Hexagon Holdings (Cayman) Limited v (1) Dubai International Financial Centre Authority (2) Dubai International Financial Centre Investments LLC [2019] DIFC CFI 013
Hexagon Holdings (Cayman) Limited v (1) Dubai International Financial Centre Authority (2) Dubai International Financial Centre Investments LLC [2019] DIFC CFI 013
March 25, 2020  Court of First Instance -Judgments
Claim No: CFI 013/2019
IN THE DUBAI INTERNATIONAL FINANCIAL CENTRE
COURTS
In the name of His Highness Sheikh Mohammed Bin Rashid Al Maktoum,
Ruler
of Dubai
IN THE
COURT
OF FIRST INSTANCE
BEFORE H.E JUSTICE ALI AL MADHANI
BETWEEN
HEXAGON HOLDINGS (CAYMAN) LIMITED
Claimant
/Respondent
and
(1) DUBAI INTERNATIONAL FINANCIAL
CENTRE AUTHORITY
(2) DUBAI INTERNATIONAL FINANCIAL CENTRE INVESTMENTS LLC
Defendants/Applicants
Hearing
: 17 June 2019
Hearing
: Mr Thomas Sprange QC assisted by Jawad Ali instructed by King & Spalding LLP for the Claimant
Mr Graham Lovett assisted by Shane Jury instructed by Gibson, Dunn & Crutcher LLP for the Defendants
Judgment
: 25 March 2020
JUDGMENT
UPON
reviewing the Claimant’s claim form and Particulars of Claim dated 6 March 2019 (CFI-013-2019)
AND UPON
reviewing the Defendants’ application dated 10 April 2019 for the Claimant’s claim (the “
Claim
”) and Particulars of Claim to be struck out and/or for immediate judgment in their favour (CFI-013-2019/1) (the “
Application
”)
AND UPON
hearing counsel for the Claimant and counsel for the Defendants at the hearing of the Defendants’ application dated 10 April 2019 on 17 June 2019
AND UPON
reviewing all the relevant documents on the
Court
’s file
IT IS HEREBY ORDERED THAT:
1. The Defendants’ Application is granted and the Claimant’s Claim and Particulars of Claim dated 6 March 2019 are struck out and immediate judgment is granted in the Defendants’ favour.
2. The Claimant is to bear the Defendants’ costs of these proceedings.
Issued by:
Nour Hineidi
Deputy Registrar
Date of Issue: 25 March 2020
At: 10am
JUDGMENT
Introduction
1. There is before the Court in the matter of Hexagon Holdings (Cayman) Limited v Dubai International Financial
Centre Authority
and Dubai International Financial Centre Investments LLC (CFI-013-2019) an application by the Defendants for the Claimant’s Claim and Particulars of Claim to be struck out on the basis that, they submit, neither discloses reasonable grounds for bringing the claim (the “
Strike-Out Application
”) or, in the alternative, for immediate judgment in their favour on the basis that, they contend, the Claim has no real prospect of success and there is no other compelling reason why it should be disposed of at trial (the “
Immediate Judgment Application
” and together with the Strike-Out Application the “
Applications
”).
2. The Claimant, Hexagon Holdings (Cayman) Limited (the “
Claimant
” or "
Hexagon
"), is a company incorporated in the Cayman Islands solely for the purpose of facilitating investment into a project which is the subject matter of this dispute (the “
Project
”). The shareholders of Hexagon are Ruby Limited as to 75% and the Gate Limited as to 25%.
3. The First
Defendant
, the Dubai International Financial Centre Authority (“
DIFCA
”), is the corporate body established by the Government of Dubai to oversee the strategic development, operational management and administration of the Dubai International Financial Centre (the “
DIFC
”).
4. The Second Defendant, Dubai International Financial Centre Investments LLC (“
DIFCI
” and together with DIFCA the “
Defendants
”), is a subsidiary of DlFCA established on 27 November 2005 which owns the real estate assets formerly overseen and managed by DIFCA, including the property at the heart of this dispute (the “
Property
”).
5. The value of the Claim is extremely large: the Claimant seeks AED 1,749,808,843.52 in damages in respect of alleged loss and damage which it alleges it suffered because of the Defendants. The relationship out of which the dispute has arisen is rather old: it dates back to the execution of an agreement on 5 May 2004 (the “
Amended Agreement
”). The Amended Agreement provided for an extremely important development: hundreds of millions of dollars of investment would see to the commercial development of a highly valuable piece of land within the DIFC. But despite all this, determination of the dispute will come down to a single, but no less important, question: did Hexagon, on 19 November 2018, validly terminate the Amended Agreement (the “
Purported Termination
”)?
