Claim No. CFI 017/2023
IN THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS
IN THE COURT OF FIRST INSTANCE
BETWEEN
MUQQI
Claimant
and
(1) MUWAN
(2) MISAL
(3) MINUR
(4) MAUT
(5) MABTU
(6) MARU
(7) MIRKI
(8) MOFU
(9) MEKER
Defendants
REASONS FOR THE ORDER OF H.E. DEPUTY CHIEF JUSTICE ALI AL MADHANI DATED 12 MAY 2023
SCHEDULE OF REASONS
1. This is the First to the Eighth Defendants Application for security over costs against the Claimant which was successfully granted in my order of 12 May 2023 requesting the Claimant to pay an amount of USD 300,000 to the Court. The Application sought by the First to the Eight Defendants is only in respect of the costs arising out of the Claimant’s Injunction Application which is listed for a hearing before me on 7 June 2023.
2. My reasons for granting the Application in seeking security over costs are set out below. I should make it clear that in addition to the oral submissions made at the Hearing, I have read carefully through the evidence filed by both parties. Therefore, if I may omit some arguments or legal authorities relied on by either the Claimant or the Defendant, this does not mean that I have overlooked it. During the course of this Order, I will be referring to First to Eight Defendants in this order as the “Defendants”.
3. The underlying issues that arise out of this Application are four-fold. Firstly, it is the Claimant’s submission that security for costs order should not be made in respect of an interim application relying on the authority of GFN v Bancredit [2009] UKPC 39. Secondly, to determine whether there is a reasonable belief that the Claimant will not meet an adverse cost order or any of the conditions set out in RDC 25.102. Thirdly, whether it would just in all circumstances to order security for costs against the Claimant considering the injunction hearing listed on 7 June 2023. Fourthly, would the security for costs order stifle the Claimant’s position in its Injunction Application against the Defendants?
4. Before dealing with the list of issues, I will briefly set out the parties’ positions at this stage of the current proceedings. It is the Defendants’ case that Muqqi is not a trading entity, it had been simply established in the DIFC with the sole purpose of hiring officers and accountants for administrative purposes, in reality, the primary business that carries out blockchain transactions is managed by a different entity based in Austria. Also, the Claimant does not and never has had a bank account. Accordingly, the Defendants consider that a security for costs order would prevent a shell company from litigating without the risk of any adverse costs order.
5. The Claimant accepts that there is jurisdiction to order security, but contends that the Application should be refused. Whilst the Claimant does lack immediate realisable assets and the ability to honour any substantial order for costs, it is contended that the effect of any order for security would stifle it injunction claim. The Claimant rejects the Defendants’ submissions arguing that there are available assets belonging to it, which will effectively allow it to support any adverse order that may be made against it. The evidence in opposition of the Application is set out in the first witness statement of Mr. Mrual to which he points out to two assets being (i) an online account within USD 300,000 and Muqqitrademark which is owned by a RAK entity called “Metti”.
6. Turning to the first question pertaining to the issue of whether a security for costs order can be made at an interlocutory stage of the proceedings. The Defendants rely on the wording of RDC 25.97 which clearly sets out that a party can make any claim for his costs of the proceedings. The Defendants assert that the wording of this section does not restrict an applicant from their prerogative of applying to the Court to secure its costs, particularly when it is trite that the Claimant does not own any material assets to support an adverse cost order if the Claimant is defeated in the injunction hearing.
7. Further, the Defendants argue that “the proceedings” for the purposes of this Application is the Injunction Application that has been sought by Mrualon behalf of the Claimant against the Defendants. Therefore, the Defendants satisfy the condition set out in RDC 25.97.
8. The Claimant raises an issue in connection with the timing of the Defendants Application inviting the Court not to exercise its powers considering the injunction hearing is scheduled to take place in under a month. In support of the Claimant’s argument, it relies on the speech of Lord Newburgh in GFN v Bancredit [2009] UKPC 39 in Privy Council to which he points out that as a general rule security for costs order will not be made in relation to what is in substance an interlocutory application. The Defendants assert that the authority of GFN is not binding on the DIFC Court, and the Court has wide powers to grant such an order particularly when the case for security for costs order is overwhelming.
