Limsa (Pty) Ltd v (1) Lordon A Trading Platform Of Dubai Multi Commodities Centre (2) Lendi (3) Lander (4) Leone [2020] DIFC ARB 008
Limsa (Pty) Ltd v (1) Lordon A Trading Platform Of Dubai Multi Commodities Centre (2) Lendi (3) Lander (4) Leone [2020] DIFC ARB 008
May 19, 2020  Arbitration - Judgments
Claim No. ARB 008/2020
THE DUBAI INTERNATIONAL FINANCIAL CENTRE
COURTS
IN THE
COURT
OF FIRST INSTANCE:
BETWEEN
LIMSA (PTY) LTD
Claimant
and
(1) LORDON A TRADING PLATFORM OF DUBAI MULTI COMMODITIES CENTRE
Applicant/First
Defendant
(2) LENDI
(3) LANDER
(4) LEONE
Second to Fourth Defendants
JUDGMENT OF JUSTICE WAYNE MARTIN
UPON
the Claimant’s claim filed on 28 January 2020 (the “
Claim Form
”)
AND UPON
hearing Counsel for the Claimant and Counsel for the Defendants at a hearing on 5 May 2020 (the "
Hearing
")
AND UPON
the Claimant having filed a Notice of Discontinuance on 3 May 2020, discontinuing all issues against the Defendants, as set out in the Claim Form, except in respect of the costs in this case
AND UPON
reviewing all other relevant documents on the
Court
’s file
IT IS HERBY ORDERED THAT:
1. The Claimant shall pay the Second to Fourth Defendants’ costs in the sum of AED 213,540.00 within 14 days of this order.
2. The Claimant shall pay the First Defendant’s costs  of the proceedings and the hearing on 4 May 2020, and in that respect shall pay a total USD 86,275.30, into Court, within 14 days of this order. This amount represents 50% of the total amount claimed by the First Defendant in its Bill of Costs.
3. The balance of the First Defendant’s costs shall be assessed by the
Registrar
, if not agreed.
Issued by:
Nour Hineidi
Deputy Registrar
Date of issue: 19 May 2020
At: 3pm
Summary of Judgment
1. The claimant commenced proceedings in this Court seeking an order setting aside an
arbitral award
under Article 41 of the
Arbitration Law
of the
DIFC
, and other ancillary relief.  The claim was brought against the first defendant as the entity said to be responsible for the publication of the award, and against the second to fourth defendants on the basis that they were the other parties to the arbitral proceedings and the beneficiaries of the impugned arbitral award. Each of the defendants filed acknowledgments of service foreshadowing that the jurisdiction of the Court would be contested, and in due course all defendants filed applications pursuant to RDC 12.1 for orders declaring that the Court had no jurisdiction and setting aside the claim. On the day before those applications were due to be heard (and other applications relating to the efficacy of service and, in the case of the first defendant, alleged non-compliance with a preaction protocol) the claimant filed a notice of discontinuance of its claim pursuant to RDC 34.3. The time reserved for the hearing of the applications to which I have referred was used to hear the parties’ competing propositions with respect to the costs of the proceedings – the claimant contending that each of the defendants should pay its costs, and each of the defendants contending that the claimant should pay their costs.
2. RDC 34.15 provides that unless the Court orders otherwise, a claimant who discontinues a claim is liable for the defendant’s costs incurred up to and including the date on which notice of the discontinuance was served. For the reasons which follow I have concluded that the claimant has failed to displace the presumption inherent in that rule and that the claimant should pay the costs of all defendants.1
The parties
3. The claimant Limsa  (Pty) Ltd (“
Limsa
”) is a company registered in L Country engaged in the trade of L goods.2
4. The first defendant was sued in the name of “Lordon”, (“
Lordon
”) a trading platform ofX Centre is an entity of the Government of Dubai.3  Amongst its other activities, X Centre operates Lordon as a platform for trading in L goods.
5. The second – fourth defendants, namely Lendi, Lander and Leone respectively are all entities engaged in the trade ofL goods.
The substantive dispute
6. Limsa had a trading relationship with an L company called Lastin Exports Private Limited (“
Lastin
”). In general terms, the usual arrangement was that Limsa would supply L goods to fill orders placed with Lastin by its clients.4 In accordance with these arrangements, Limsa supplied L goods to each of the second – fourth defendants and sent invoices to those defendants for the price of the L goods supplied (including VAT payable on the sale of L goods in L Country).5
7. Limsa asserts that its only contractual relationship was with Lastin, and not with the parties to which it supplied L goods, including the second – fourth defendants.6  That proposition appears to be contentious.