If the answer to this question is yes, then Hexagon may be successful, wholly or partly, in its Claim against the Defendants. Hexagon says the Purported Termination was indeed valid, and on two separate grounds. These two grounds, to be discussed below, form the bases of Hexagon’s
DIFC Courts
Claim.
If the answer to this question is no, then Hexagon’s Claim is doomed. The Defendants say the Purported Termination was invalid, and on eight separate grounds. These eight grounds, to be discussed below, form the bases of the Defendants’ Strike-Out and Immediate Judgement Applications.
The Defendants’ Applications were argued before me at a hearing on 17 June 2019 and this is my reasoned decision.
Background
9. The Defendants have not yet pleaded a defence to the Claim. They submit that the grounds for the Court striking out the Claim and the Particulars of Claim or for granting immediate judgment are established in the Claimant’s own pleaded case; for the purpose of the Applications, the Defendants proceed on the basis that, firstly, they were in breach of the obligations in the Amended Agreement (the “
Clause 3 Obligations
”) which are the subject of the Claim (the “
Clause 3 Breaches
”) and that, secondly, they had renounced the Amended Agreement on 12 June 2012 (the “
Renunciation
”). Crucially, both the Clause 3 Breaches and the Renunciation – each being a ground upon which Hexagon purportedly terminated the Amended Agreement and upon which it now relies in these proceedings – occurred before the Purported Termination. It is necessary now, then, to turn to the Claimant’s case and the background of the dispute as it has outlined them.
10. On 14 December 2003, Nexus Capital SA (“
Nexus
”), a stock corporation company headquartered in Switzerland, entered into a joint venture agreement (the “
Joint Venture Agreement
”) with DIFCA in respect of a plan to develop the aforementioned Property into mixed-use real estate, with this plan being the Project.
11. The Joint Venture Agreement set out the way in which the parties would pursue the Project through a joint venture company (the “
Joint Venture Company
”) and provided, amongst other things, the following. Firstly, and pursuant to clause 2.1, the Joint Venture Agreement provided for certain operative provisions in the agreement to be triggered upon Nexus identifying and DIFCA approving an investor  willing and able to invest the Total Project Capital (the “
Investor
”), as defined in the Joint Venture Agreement, by way of liquid finance into the Joint Venture Company (the “
Condition Precedent
”). In return for providing the Total Project Capital, the Investor was to receive paid up shares in the Joint Venture Company.
12. Secondly, and pursuant to clause 3.1, as soon as reasonably practicable after the satisfaction of the Condition Precedent (the “
Effective Date
”), the following steps were supposed to be actioned. Firstly, DIFCA and Nexus were to execute, and Nexus to procure, that the Investor executes a Deed of Adherence pursuant to which the Investor was to, amongst other things, agree to be bound by the Joint Venture Agreement. Secondly, DIFCA and Nexus were required to take all steps and sign all documents, and Nexus was required to procure, that the Investor signs all documents required on its part, as necessary to incorporate the Joint Venture Company. Thirdly, DIFCA, Nexus and the Investor were required to execute a shareholders' agreement (the “
Shareholders' Agreement
”) pursuant to which, amongst other things, the Investor and Nexus were to receive 85% and DIFCA 15% of the shares in the Joint Venture Company. Fourthly, DIFCA was required to execute, and DIFCA, Nexus and the Investor procure, that the Joint Venture Company execute a Sale and Purchase Agreement prepared by DIFCA in accordance with certain provisions of a schedule to the Joint Venture Agreement, and pursuant to which DIFCA would sell the Property to the Joint Venture Company. The purchase price of the Project Land was determined to be a minimum of AED 105,113,025 based upon a minimum total built up area of 1,051,130 square feet and was payable by the Joint Venture Company to DIFCA in the form of shares in the Joint Venture Company. Finally, and pursuant to clause 3.1.5 of the Joint Venture Agreement, DIFCA, Nexus and the Investor were to procure that as soon as possible after its incorporation, the Joint Venture Company would resolve to adopt the provisions of the Shareholders’ Agreement and the plans, proposals and computations attached as certain schedules to the Joint Venture Agreement, as may have been appropriately amended prior to such adoption.
