Claim No: SCT 298/2023
THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS
In the name of His Highness Sheikh Mohammed Bin Rashid Al Maktoum, Ruler of Dubai
IN THE SMALL CLAIMS TRIBUNAL OF DIFC COURTS
BEFORE H.E. JUSTICE NASSIR AL NASSER
BETWEEN
NUREEN
Claimant/Counter Defendant
and
(1) NIKIR (2) NIPLU
Defendants/Counter Claimants
| Hearing : | 14 December 2023 |
|---|---|
| Judgment : | 12 January 2024 |
JUDGMENT OF H.E. JUSTICE NASSIR AL NASSER
UPON the Claimant filing the Claim Form dated 16 August 2023
AND UPON a Hearing having been held before H.E. Justice Nassir Al Nasser on 14 December 2023, with the Claimant’s and the Defendant’s representatives in attendance
AND UPON reading the submissions and evidence filed and recorded on the Court file
IT IS HEREBY ORDERED THAT:
1. The Defendants jointly or severally shall pay the Claimant the sum of AED 300,000 plus interest at the rate of 9% per annum from the date of this Judgment until the date of full payment.
2. The Defendants jointly or severally shall pay the Claimant the court fees in the sum of AED 15,000.
3. The Defendants’ Counterclaim shall be dismissed.
4. There shall be no order as to costs of the Counterclaim.
Issued by:
Hayley Norton
SCT Judge and Assistant Registrar
Date of Issue: 12 January 2024
At: 11am
THE REASONS
Parties
1. The Claimant is Nureen(the “Claimant”), a company registered and located in Abu Dhabi, UAE.
2. The First Defendant is Nikir (the “First Defendant”), a company registered and located in Dubai, UAE.
3. The Second Defendant is Niplu (the “Second Defendant”), an individual who is the owner of the First Defendant.
Background and Procedural History
4. The underlying dispute arises in relation to a Letter of Intent dated 7 April 2022 for the Claimant to purchase 50% of the shares from the Second Defendant in the First Defendant (the “LOI”).
5. On 16 August 2023, the Claimant filed a claim against the Defendants for a refund of the amounts paid to the Defendants in the sum of AED 300,000.
6. On 31 August 2023, the Defendants filed their defence and counterclaim seeking the sum of AED 500,000 in damages (the “Counterclaim”).
7. The parties met for a Consultation on 2 October 2023 before SCT Judge Hayley Norton but were unable to reach a settlement.
8. In line with the rules and procedures of the SCT, this matter was referred to me for determination, pursuant to a Hearing held on 7 November 2023 and 14 December 2023, at which the Claimant and the Defendants’ representatives were in attendance.
The Claim
9. The Claimant submits that it had entered into the LOI to purchase 50% shares in the First Defendant from the Second Defendant for AED 4,000,000 subject to certain pre-conditions being met.
10. The Claimant submits that the LOI contains the following express terms:
(a) This letter does not contain all matters upon which an agreement must be reached in order for the transaction to be consummated. Among other conditions specified herein, the obligations of the parties to consummate the transaction is subject to negotiation and execution of a share and purchase agreement and any and all ancillary documents as contemplated in paragraph 2 of this letter (collectively, the “Definitive Agreements”).
(b) Paragraph 2 of the LOI provides the following: “the parties shall use reasonable diligence to commence good faith negotiations in order to execute and deliver the definitive agreements (including a shares and purchase agreement) which will set out the terms and conditions concerning the transaction.”
(c) Paragraph 4 of the LOI provides the following: “the provisions of this letter will terminate and cease to have force and effect (except for any antecedent breach) on the earlier of (i) the date of execution of the Definitive Agreement, and (ii) ninety (90) days from the Effective date”.
11. The Claimant submits that it was an implied term of the LOI that if the Parties failed to negotiate and execute the Definitive Agreements resulting in the termination of the LOI, the Defendants were obligated to return the Claimant’s initial investment in full upon termination, that is, the AED 2,000,000.
12. The Claimant submits that the Defendants knew and/or it was obvious that at all material times, in order to give business efficacy to the LOI, the proposed share acquisition was conditional upon the execution of the Definitive Agreements (i.e. specifically a share purchase agreement) within a 90-day period. It was further known and/or obvious that a failure to execute a share purchase agreement would result in the termination of the LOI and require the Defendants to repay the AED 2,000,000 payment received from the Claimant in its entirety.
13. The Claimant submits that the parties signed the LOI on 11 April 2022, the effective date. Accordingly, they had 90 days from 11 April 2022 to 10 July 2022, by which to negotiate and execute the Definitive Agreement. However, in exercising all reasonable diligence and good faith, the Claimant allowed the negotiation to continue beyond 10 July 2022 and termination of the LOI.
14. On 6 October 2022, the Claimant wrote to the Defendants confirming that following a review of the related financial documentation, it no longer wishes to continue the negotiation or proceed with the proposed share acquisition. In the circumstances, the Claimant kindly requested the Defendants to refund the sum of AED 2,000,000.
15. On 12 October 2022, the Defendants only refunded the sum of AED 1,700,000 leaving an outstanding balance of AED 300,000 due and owing to the Claimant.
16. Therefore, the Claimant filed a claim with the SCT seeking repayment of the remaining AED 300,000, plus interest for such period as the Courts thinks fit and costs.
Defence
17. The Defendants submit that the payment of AED 4,000,000 was unconditional and moreover, the parties have agreed in subsequent discussions that there was no requirement to enter into the Definitive Agreement in order to cement the Claimant’s payment obligations under the LOI. Accordingly, the terms of the LOI had been varied through the conduct of the parties.