8. Because the L goods supplied to the second – fourth defendants were exported fromL Country, Limsa obtained a refund of the VAT which it had paid to
the government
of L Country and which had been included on the invoices to the second – fourth defendants and which they had paid.  The second – fourth defendants claimed that Limsa was obliged to pass on to them the VAT which had been refunded. Limsa refused to pay the amounts claimed, on the basis that it was entitled to retain the VAT refunded and apply those funds in partial satisfaction of  a debt due to Limsa from Lastin, which had by then become insolvent.7
9. Mr Limsa, the director and principal of Limsa, became a member of the LORDON on 27 November 2018.  He was not a member of LORDONLORDON at the time of the transactions involving the second – fourth defendants. However, it seems he was a member of the LORDON at the time the relevant VAT was refunded to Limsa.
10. X Centre has promulgated By-laws relating to the operation of the LORDON. Those By-laws contain provisions relating to membership of the Exchange, and for the resolution of disputes between members.8  The By-laws also contain provision for the investigation of members in relation to various forms of misconduct, including failure to meet business obligations.9 The same Bylaw (Article 8) provides that if the Dispute Resolution Committee investigating such a matter finds the complaint made out, it may recommend the imposition of disciplinary sanctions to the Board of the LORDON. The sanctions may include the imposition of an obligation to carry out a mandatory instruction.10 The By-laws also contain provision for the arbitration of disputes between members.11 The conduct of an arbitration pursuant to those provisions is conditional upon the parties signing an arbitration agreement in the absence of which “the arbitration cannot proceed”.12  Any arbitration conducted pursuant to the By-Laws is to be conducted by a sole arbitrator appointed by the Dispute Resolution Committee of the Y Centre. The By-laws also make provision for the mediation of disputes between members.13
11. It seems that the second – fourth defendants lodged complaints with the LORDONLORDON with respect to Limsa’s refusal to refund the VAT on their purchases, although the documents initiating those complaints are not in evidence. At all events it seems clear that a mediation was conducted under the auspices of the LORDON. Mr Limsa attended the mediation, as did representatives of the second – fourth defendants. No resolution of the dispute was achieved.
12. Following the failure of the mediation, Dr LantiLanti of the LORDONLORDON (“
Dr LantiLanti
”) sent an email to all parties on 11 September 2019. In that email he advised that the second – fourth respondents had requested that the dispute move from mediation to arbitration, and that the LORDON Dispute Resolution Committee had agreed that the request could proceed.  Dr LantiLanti went on to advise:
“According to the LORDON By-laws (section 9.2) we will require all parties to agree to arbitration within seven (7) working days.  We request that you sign the LORDON Arbitration Agreement and return it to me as soon as possible.
Assuming all parties agree to arbitration all parties will have up to fifteen (15) days to file a written response to the LORDON. (section 9.3)
The LORDON Dispute Resolution Committee will then appoint an Arbitrator and conduct the Arbitration Proceedings (section 9.4).”
13. By letter dated 18 September 2019 Limsa replied to that email advising that it did not agree to the proposed arbitration for a number of reasons.14 By email dated 30 September 2019 Dr Lanti replied to that letter, in which he asserted:
“The onus is on Limsa (Pty) Ltd to prove that the LORDON does not have jurisdiction over this case.  We have consulted with legal counsel and you shall be forced to state any lack of jurisdiction in your Defence.
In light of your decision not to adhere to a request for arbitration we will have to follow the due processes. The claimants have submitted their claims which I am enclosing … and I am now notifying you that you have fifteen (15) days to submit your Defence.”
