Claim No: CFI 059/2021
THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS
IN THE COURT OF FIRST INSTANCE
SOL INTERNATIONAL PROPERTIES LIMITED
BURGER & LOBSTER RESTAURANT (DUBAI) LLC (IN LIQUIDATION)
ORDER WITH REASONS OF THE REGISTRAR NOUR HINEIDI
UPON the Order of the Registrar Nour Hineidi dated 21 January 2022 (the“Order”)
AND UPON reviewing the Claimant’s permission to appeal application dated 11 February 2022 filed against the Order (the“Permission Application”)
AND UPON reviewing the Defendant’s written submissions in opposition to the Permission Application dated 1 March 2022
IT IS HEREBY ORDERED THAT:
1. The Permission Application is dismissed.
2. The Claimant is to pay the Defendant’s costs of the Permission Application to be immediately assessed upon the Defendant’s provision of its statement of costs within 7 days from the date of this order. The Claimant will have a right to provide its submissions, if any, within 7 days thereafter.
Date of issue: 12 April 2022
SCHEDULE OF REASONS
1. These are my reasons for refusing the Permission Application.
2. On 13 June 2021, the Claimant filed a claim in the DIFC Courts (in CFI-059-2021) to exercise a statutory and contractual lien, against the Defendant (who was in liquidation before the Claimant commenced proceedings against it), in respect of assets left in the premises of the landlord Claimant by the former tenant (Defendant).
3. On 11 January 2022, the Claimant applied to discontinue its claim against the Defendant. On 21 January 2022, I issued an order for costs in favour of the Defendant awarding the Defendant its costs in full, as set out in its statement of costs dated 14 December 2021 (“Costs Order”). The Claimant now appeals that Costs Order and I provide reasons for my Costs Order below which go hand in hand with my reasons for dismissing the Permission Application.
4. Given that I awarded costs in full, the basis of my assessment was awarding costs on the indemnity basis; in doing so, I took into account Rule 34.15 of the Rules of the DIFC Court (“RDC”), the circumstances of the case and the relevant provisions of the RDC on costs.
5. The RDC provides no criteria for awarding costs on the indemnity basis, though Practice Direction No. 5 of 2014 does (“PD 5”). I reproduce the relevant sections of PD 5 below:
1. In determining whether costs should be assessed on the indemnity basis as opposed to the standard basis (see in this regard RDC (Rules of the DIFC Courts) 38.17), the following factors, inter alia, will be taken into consideration in the exercise of a judge’s discretion:
(i) circumstances where the facts of the case and/or the conduct of the paying party are/is such as to take the situation away from the norm; for example where the Court has found deliberate misconduct in breach of a direction of the Court or unreasonable conduct to a high degree in connection with the litigation; or
(ii) otherwise inappropriate conduct in its wider sense in relation to a paying party’s pre-litigation dealings with the receiving party, or in relation to the commencement or conduct of the litigation itself; or
(iii) where the Court considers the paying party’s conduct to be an abuse of process.
3. An order for indemnity costs will not enable a party to receive more costs than they have incurred. Even on the indemnity basis the receiving is restricted to recovering only the amount of costs which have been reasonably incurred (subject to RDC 38.19). The award of costs on the indemnity basis is normally reserved to cases where the Court wishes to indicate its disapproval of the conduct in the litigation of the paying party.
6. RDC r.38.19 also requires that:
“Where the amount of costs is assessed on the indemnity basis, the Court will resolve any doubt which it may have as to whether costs were reasonably incurred or were reasonable in amount in favour of the receiving party”.
Where costs reasonably incurred
7. I now take each of the relevant tests in turn, starting with the question of whether costs where reasonably incurred. In addressing this question, I looked in detail at the Defendant’s statement of costs. I do not consider an amount of USD 106,526.43 to be an unreasonable amount in defending a claim which ran for a period of approximately 6 months, particularly when the majority of fees were accrued by a single (senior associate) fee earner. The Defendant’s solicitor signed a statement of truth at the end of its statement of costs, and I will take that amount on face value to be the correct amount incurred by the Defendant. There is no reason why the Defendant’s creditors should be out of pocket by virtue of an empty claim brought by the Claimant.