18. The Defendants submit that it is admitted that the LOI contained the requirement for the parties to enter into the Definitive Agreement, however, the Claimant at all times led the Defendants to believe that the payment of AED 4,000,000 under the LOI would not be conditional on the Definitive Agreements being materialised.
19. The Defendants add that the parties attended various meetings before the effective date and continued to meet after the expiry of the 90 day period following the effective date, wherein the Claimant actively participated in the management of the business of the First Defendant. The Defendants add that the conduct of the Claimant clearly implied that they remained bound by the LOI notwithstanding that the Definitive Agreement had not been executed. Accordingly, the parties varied the terms of the LOI through conduct to the effect that the payments were not conditional upon the Definitive Agreement.
20. The Second Defendants also submits that she had no obligation to return the sum of AED 1,700,000 under the terms of the LOI. However, the Defendants submit that it was returned to the Claimant out of their own good will and under duress, and not because the Claimant was entitled to a refund of any amount. The Defendants deny that the Claimant is owed any outstanding amounts.
Counterclaim
21. The Defendants submit that the parties were working together as equal shareholders in the First Defendant, notwithstanding that the share transfer had not yet been affected. It was agreed between the parties that the transfer of 50% of the shares in the First Defendant would be made between the Second Defendant and the Claimant upon receipt of the additional AED 2,000,000 owed by the Claimant to the Defendants.
22. The Defendants add that despite repeated requests from the Second Defendant to sign the shareholder agreement, the Claimant assured the Second Defendant that signed copies of the agreement were forthcoming, together with the balance of investment. The Claimant, through its conduct, made clear that the investment under the LOI was not conditional upon signing of the shareholder agreement.
23. The Defendants submit that the Claimant also made it clear to the Second Defendant that they did not want any additional investment from other investors and any involvement in the business from any other parties. The Defendants adds that the Claimant assured the Second Defendant they would be financing the business and operations of the First Defendant, and that the Second Defendant should continue to work hard to grow the business.
24. The Defendants add that on 6 October 2022, without any prior warning and despite their repeated assurances that the investment of AED 4,000,000 into the First Defendant was guaranteed without the need for any further documentation, the Claimant unilaterally sought a refund of the investment of AED 2,000,000. This refund was sought in breach of the Agreement between the parties that the investment was made unconditionally, and that there was no right to a refund.
25. The Defendants submit that the refund of AED 1,700,000 was made due to the Second Defendant being under duress.
26. The Defendants submit, as the Second Defendant had been unable to seek more investment into the First Defendant due to the Claimant’s express wishes that no outside investment be sought, the Second Defendant was unable to continue with the business and accordingly had to shut it down. The Second Defendant lost all of her savings and prior investment into the business.
27. The Defendants submits that as a result of the Claimant’s actions, the Defendants have suffered loss of income between May 2022 and June 2023 in the sum of AED 500,000, loss of opportunity and consequential damages.
Discussion
The Claim
28. The question is whether the LOI was conditional or unconditional. The terms of the LOI provide that it is subject to paragraph 2 of the LOI which provides the following: “the parties shall use reasonable diligence to commence good faith negotiations in order to execute and deliver the definitive agreements (including a shares and purchase agreement) which will set out the terms and conditions concerning the transaction.”
29. Paragraph 2 of the LOI provides that it is subject to a condition being satisfied which is to execute and deliver the Definitive Agreement.
30. The parties have not signed a Definitive Agreement. Therefore, the Defendants submission that the LOI is unconditional and should be supported by evidence. The Defendants submit that the parties have varied the terms of the LOI verbally and by conduct. However, the Defendants’ failed to provide any evidence to support its submission.
31. In addition, paragraph 4 of the LOI provides that “the provisions of this letter will terminate and cease to have force and effect (except for any antecedent breach) on the earlier of (i) the date of execution of the Definitive Agreement, and (ii) ninety (90) days from the Effective date”.
32. The parties have not signed the Definitive Agreement and the 90 days have passed from the effective date which was on 11 April 2022. The parties then extended the LOI by conduct and as part of further negotiations. Subsequently, on 6 October 2022, the Claimant expressed its intention not to continue and requested a refund. By that time, the parties had still not signed the Definitive Agreement. On 12 October 2022, the Defendants refunded the Claimant the total sum of AED 1,700,000 of the AED 2,000,000 paid.
33. The Defendants’ conduct in refunding the sum also demonstrates that the Defendants agree that the LOI had expired and there is no further obligation on the Claimant to continue. The Defendants did not satisfy the Court the reason for not refunding the full amount. In addition, the Defendants failed to provide evidence that the refund was made as a result of duress.
34. The Court finds that since it was accepted that the LOI is terminated and the Defendants agreeing on refunding the Claimant, the Defendants are obliged to refund the full amount of AED 2,000,000. Since the Defendants only refunded the sum of AED 1,700,000, the Court find that the Claimant is entitled to the remaining outstanding amount in the sum of AED 300,000.
Counterclaim
35. The Defendants submit that the Claimant acted as a 50% shareholder of the First Defendant and was part of the management. However, the Defendants failed to provide such evidence that the Claimant was a 50% shareholder or acted as part of the First Defendant’s management.
36. The parties have never finalized the Definitive Agreement, in addition, to become a 50% shareholder of the First Defendant, the sum of AED 4,000,000 should be paid to the Second Defendant. The Claimant has only paid the sum of AED 2,000,000 which as per the LOI should be paid on 11 April 2022, being the effective date.
37. The Defendants filed their counterclaim claiming loss of income from the period of May 2022 to June 2023 in the sum of AED 500,000.
38. The Defendants failed to provide evidence of the loss of income suffered from the period of May 2022 to June 2023 as a result of the Claimant.
39. Therefore, the Court shall dismiss the Defendants’ counterclaim for lack of evidence.