14. I digress to observe that this assertion appears to ignore the provision in the By-laws of the LORDON to which I have referred, which expressly conditions any arbitration upon the execution of an arbitration agreement by the parties, and which provides that in the absence of such an agreement, the arbitration will not proceed.15
15. There were further written communications between Mr Limsa and Dr Lanti in which the latter referred to the process which was to ensue as an arbitration. In his email to Mr Limsa of 7 November 2019 he advised Mr Limsa of the composition of the “Arbitration Committee” and of the time and place at which it would convene on 12 November 2019. The reference in that email to the “Arbitration Committee” comprising 3 members is inconsistent with Article 9 on the By-Laws of the LORDON, which requires any arbitration pursuant to that Article to be conducted by a sole arbitrator .  Further,  included within the transcript to which I will shortly refer is what appears to be the text of an email dated 17 October from Dr Lanti to all parties advising that the hearing which would take place on 12 November was a hearing of the Dispute Resolution Committee (DRC) of the Y Centre. The email refers to the DRC making a final recommendation to the LORDON Board “for approval”, which is consistent with the procedure prescribed by Article 8 of the By-Laws of the Y Centrerelating to disciplinary investigations, but also consistent with Article 9 relating to arbitration, which requires the arbitrator to make a recommendation to the LORDON Board, which then makes the final decision..
16. A form of transcript of the process which then ensued is in evidence. It commences:
“Arbitration meeting 12/11/2019. 14:00
Location: X Centre Boardroom, 50th Floor, Almas Tower, Dubai,
UAE
Formal LORDON Arbitration Hearing following a failed mediation case.”
17. I digress to observe that it is common ground that the hearing was conducted outside the geographical boundaries of the Dubai International Financial Centre, but within the Emirate of Dubai.
18. The transcript records that Limsa was represented by Mr Limsa. The transcript also records that Mr Limsa left the meeting at 7.20 pm, before some of the evidence was taken.  The transcript further records that at the conclusion of the hearing a lawyer advising the LORDON observed:
“We will wrap up by saying that within the next 30 days an Award will be made in writing and will be publicised so then therefore you will have your Award you can take it further from there.”
19. The transcript concludes with the following:
“Arbitration hearing is over!!”
20. The decision which followed that hearing is set out in a document published by the X Centre/LORDON on 12 December 2019. As its terms are material to the course which the proceedings in this Court ultimately took, it is necessary to set out much of that document.
21. The document is headed:
“Lordon (LORDON) Dispute Resolution Committee Ruling: 12 December 2019.”
22. Then follows a list of the parties to the dispute and a short description of the substance of the dispute. The document then provides:
“The defendant made a special plea regarding the jurisdiction of the LORDON over the case. The Dispute Resolution Committee (DRC) requested that a Guideline be prepared by Lext legal counsel to rule on the jurisdiction of the Lext over the matter. Based on this Guideline the DRC panel has found that jurisdiction is vested with the LORDON on the following basis:
(1) all of the parties (except for Leone (whose Bourse Antwerpsche Diamantkring, has consented to the LORDON’s jurisdiction) – are members of the LORDON;
(2) all of the parties have valid membership of the LORDON;
(3) in absence of another Bourse claiming jurisdiction, the LORDON established its legal authority to proceed;
(4) the LORDON Dispute Resolution Committee has received no evidence of substance to support Misjoinder;
Mr Limsa became a member of the LORDON on 27 Nov 2018.  Note the dispute arose the day after the VAT was refunded by the RSA Government and was due to be returned to the claimants. Mr Limsa indicated it was refunded during the course of Jan/Feb 2019.
The DRC ruled in favour of the claimants (Lander X Centre, Lendi X Centre and Leone) and gave Mr Limsa 30 days to pay (or make a  payment schedule acceptable to the claimants) for the outstanding dues of $331,506.76 as follows:
Lander X Centre:
$99,602.21
Lendi X Centre:
$86,064.20
Leone:
$145,840.35
Failure to make the payment or come to an agreement with the claimants in 30 days from 12 December will result in Disciplinary Sanctions as outlined in section 8 of the LORDON By-laws.”
Signed
Londer
Chairman
LORDON Dispute Resolution Committee”
23. I digress to observe that the form of the decision appears somewhat inconsistent with the terminology used in the proceedings which preceded it. In some of the communications which preceded the hearing, and in the hearing itself, the process was described as an arbitration, although as I have noted, in other communications the process was described as a hearing of the Dispute Resolution Committee.  The document recording the decision makes no reference to an arbitration, or to an award, and does not take the form of an award. In particular, it is not signed by all members of the panel, nor does it purport to declare the rights of the second – fourth defendants in a form which would be susceptible to enforcement by a Court. In short, there is nothing on the face of the decision or in its terms which would suggest that it is an arbitral award.