9. I agree with the Defendants’ submission, the decision in GFN v Bancredit [2009] is not binding on the DIFC Courts. The Court’s powers granted under RDC 25 Part III does not restrict the Court from exercising its discretion based on a delay of a security for costs application. Nevertheless, one has to be mindful that in granting such an application, it does not prejudice the Claimant’s position or the administration of justice. In my view and considering the current issues and the circumstances of the case, it would be financially detrimental for the Defendants to proceed with the injunction hearing without securing their costs. The timing of the Defendants’ Application is reasonable and not prejudicial to the Claimant, meaning that it has been made at the stage it became apparent to them that there is a real risk of non-enforcement or of additional burdens in the way of enforcement against the Claimant. It is clear to me that if an adverse cost order was granted against Muqqi, this would not be enforceable against Mr. Mrual as Muqqiis a separate legal personality distinct from Mr. Mrual. Thus, in those circumstances, whether the Defendants would recover their costs would substantially be contingent on whether Mr. Mrual would voluntarily choose to pay an adverse costs order on Muqqi’s behalf.
10. Further, as far as the evidence is concerned, Mr. Mrual has not been forthcoming with respect to the Claimant’s available assets that could be made accessible in support of a cost order to dissuade the Court from granting a security cost order. An online account with USD 300,000 belonging to Mr. Mrual and a Muqqi trademark owned by a different entity to the Claimant is not available assets that could be used to meet a future adverse cost order. Therefore, it is for these reasons that the Court will only concern itself with the conditions set out under RDC 25.102 and the issue of the delay between the Defendant’s security for costs application and the final determination of the injunction hearing will not be considered as a relevant factor in my final outcome. In my view, the Application was made as soon as practicable and as soon as the facts justifying the Application became known to the Defendants.
11. Turning to the second issue which deals with the conditions set out under RDC 25.102 on which the Defendants may apply for security for costs order if they were able to show that one or more of the conditions are applicable to the facts of the case. The Defendants rely on condition 25.102(2) which stipulates that there is “reason to believe [that the Claimant] will be unable to pay [their] costs if ordered to do so”. It is the Defendants’ submission that the wording “reason to believe” reduces the Defendants’ obligation “to prove the company’s inability to pay costs” and their burden of proof is not “on the balance of probabilities that the [Claimant] company will be unable to pay”. In support of their submissions, they rely on the lack of any evidence submitted on behalf of the Claimant to establish that it owns realisable assets of any value to meet a future adverse cost order. Further, it could be suggested that the Claimant’s undisclosed assets leads to the implication that Mr. Mrual is putting them out of the Defendants’ reach, allowing the Claimant to litigate risk-free and leaving the Defendant with the unenviable choice between bearing their own costs or investing further time and money in trying to enforce a future adverse order against the Claimant.
12. It is the Claimant’s case that the financial situation and the restricted visibility of its financials contributed to the Defendants’ alleged misconduct including but not limited to, the incorporation of a competing business, the termination of the Claimant’s lease, the Defendant’s alleged failure to return company’s property belonging to the Claimant, and the seizure of the Claimant’s operation bank account. The Claimant further asserts that the assets with significant value cannot be readily liquidated to meet an order for security for cost as it includes “client lists, list of expert consultants and developers, marketing strategies, business relationship with third parties and trade secrets…”.
13. However, Mr. Mrual (on behalf of the Claimant) failed to provide the Court or the Defendants with a clear insight on how the Defendants’ alleged breaches did not impact him from obtaining legal advice from his previous lawyers, Hadef and Partners or from being represented by his current legal advisors, Conselis Law. One would assume that the Claimant’s legal costs have been personally funded by Mr. Mrual, or other sources of funding were sought, allowing Mr. Mrual to proceed with the Injunction Application against the Defendants. Further, it is unclear how the identified assets such as “trade secrets, relationship with third parties” would have an immediate realisable value to cover the Defendants’ costs in the Injunction Application.
14. Therefore, it is wholly appropriate and reasonable to assume based on the assessment of the evidence that the Claimant has to some extent taken steps in making any enforcement procedure of a future adverse cost order difficult, this is evident in the fact Mr. Mrual on behalf of the Claimant his funding lawyers and continue to do so, without disclosing the source of the funds.
15. Since it is clear to me that the Claimant would be unable to meet a potential cost order if granted in the Defendants’ favour, the Claimant does not appear to have accessible assets in its own legal name that could be sold in an open market, a trademark owned by a “shareholder” of Muqqi is not an asset which wholly belongs to the Claimant. It is on that basis I am satisfied that the Application undoubtedly satisfies one of the conditions in RDC 25.102(2).