8. Onto the second component now – being the “empty claim” component.
9. I have referred the Claimant, on multiple occasions, to Article 88(2) of the DIFC Insolvency Law (being DIFC Law No. 1 of 2019) (the“Insolvency Law”). Article 88(2) of that law is clear, it states:
Consequences of winding up order
(2) When a winding-up order has been made by the Court, no action or proceeding shall be commenced or continued against the Company or its property, except by leave of the Court and subject to such terms as the Court may impose.
10. When the Claimant filed its claim form, it was not aware of Article 88(2) of the Insolvency Law.1The Claimant relied on Article 60 of the DIFC Leasing Law (being Law No.1 of 2020) (the “Leasing Law”) as the basis for starting its claim. Article 60 of the Leasing Law states:
60. Sale of Lessee’s assets left at the Leased Premises
If the Lessee has been declared insolvent, a Lessor may apply to the Court for an order permitting the Lessor to sell assets of the Lessee from the Leased Premises by a public bidding process, or on the open market, and account to the Liquidator of the Lessee, for the proceeds of sale of such assets, also indicating the reasonable costs of the Lessor incurred in selling the assets, and any Rent arrears set off against the proceeds of such sale.
11. The Claimant submits, in its Permission Application, that it was “not wrong to rely on the Leasing Law”. This is not incorrect. The Claimant was not wrong to rely on the Leasing Law. However, as the matter progressed over the course of months, this Court made it clear to the Claimant that no claim would be entertained by the Court absent the permission requirement set out in Article 88(2) of the Insolvency Law.
12. In reading the Insolvency Law and Leasing Law together, the position is simple: the Insolvency Law does not prohibit the bringing of any action against a Company; it simply requires that permission first be sought where the company was wound up by the Court. I will not delve in detail on my analysis with respect to the intention of the law makers when Article 88(2) was drafted, but I suspect that it was drafted with a view to deter litigants from bringing vexatious and unnecessary claims against an insolvent company and putting that company through the expense of defending such claims. Article 60 of the Leasing Law in no terms precludes or waives the permission requirement set out in Article 88(2). The laws complement each other and can be applied together.
13. In light of the above, the Claimant was directed, on multiple occasions, both informally (over a series of informal meeting calls between the parties and the Registrar) and formally (see Order of the Registrar Nour Hineidi dated 23 August 2021) to amend its claim form to seek the Court’s permission to bring proceedings against the Company.
14. Despite the Claimant being indulged and afforded permission from this Court by virtue of paragraph 5 the Order of the Registrar Nour Hineidi dated 23 August 2021 to amend its claim form thereby dispending with the relevant RDC requirement for leave to amend its claim, the Claimant decided against amending its claim form and instead filed a notice of discontinuance. No consent order agreed by the parties was filed by the Claimant to demonstrate that the proceedings were instrumental in settlement discussions between the parties. The Claimant simply decided that it no longer wished to pursue its claim. On this basis, the Defendant ought to be put back in the position it was in before these proceedings were filed against it.
15. Against the context given above, I now refer to PD 5, and make the following observations:
(a) I consider the Claimant’s conduct in these proceedings to be an abuse of process. The Claimant failed to follow the prescribed procedure, even when directed by the Court. It tried to “fast track” its priority as a creditor on the pay-out ladder by relying on the Leasing Law alone. When it became apparent that it would fail on this point, it filed a notice of discontinuance; and
(b) in light of the Claimant’s failure to utilise the proper process, it ought to put the Defendant back in the position it was in before it brought proceedings against it. The only way to do this is to cover the Defendant’s costs in full. These costs will otherwise be costs in the liquidation and may come out of the pockets of creditors who have followed the required process and filed a proof of debt with the liquidator.
16. For the reasons given above, my view is that the Claimant’s Permission Application is not compelling and it is unlikely to succeed on appeal. For this reason, I do not see why costs should continue to accrue in the liquidation of the company in question. The Permission Application is therefore dismissed with costs.
17. The Claimant is to pay the Defendant’s costs of the Permission Application to be immediately assessed upon the Defendant’s provision of its statement of costs within 7 days from the date of this order. The Claimant will have a right to provide its submissions, if any, within 7 days thereafter.