13. On 5 May 2004, after Hexagon was identified and approved as the Investor, DIFCA, Nexus and Hexagon entered into an amendment of the Joint Venture Agreement, being the Amended Agreement. In summary, the Amended Agreement provided, amongst other things, that, pursuant to clause 2.3, the parties agreed that the Condition Precedent at clause 2 of the Joint Venture Agreement had been satisfied, with the Effective Date therefore being 5 May 2004. Pursuant to clause 2.4, the obligation in clause 3.1.2 of the Joint Venture Agreement was to be amended so that, amongst other things, the parties would be required to proceed immediately to incorporate a limited liability company in either Dubai Internet City or the DIFC to serve as the Joint Venture Company. Pursuant to clause 2.5.1, clause 3.2 of the Joint Venture Agreement, which included its termination provision, was to be replaced with an obligation upon the parties to use “their best endeavours in good faith” to complete the steps and procedures set out in clause 3.1 of the Joint Venture Agreement as soon as “reasonably practicable.” Pursuant to clause 2.5.2, paragraph 4 of Schedule C to the Joint Venture Agreement was replaced with an obligation on the Joint Venture Company to complete the Project within 4 years and 6 months following the execution of the Sale and Purchase Agreement.
14. Clause 3.1.3 of the Amended Agreement provided for the Shareholders' Agreement to be executed between Nexus, Hexagon and the Defendants in a form prepared by Nexus and approved by Hexagon and the Defendants. During 2008, the parties sought to negotiate a draft of the Shareholders' Agreement. However, at no time was the Shareholders' Agreement executed.
15. Hexagon submits to this Court that it spent substantial time, effort and money in progressing the joint venture, including undertaking market and feasibility studies, developing a design concept and appointing designers, project managers and construction consultants. The Claimant says, furthermore, that it had engaged extensively with the Defendants with respect to the Project, including with respect to the preparation of the Shareholders’ Agreement, making presentations about the Project and pressing for the Project to progress.
16. Hexagon submits that over time the Defendants failed to comply with their obligations under the Joint Venture Agreement and the Amended Agreement, both of which required steps to be taken as soon as “reasonably practicable” and imposed a time limit on completion of the Project. In the circumstances, on 2 May 2012, the then project manager acting on behalf of Hexagon, Mr. Abdul Samie, requested on Hexagon’s behalf a status update of the Project and required further steps to be taken to progress the Project. But in its response dated 12 June 2012, DIFCl, on behalf of DIFCA, asserted as follows:
We have studied the contents of your letter and its attachments. It is clear from the documents provided that we are under no obligation to continue any negotiation with you (or any other party) of any Shareholders' Agreement for the development of the  Plot. Certainly the Joint Venture Agreement (and its amendment) which DIFCA signed with various parties on 14 December 2003 (and 5 May 2004) no longer binds us in this regard. Accordingly, we do not currently intend to progress any further negotiations with you for the sale and development of the Plot.
lf and when we decide to release the Plot to market for sale and development, we will, at the appropriate time, consider inviting you to tender for the purchase and development of the Plot along with other interested parties.
17. The Claimant's legal representatives, King & Spalding, responded to this letter on 13 August 2012, expressing contrary views as to the status of the Amended Agreement and the Defendants’ obligations under it. The Defendants did not respond, however. The Claimant’s counsel wrote a further letter to DIFCI on 2 September 2012, reiterating the Claimant’s position while, Hexagon submits, reserving Hexagon’s rights. DIFCI, on behalf of DIFCA, responded on 27 September 2012, restating the position that one or other or both of the Defendants were not bound by the Amended Agreement.
18. The Claimant submits that these letters and the Defendants' conduct prior to and following the exchange of the letters amounted to breaches of obligations under the Amended Agreement. As for the Defendants’ conduct, specifically, the Claimant submits that the Defendants committed the following breaches of the Amended Agreement. Firstly, in breach of clause 3.1.2, the Defendants did not proceed immediately to incorporate the Joint Venture Company and nor did they do so as soon as reasonably possible. Secondly, the Defendants did not execute the Shareholders' Agreement, as required by the terms of the Amended Agreement. Thirdly, in breach of clause 3.1.4, the Defendants did not, as soon as reasonably possible or otherwise, execute the sale and purchase agreement in accordance with the Amended Agreement. Fourthly, and in breach of clause 3.2, the Defendants did not use their best endeavours in good faith to complete the aforesaid steps and procedures and nor did they do so as soon as reasonably possible after 5 May 2004. And lastly, the Defendants failed to promote the Project, in breach of clause 3.3. Collectively, these are the Clause 3 Breaches.