16. With respect to the third issue which deals with whether it would be just in all circumstances of the case to make such an order against the Claimant. In deciding whether or not ordering security for costs is just in all the circumstances in cases where stifling is an issue, it is necessary to carry out a balancing exercise between the potential injustice to the Claimant if prevented from pursuing a proper claim by an order for security, and the potential injustice to the Defendants if no security is ordered and the Defendants are unable to recover their costs from the Claimant.
17. The onus of proof under this heading shifts to the Claimant, in that once the Court is satisfied that there is reason to believe the Claimant will be unable to pay a cost order, it will be for the Claimant to persuade the Court that such an order would stifle its position in the Injunction Application. The Claimant’s burden is to demonstrate that on the “balance of probabilities”, the effect of an order would stifle its claim and in order to discharge that burden, the Claimant will need to show that it cannot provide security and cannot obtain appropriate assistance to do so. The Court would expect Mr. Mrual on behalf of the Claimant to be full and frank in relation to these matters it cannot be simply assumed that a security order would prevent the Claimant’s participation in the Injunction Application, the Claimant ought to provide the Court with clear evidence before it could make a decision that a security order will have the impact of stifling its injunction claim.
18. The Claimant contends that the realisable assets in the Claimant’s possession could not be immediately liquidated, and the alleged fiduciary breaches committed by the Defendants have been a contributory factor in its inability to meet an immediate security order. However, one could argue that those two reasons have been live issues from the start of the proceedings, nonetheless, they did not preclude Mr. Mrual’s participation or ability in pursuing the injunction claim against the Defendants.
19. The Claimant contends if the Application’s immediate effect is to prevent the Claimant from continuing its claim, the Court should not order a security order relying on the authority of Goldtrail Travel V Aydin [2017]. The fact that the Claimant does not have immediate realisable assets is not an indication that it cannot raise capital from third parties connected to the Claimant to continue the litigation. To support the Claimant’s contention that a security order would stifle its claim, the Claimant did not provide any form of evidence to establish that an immediate security would prevent him from pursuing his claim. In light of the insufficient and lack of clear evidence, the Court could not simply order in favour of the Claimant based on the statements of Mr. Mrual.
20. Therefore, on the balancing exercise there will be undoubtedly injustice to the Defendants if no security is ordered, the Defendants would be unable to recover their costs from the Claimant if a potential order is awarded against it. It is quite clear Mr. Mrualor other business associates have been making funds available to the Claimant which financially supported it to pursue its injunction claim. It was for the Claimant to prove to the Court that there was no other way to raise capital from directors, shareholders, other business associates or whoever has made those funds available for the duration of these proceedings, its burden of proof that on the balance of probabilities is not discharged to simply suggest that the Claimant is impecunious, and that impecuniosity is related to the alleged breaches of the Defendant.
21. The Claimant asserted that the Defendants have failed to provide a breakdown value of the security for costs figure of USD 300,000 and this should amount to a breach of the mandatory provisions of RDC 25.99(3) and (4) and the Defendants’ Application should be dismissed on that basis. The fact the Defendants provided a late submission of their statement of costs should not be dismissal of their Application, I find the argument to be weak and over-reaching.
22. The Defendants have complied with RDC 25.99(3) and (4) by filing a statement of costs, albeit a late submission, setting out the incurred fees to date in connection with the Injunction Application including the anticipatory counsel brief fees in defending the Claimant’s Injunction Application. Further, in the third witness statement of Miut dated 5 May 2023, Mr. Miut clearly points out in paragraphs 20 and 21 the Defendants incurred costs to date including the estimated future costs in defending the injunction hearing. Therefore, as far as I am concerned the late filing of a statement of costs in support of the Defendants’ Application should not be held as “fundamentally defective” to the extent that it warrants its dismissal.
23. I agree with the Defendants’ submission that litigation in common law systems is based on the premise that in the interest of justice, the unsuccessful litigant pays the costs of the successful litigant, if the Claimant loses at the injunction hearing and has no available assets to pay the Defendants’ legal costs, the principle is undermined and on the balance of probabilities there will be injustice if no security for cost order is awarded. Therefore, it is on that basis that I do not consider the security order against the Claimant would stifle its position in pursuing its Injunction Application.
Issued by:
Delvin Sumo
Assistant Registrar
Date of issue: 23 May 2023
At: 11am