgment, be a party to any such contract or transaction and further the contract or transaction must form an essential part of his cause of action. Moreover, in the context of "civil or commercial cases and disputes" the natural meaning of "transaction" is wide enough to include a range of deals including, but not confined to, a contract, and the word "concluded" in that context obviously does not mean "completely performed." So it must therefore mean concluded in the sense of "entered into". Accordingly, the more specific phrase "contract that has been executed" must in, my judgment, refer to a contract that has been performed within the Centre. The words "in whole or in part" separated by parenthetic commas, must be available to qualify "executed" as well as "concluded" and therefore have the effect of covering a claim relating to a contract which has been wholly or partly executed, in the sense of performed, within the Centre."
60. Clearly the transaction of which the Murabaha Agreement formed a part would be likely to form an essential part of NBC's cause of action in the sense that NBC would have to base its pleaded claim on the Murabaha Agreement within the context of the Tripartite Agreement and the novation agreement.
61. Therefore, taking all these matters into account, we conclude that there is a very strong inference that when the parties referred in clause 14.1 of the Murabaha Agreement to "the courts of Dubai" they intended to refer to the DIFC Courts and not the non-DIFC Dubai Courts and we conclude that the clause should be construed accordingly.
Does the DIFC Courts have Jurisdiction under Article 5(A)(1) of Law No.12 of 2004?
62. That leaves to be determined the question whether under the provisions of Article 5(A)(1) of Law No.12 of 2004 this court does indeed have jurisdiction over the particular disputes in this case, for as we have already said, it is not open to the parties to a contract to contract into the DIFC Courts' jurisdiction if the dispute in question falls outside the scope of the Court's Jurisdiction as delineated by the legislation.
63. As already explained, the Murabaha Agreement was one part of the composite transaction also comprising the Tripartite Agreement and the novation agreement. That transaction forms an essential part of what has been pleaded and would have to be pleaded as the cause of action on the basis of which Taaleem seeks negative declaratory relief under paragraph 35(a),(b) and (c) of the Particulars of Claim. As already concluded, the transaction was at least in part — namely the Tripartite Agreement — entered into inside the DIFC and, therefore, was a transaction which had been concluded in part within the DIFC within the meaning of Article 5(A)(1)(b) of Law No.12. It, therefore, follows that on the facts of this case the DIFC Courts does have jurisdiction to hear Taaleem's claims.
64. Justice Sir John Chadwick reached the conclusion that the DIFC Courts did have jurisdiction over the claims in these proceedings but he arrived at that conclusion by a completely different route from that set out in this Judgment. Apart from the somewhat different approach to the construction of the jurisdiction clause adopted earlier in this Judgment, we are not persuaded that the conjunction in paragraph 25 of his Judgment of the location within the DIFC of the land of Sky Gardens Tower to which each of the three contracts related and the fact that each of the three contracts had been performed could, of itself, be an adequate basis for jurisdiction of the DIFC Courts unless it were also shown that the performance of such contracts had taken place at least in part within the DIFC. The Murabaha Agreement was clearly not so performed since the transfer of title under it was fictitious. However, the Tripartite Agreement had probably been performed by DIFC Investments and it might, therefore, be said that NBC's claim was "related to the performance ofthatcontract."
65. It is right to add that many of the complexities to which this jurisdictional dispute has given rise could have been avoided if the parties had identified more specifically in the Law and Jurisdiction clauses whether they wished to select the Law of the DIFC and the Jurisdiction of the DIFC Courts or the law and jurisdiction of the non-DIFC Dubai Courts. It is hoped that in future those advising would-be contracting parties will give a high priority to identifying in their contracts the precise law and jurisdictional selection agreed upon.
NBC's Appeal against the granting of Deyaar's Application for leave to join NBC
62. As noted in paragraph 20 above, when the property market collapsed Deyaar attempted to extricate itself from the novation agreement so that Taaleem and not Deyaar would remain liable for payments which NBC claims it is owed for finance provided in respect of Sky Gardens.
63. By its counterclaim in these proceedings, Deyaar sought orders that Taaleem pay sums amounting together to AED 183,508,531.40 and a declaration that, until payment, Taaleem holds the property on trust.
64. By Application Notice No. 50/2010 Deyaar applied for an Order that NBC be joined as an additional party to its counterclaim. Justice Sir John Chadwick made an Order for joinder on 23 September 2010. In his reasons for Judgment of 21 November 2010 he ruled as follows:
"32. Deyaar has not challenged the jurisdiction of the DIFC Courts. That, of itself, would not be determinative if (contrary to the decision which I have reached) the DIFC Courts did not have jurisdiction under Article 5(A)(1) of the Judicial Authority Law. In such a case, the DIFC Courts would observe the Protocol and decline to entertain the claim. But that is not this case.
33. Deyaar has counterclaimed in the proceedings. Put very shortly, Deyaar contends, first, that the novation upon which Taaleem relies was never concluded; and, second, that, if it were, it ought to be
set aside
on the ground that it was entered into by the relevant officer of Deyaar in breach of fiduciary duty and that that breach was known to both Taaleem and NBC. Deyaar claims against both Taaleem and NBC repayment or return of the sum of AED 72,141,913 paid on 4 December 2008 (to which I have referred earlier in this judgment); and repayment or restitution of sums amount to AED 113,666,181.40 paid pursuant to the (purported) novation in April and May 2009. It claims against Taaleem an order that the novation (if completed) be set aside and a declaration that, until repayment of the sums claimed against Taaleem and NBC, Taaleem holds the 33 per cent interest in the Sky Gardens property upon trust for Deyaar.