19. As for the letters, the Claimant takes the position that the these letters constituted a clear renunciation of the Amended Agreement, being the Renunciation, and that, moreover, it subsequently formally accepted this Renunciation by its letter dated 19 November 2018, being the Purported Termination.
20. The Amended Agreement, the Claimant submits, has accordingly been terminated and it should now be compensated for loss and damage incurred up until the Purported Termination. The Defendants disagree.
Discussion
21. According to Hexagon, not enough evidence has been furnished yet in these proceedings and the Court should accordingly restrain from making findings. In particular, Hexagon says the existence of highly contentious issues of fact which must be determined by reference to large volumes of communications, documentation and commercial activities over an extended period means the dispute is not amenable to summary disposal. However, as stated above, the Defendants have conceded to the Clause 3 Breaches and the Renunciation for the purposes of the Applications as each is outlined by Hexagon. Accordingly, the Defendants’ arguments are concerned with points of law as applied to the facts of the dispute as outlined by Hexagon itself. And I must not shy away from making a decision if the dispute boils down to points of law. As Lewison J said in Easy Air Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch) at [15]:
If the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it. The reason is quite simple: if the respondent’s case is bad in law, he will in truth have no real prospect of succeeding on his claim or successfully defending the claim against him, as the case may be. Similarly, if the applicant’s case is bad in law, the sooner that is determined, the better.
It was open to Hexagon to deal with the questions of law raised by the Defendants and any deficiency in this regard has not been due to any lack of opportunity on the part of Hexagon to do so.
22. To proceed, Hexagon’s case is premised on the validity of their Purported Termination of the Amended Agreement. As mentioned above, the Purported Termination is expressed to be justified on two grounds – the Clause 3 Breaches and the Renunciation.
23. As also mentioned above, the Defendants say that the Purported Termination was in fact invalid. Even if the Clause 3 Breaches and the Renunciation did occur, they submit, the Purported Termination was invalid on eight separate grounds. In summary, the Defendants’ grounds are as follows. Firstly, the Defendants submit that the Clause 3 Breaches did not amount to fundamental non-performance under the contract law of the DIFC, being DIFC Law No. 6 of 2004 (the “
Contract Law
”) and that, therefore, Hexagon was not entitled to terminate on their bases. Secondly, they say, the Clause 3 Breaches were delay breaches and the requirements for termination based on non-fundamental delay breaches are set out in Article 81(3) of the Contract Law, while the Purported Termination failed to meet those requirements. Even if these first two propositions are incorrect and the Clause 3 Breaches amounted to fundamental non-performance, still, the Defendants submit, the Claimant had lost any right of termination by virtue of Article 87(2) of the Contract Law, as it failed to give notice within a reasonable time upon becoming aware of the Clause 3 Breaches; the Claimant had clearly and irrevocably elected to affirm the Amended Agreement, both expressly and by implication; the Clause 3 Breaches were cured prior to the Purported Termination by the Defendants evincing a clear intention to “get on” with the Amended Agreement and perform the Clause 3 Obligations; and the Clause 3 Breaches crystallised, that is, the cause of action in respect of those breaches accrued, within the meaning of Article 123 of the Contract Law, at the very latest and giving the Claimant the benefit of a large margin for error, within a few years of the date the Amended Agreement was entered into, rendering any cause of action arising from those breaches long since time barred under Article 123 of the Contract Law. Furthermore, the Defendants submit that the Claimant, again, clearly and irrevocably elected to affirm rather than terminate the Amended Agreement following the Renunciation, both expressly and as a matter of implication from conduct, thereby losing its termination right. And finally, even if the Claimant did not affirm the Amended Agreement, the Defendants maintain that the Renunciation was cured prior to the Purported Termination, by, again, the Defendants evincing a clear intention by them to “get on” with the Amended Agreement and perform their own obligations.
24. There is much overlap – in fact and in law – between the Defendants’ grounds which relate to affirmation and cure after the Clause 3 Breaches and the Renunciation had each occurred and so, to avoid repetition, I will depart from the order the Defendants have presented their Applications in and I will instead discuss arguments about affirmation together and arguments about cure, also, together.
