2 November 2021
Jurisdiction - Dubai International Financial Centre, Dubai, United Arab Emirates (DIFC).
Court - DIFC Court of Appeal.
A version of this article originally appeared in the Lexis Middle East Law Alert November/December 2021.
The DIFC’s Real Property Law is based on the underlying principles of English common law, but also incorporates the Torrens system of land registration, seen in countries such as Canada, Australia, and Singapore. It provides that land transactions are to be registered in a central register administered by the DIFC Registrar of Real Property (the RORP) and once registered, the law certifies them to be fully effective and indefeasible.
In April 2011, the Claimant, Vegie Bar LLC (VB), agreed a 10-year lease of two large retail units in Limestone House, DIFC (the Units) with its owner, Union Properties PJSC (UP) (the Lease). VB intended, and was required by the Lease, to operate the units as a bar and restaurant.
Also, in April 2011, UP prepared and lodged with the RORP the Strata Management Statement (SMS) for Limestone House, a legally binding document dealing with the management of the building. Notably, the SMS contradicted the Lease by prohibiting the use of retail units as bars and restaurants.
The Lease agreed that the commencement date was 1 June 2011 and, following a fit-out period, the restaurant must open on 1 December 2011. The fit-out did not happen and the restaurant did not open. In the meantime, neither VB or UP attempted to register the Lease with the RORP.
In January 2012, UP sold its freehold interest in Limestone House to the Defendant, Emirates NBD Properties (Emirates). The sale was conducted pursuant to individual unit sale and purchase agreements (the SPAs) and did not mention transferring the Lease. The sale of the freehold was registered by the RORP in late March 2012.
Also, in March 2012, UP agreed with VB to amend the Lease Commencement Date from 1 June 2011 to a date to be determined “once progress of occupancy of the commercial units in Limestone House was achieved”.
In May 2012, VB obtained the signature of an Emirates employee to a lease registration form and filed this with the RORP attempting to bind Emirates to the Lease. At the time, unit titles had not been created by the RORP and, therefore, the Lease was incapable of being registered against the relevant units.
Emirates subsequently declined to recognise the Lease noting, amongst other things, that its performance would breach the SMS’ by operating a retail unit as a bar/restaurant.
In January 2014, when the building’s strata title plan was eventually registered by the RORP, title folios were created for the individual units. The RORP did not, however, register the Lease in the absence of Emirates’ consent.
In March 2016, VB who had never traded and was impecunious, commenced proceedings against Emirates with the litigation being funded personally by its manager/shareholder. Curiously, VB did not bring a claim against UP. VB sought an order for possession of the units and damages for losses suffered through the delay in taking possession.
The proceedings became a saga of interlocutory applications. Amongst other things, VB directed by its manager/shareholder, embarked on a hunt for a master umbrella agreement that it alleged must have been signed and superseded the SPAs in assigning the burden of the Lease to Emirates. VB obtained orders for early “English style” standard disclosure against Emirates, non-party document production against the RORP and the DIFC Registrar of Companies and a Court summons against UP. Emirates denied an umbrella agreement existed and, after costly and extensive disclosure, the four parties did not locate one.
In 2019, VB applied for immediate judgment against Emirates. VB alleged that the Lease had been transferred to Emirates by either: (1) assignment in January 2012 or (2) registration in May 2012. Alternatively, Emirates held the units subject to the Lease because Emirates knew about the Lease when it purchased the units. Accordingly, VB alleged there had been fraud by Emirates in acquiring or holding its interest or the Lease bound Emirates as an equitable obligation because of its conduct.
Emirates opposed the applications and cross-applied for immediate judgment asserting it was not bound by the Lease when it purchased the Units, the Lease had not subsequently been registered and, in any event, the Lease was void for uncertainty as a result of the amendment in March 2012 to the commencement date.
The Court of First Instance dismissed VB’s applications and granted immediate judgment to Emirates ruling that the proposed amended claim had no prospect of success (DIFC  CFI 009 4 Sept 2019).
VB appealed against all of the Judge's orders also alleging that the Judge "demonstrated apparent or actual bias". In its judgment of 15 October 2020, the Court of Appeal found as follows:
It was common ground that VB was impecunious. The proceedings, including the relentless interlocutory applications, had been controlled and funded by its manager/shareholder who alleged he should avoid retribution due to the separate legal personality of VB.
After the appeal judgment, the Court of Appeal on 17 March 2021 granted orders that VB’s owner be joint and severally liable to pay Emirates’ costs, that costs were payable on an indemnity basis and that 75% of the costs of the entire case be paid in the interim pending detailed assessment. The Court stated:
The Court of Appeal’s substantive judgment is now the leading case on the application of DIFC Real Property Law and also provides a rare example of a contract being void for uncertainty. The subsequent costs judgment contains a useful warning for individuals considering claims on behalf of defunct companies, especially cases with a high risk of failure. Non-party costs orders are not in the realm of piercing the corporate veil. The judgment also demonstrate the DIFC Court’s willingness to issue indemnity costs and higher-than-usual interim cost payments, in this case 75% rather than the usual 50%, where appropriate.