24. Rather, the terms of the decision appear entirely consistent with the characterisation of the proceedings as a disciplinary hearing pursuant to Article 8 of the By-laws of the LORDON, and with the characterization of the decision as the conclusion of that process. Express reference is made to Article 8 in the decision, which is described as the decision of the Dispute Resolution Committee referred to in that Article. The decision takes the form of providing a period within which Mr Limsa is to pay moneys to the second – fourth defendants, consistently with the power conferred by Article 8 to order the performance of “mandatory instructions”,  failing which “Disciplinary Sanctions” may be invoked.
25. It is not necessary to form a final view as to the proper characterisation of the proceedings or the decision under the By-laws of the LORDON. It is sufficient to note that the terms of the decision published on 12 December 2019 gave rise to a very real question as to that characterisation.
26. I also digress to observe that there is nothing in the letter which would suggest that the decision of the Dispute Resolution Committee had been referred to the Board of the Y Centrefor final determination- a procedure required under both Article 8 relating to disciplinary investigations, and Article 9 relating to arbitrations.
27. On 12 January 2020 lawyers acting on behalf of Limsa wrote to the LORDON. The heading of the letter refers to an arbitration between the parties. The text of the letter refers to “a purported arbitration award dated 12 December 2019” and asserts that for the reasons set out in the letter:
“…that Award is void and of no effect by reason of lack of jurisdiction on the part of the
Tribunal
which purported to make the Award.  Further and alternatively, the process leading to the Award was fatally flawed and was unfair and disregarded due process.”
28. The letter went on to enunciate reasons in support of that assertion. The letter concludes:
“Our purpose in writing to you is therefore to require you by close of business on 14 January 2020 to confirm firstly that you accept that the purported Award dated 12 December 2019 is of no effect, secondly to confirm  that you will take no disciplinary steps of any description against our client; thirdly, that you accept that LORDON has no jurisdiction to entertain the claims brought by the present Claimants.
In the event that we do not receive the confirmation which we have requested, we shall take appropriate steps to protect our client’s position, including if necessary, commencement of proceedings in DIFC Court which by virtue of the Memorandum of Understanding between X Centre and
DIFC Courts
has jurisdiction to hear this matter.”
29. I digress to observe that although the letter expressly refers to that portion of the decision of 12 December 2019 which proposed disciplinary action, the letter appears to proceed on the assumption that the decision was an
Arbitral Award
, and does not appear to contemplate the possibility that the decision was the result of a disciplinary investigation – a possible characterisation clearly open from the terms of the decision.
30. Although not in evidence, it can be inferred from a letter of 23 February 2020 from Dr Lanti of the LORDON to the Secretary General of the World Federal of L goods Bourses (“Lext”) that on 14 January 2020, following the expiry of the period given to Limsa to pay the specified amounts to the second – fourth defendants, Mr Limsa was suspended from the LORDON until further notice. Apart from the demand in the letter of 12 January 2020 that I have set above, to the effect that the LORDON completely renounce the decision of 12 December 2019, Limsa made no request to suspend the operation of that decision pending further discussions or negotiations. Rather, it commenced proceedings in this Court.
The Court proceedings
31. Limsa commenced these proceedings on 28 January 2020. The Claim Form briefly describes the claim in the following terms:
“This is an Arbitration Claim made pursuant to part 8 … of the DIFC Court Rules in which the Claimant seeks an order to
set aside
an arbitral award under Article 41 of the Arbitration Law.  The claim is unlikely to involve any substantial dispute of fact.”
32. In the portion of the Claim Form where the claimant is required to identify
the law
giving rise to the jurisdiction of the DIFC Courts, it is asserted:
“Arbitration law, DIFC Law No. 1 of 2008 and Memorandum of Understanding between X Centre and the DIFC Court.”
33. The Claim Form identifies the remedies sought in the following terms:
“(1)A declaration that the purported Award dated 12 December 2019 is void and of no effect.
(2)A declaration that the dispute between the Claimant and the second, third and fourth defendants is subject to the laws ofL Country.
(3)An Order restraining LORDON its servants or agents from publishing to any third party any communications whatsoever relating to the purported Award.
(4)An account of damages suffered by the Claimants (sic) consequent upon the matters pleaded herein.
(5)Costs.
(6)Further or other relief.”