Set aside
34. It seemed to me beyond argument that, if (as I have held) the DIFC Courts have jurisdiction to determine the claims of Taaleem against NBC and Deyaar, then (i) the DIFC Courts have jurisdiction to determine Deyaar's counterclaim against Taaleem and, also, (ii) the DIFC Courts have jurisdiction to determine Deyaar's counterclaim against NBC.
35. By Application Notice 50/2010 Deyaar seeks an order, pursuant toRDC 21.11, that NBC be added as an additional party to its counterclaim. The Rule is in these terms:
"A defendant who wishes to counterclaim against a person other than the claimant must apply to the Court for an order that that person be added as an additional party."
The matters to which the Court is to have regard, when considering an application underRDC 21.11, include:
"(1) the connection between the additional claim and the claim made by the claimant against the defendants;
(2) whether the additional claimant is seeking substantially the same remedy which some other party is claiming from him; and
(3) whether the additional claimant wants the court to decide any question connected with the subject matter of the proceedings -
(a) not only between the existing parties and a person not already a party; or
(b) against an existing party not only in a capacity in which he is already a party but also in some further capacity." [RDC 21.30].
6. It may be said thatRDC 21.11is not, in terms, apt to apply to a case, such as the present, where one defendant seeks to claim against a person who is already a defendant to the claim brought by the claimant in the proceedings. But Deyaar has taken the view (understandably in the circumstances) that the prudent course is to assume that permission to bring a counterclaim against NBC is required. It is unnecessary to decide whether permission is, indeed, required in this case; and I have not done so. At the conclusion of the argument, it seemed to me plain that this was a case in which, if permission were required before Deyaar could bring its counterclaim against NBC, that permission should be granted. Deyaar's claims against NBC are inextricably linked with Taaleem's claims in the proceedings; and with Deyaar's claims (properly brought by counterclaim) against Taaleem. Accordingly I granted the relief sought in Application Notice 50/2010."
65. In its appeal, NBC challenged this decision essentially because it was based on Justice Sir John Chadwick's allegedly incorrect ruling dismissing NBC's challenge to jurisdiction: see NBC Notice Skeleton Argument on 5 December 2010 at paragraph 96.
Deyaar's Appeal Notice and its Arguments on Appeal
66. Deyaar filed an Appeal Notice on 3 February 2011 in which it requested this Court to uphold the Judgment of Justice Sir John Chadwick for two additional reasons namely:
"1. The current proceedings constitute a dispute arising out of a "transaction carried out in the Centre" within the meaning of Article 8(2) of Dubai Law 9 of 2004, over which the DIFC Courts is granted exclusive jurisdiction. The Second Respondent submits that the "transaction" in the present case can properly be described as an investment in the Sky Gardens Tower situated in the DIFC, and that each of the parties participated in that transaction; and
2. Jurisdiction to hear the present case is, additionally, vested in the DIFC Courts by the English and common law principle (also adopted in civil law jurisdiction), that the only competent court to determine the issues of title to, and the right to possession of, immovable property is the court local to that immovable property. The Second Respondent submits that this principle is a matter of policy; the sound administration of justice requires that cases which involve, or are principally concerned with, questions of title to, or possession of, immovable property can only be tried by the court of the place where the property is located."
67. In view of the Courts' finding that Justice Sir John Chadwick was correct to find that the DIFC Courts has jurisdiction in this matter, albeit that this Court has reached that conclusion by a different route, there is no need to address the alternative basis of jurisdiction asserted by Deyaar
68. In its Appeal Skeleton of 17 March 2011 it submitted that:
"9. Further, there can be no dispute that as between Taaleem and Deyaar, the DIFC Courts has jurisdiction. A central issue between those parties is which of them has ended up with an interest in land (the Sky Gardens property) situated in the DIFC. In considering Deyaar's application to join NBC as a defendant to its counterclaim. Justice Sir John Chadwick appliedRDC 21.11(which applies to a defendant who wishes to counterclaim against a non party and possibly against an existing party) and found that:
"Deyaar's claims against NBC are inextricably linked with Taaleem's claims in the proceedings; and with Deyaar's claims (properly brought by the counterclaim) against Taaleem". [15/142]That is a finding which has not been challenged by NBC in this appeal. Even if NBC were to succeed in its challenge to jurisdiction on the basis of the Murabaha agreement (an agreement to which Deyaar is not a party), it will not have any impact on Deyaar's claims against NBC in this proceeding."
(Underlining added)
Discussion
69. The only question is whether Justice Sir John Chadwick's decision on the Deyaar joinder application should be affirmed. It seemed to be expressly or implicitly accepted on all sides that, if DIFC jurisdiction was upheld, the joinder decision should stand since, as Justice Sir John Chadwick held, Deyaar's claims were "inextricably linked with Taaleem's claims in the proceedings and with Deyaar's claims (properly brought by counterclaim)". NBC did not argue otherwise on appeal.
70. This Court agrees with Justice Sir John Chadwick's decision to grant the joinder application and the reasons he gave for it. Accordingly, the appeal of NBC against the granting of the Deyaar joinder application fails.
Orders
71. The appeal against the Judgment of Justice Sir John Chadwick dated 21 November 2010 is, therefore, dismissed. NBC must pay Taaleem and Deyaar's costs here and below to be assessed if not agreed.
Deputy
Chief Justice
Sir Anthony ColmanChief Justice
Justice David Williams
H.E. Justice Omar Al Muhairi
Date of Issue: 11 May 2011