Tom Montagu-Smith QC and Matthew Watson successful in AED 2bn (US$ 540m) DIFC Court claim

In Emirates NBD Bank PJSC and ors v Advanced Facilities Management LLC and ors [2020] CFI 065 (9 May 2022), the DIFC Court (Justice Sir Jeremy Cooke) granted immediate judgment to a syndicate of banks in a AED 2bn (USD 540m) claim for recovery of restructuring loans. The Defendants’ counterclaim was also dismissed.

The judgment is one of the largest issued by the DIFC Courts. In a robust judgment, the Judge dismissed the various defences and counterclaims raised by the Defendants in a 53 page defence and 83 page skeleton argument. The Court also gave useful guidance on a number of issues, including the relationship between allegations of misrepresentation and the requirement for certainty of terms of a contract.

The claim arose out of restructuring facilities entered into on 27 December 2018. The loans were advanced to one of the Defendants, for repayment of various existing loans owed by the defendant group. The other Defendants guaranteed the restructuring facilities . The loans were a mix of conventional and Islamic finance.

The Defendants asserted that, at a meeting on 16 December 2018, shortly before the facilities were concluded, representatives of the arranging bank, the Eighth Claimant (C8), stated that they would not join the syndicate and provide finance unless they received additional security over the assets of a related party (“the OBN security”). They also claimed that C8 made promises and implied representations about the provision of working capital, over and above the facility. It was said that C8 promised that it would try to arrange working capital from the other syndicate members, but if that was unsuccessful, it would provide at least AED 100m in working capital itself.

The Defendants claimed that the threat not to provide financing amounted to duress, which rendered the facility voidable. They also claimed that the alleged promise of working capital amounted to a collateral contract (or perhaps a term of the facility) and carried implied representations that D8 had reasonable grounds to say that it would provide working capital. Those representations, they said, were negligent and no working capital was ultimately provided. They blamed the lack of working capital for the subsequent collapse of the group.

The Defendants also said that the Islamic financing was advanced in breach of AAOIFI Standards, which were incorporated into the contract, with the result that the Master Murabaha agreement was void.

The Claimants applied for immediate judgment. The application was heard over 2 days on 20 and 21 April 2022.

In his Judgment, issued on 9 May 2022, Sir Jeremy Cooke found that the Defendants had no real prospect of establishing that C8 was the agent of the other syndicate members at the meeting on 16 December 2018. An arranging bank normally acts for the borrower, not prospective lenders. There were no facts alleged which could give rise to an agency relationship. Nor was there any evidence or alleged facts to support the allegation that the other syndicate members had ratified any unlawful conduct on the part of C8.

The result was that none of the allegations could result in the facility being rescinded. At most, they could give rise to a counterclaim against C8.

The Judge also found that any right to rescind would have been lost by affirmation.

The duress claim also failed because the Defendants could not point to any obligation on C8 to provide finance. The real thrust of the allegation was in any event that the Defendants would not have procured the additional security. They always intended to enter into the restructuring facility. The Judge rejected the proposition that the facility would fall with the security.

Even if the statements alleged had been made at the meeting, they would be too uncertain to amount to a contractual promise. On any view, no terms were agreed as to interest, the period of the facility, the time it should be made available or security. As a result, any implied representations of the kind alleged were too uncertain for the Defendants to be entitled to rely on them.

The Judge further found that there was no real prospect of the Defendants establishing the factual allegations about statements being made at the 16 December 2018 meeting. Although cautious of not conducting a mini-trial, the allegations were vague, internally inconsistent and inconsistent with the contemporaneous documents, such that they lacked all credibility.

On issues of Islamic law, the Defendants relied on Registrar’s Direction No. 3 of 2017 to say that the court could not reach any decision about Shariah law without the benefit of expert evidence.

The Judge found that the Registrar’s Direction did not overrule existing authority (Fidel v Felecia [2015] DIFC CA 002) to the effect that the DIFC Courts can receive foreign law as submission. The Master Murabaha was in any event governed by English law. The AAOIFI Standards were not referred to specifically. Their incorporation could not be inferred if the result would be to make the contract void. In those circumstances, the attack on the Master Murabaha did not get off the ground. In any event, the Judge went through each of the breaches alleged and found that they were not made out.

The judgment represents a robust use of the immediate judgment procedure which is likely to have saved years of litigation and very substantial legal costs. The Defendants’ position was that the claim required several weeks of trial.

The judgment is also of interest in its treatment of the interaction between the requirement of certainty for contractual provisions (a theme which also featured in the Judge’s recent judgment in Hexagon Holdings v DIFCA [2019] DIFC CFI 013 (2 March 2022)) and implied representations. Where a promise is insufficiently certain to carry contractual force, a party is unlikely to be able to escape those consequences by recasting it as carrying implied representations.

Tom Montagu-Smith QC and Matthew Watson appeared for the Claimants, instructed by Rita Jaballah and Jonathan Brooks of Al Tamimi & Co.