The law
25. Before delving into discussion of the various submissions made by the parties, I will first set out the legal setting of the Applications. Pursuant to Rule 4.16 of the Rules of the DIFC Courts (“
RDC
”), the Court may
strike out
a claimant’s
statement of case
if it appears that the statement “discloses no reasonable grounds for bringing or defending the claim.” Similarly, RDC 24.1 provides that the Court may give immediate judgment in favour of a defendant if it is satisfied that that a claimant has no real prospect of succeeding on the claim (RDC 24.1(1)(a)) and there is no other compelling reason the case should be disposed of at a trial (RDC 24.1(2)). There is significant overlap between the proper approach to deciding applications for strike out under RDC 4.16 and immediate judgment under RDC 24.1. As Giles J explained in Nest Investment Holding Lebanon SAL & Ors v Deloille & Touche M.E. & Joseph El Fadl (CFI-027-2016) at [20]:
There is a degree of overlap between these two provisions. RDC 4.16 is apt for an application on the basis that, even if the pleaded grounds are accepted, the claim must fail. That can also be the basis for an application under RDC 24.1, but that rule is apt for an application on the basis of evidence showing that the claim must fail, or of absence of evidence to support it. The overlap suggests, however, a common approach under either rule, subject to questions of fact in an evidence-based application and to RDC 24.1(2).
After summarising the rules applicable to immediate judgment under RDC 24.1, at [23] Giles J cites the case of Francois Kryvenko v Renault Sport Racing Limited [2016] EWHC 2289 (Comm) as authority for the proposition that the “test for the RDC 4.16 avenue [i.e. strike out] has been regarded as materially the same.” For the sake of simplicity, then, I will proceed on the basis that no material difference exists between the two approaches and that the applicable legal principles may be applied interchangeably, with this judgment tending to adopt the language of the test for immediate judgment. I note for Hexagon’s benefit that to the extent that there is difference between the two standards, the English courts have held that the grounds for strike out are slightly narrower than for immediate judgment (see Swain v Hillman [2001] 1 All ER 91, 92) and I will have regard to this discrepancy. I further note that the DIFC authorities make clear that there is no difference between the approach to determining applications for strike out or immediate judgment taken by English law and DIFC law.
26. As set out in their Applications, the crux of the Defendants’ position is that, firstly, the Claimant has no reasonable grounds for bringing its claims and that it has no real prospect of success. To determine this position, the question that must be addressed is whether Hexagon’s Claim has a “realistic” as opposed from a “fanciful” prospect of success. Though speaking about the factual basis of a claim specifically, in Three Rivers District Council v Bank of England [2003] 2 AC 1, 26 Lord Hope provided guidance as to what will amount to “fanciful”:
…it may be possible to say with confidence before trial that the factual basis for the claim is fanciful because it is entirely without substance. It may be clear beyond question that the statement of facts is contradicted by all the documents or other material on which it is based.
By contrast to a claim which is “entirely without substance,” in order to have a “realistic” prospect of success a claim must carry some degree of conviction and be more than “merely arguable,” per Potter LJ in ED & F Man Liquid Products v. Patel [2003] EWCA Civ 472.
27. Furthermore, the Court should avoid conducting a mini trial. Any assessment of whether Hexagon’s Claim is “realistic” or “fanciful” will turn on the facts of the case and in the instance of real disagreements as to matters of fact, this Court should not seek to dispose of the case on an immediate basis. As Potter LJ explained in ED & F Man Liquid Products, “where there are significant differences between the parties so far as factual issues are concerned, the court is in no position to conduct a mini-trial.” However, the mere appearance of factual discrepancies does not, in and of itself, preclude the Court from giving judgment at an early stage. If a surface-level review reveals that a party’s case has been constructed on the basis of factual assertions which are likely to be false, for example, such a case may be amenable to summary judgment.
28. By way of a further corollary, the authorities dictate that complex cases are unlikely to be amenable to a summary process. As Lord Hope noted in Three Rivers at [26]:
The simpler the case the easier it is likely to be to take that view and resort to what is properly called summary judgment. But more complex cases are unlikely to be capable of being resolved in that way without conducting a mini-trial on the documents without discovery and without oral evidence. As Lord Woolf said in Swain v Hillman, at p 95, that is not the object of the rule. It is designed to deal with cases that are not fit for trial at all.
29. Finally in respect of reaching a decision on whether a claim is “realistic” or “fanciful,” the Court must consider not only the evidence adduced by the parties in the context of the immediate judgment application, but also any evidence which could reasonably be expected to be available at the substantive trial. In Easy Air, Lewison J stated at [15(vii)]:
If it is possible to show by evidence that although material in the form of documents or oral evidence that would put the documents in another light is not currently before the Court, such material is likely to exist and can be expected to be available at trial, it would be wrong to give summary judgment because there would be a real, as opposed to a fanciful, prospect of success.
Lewison J’s judgment in Easy Air goes on to note in the same paragraph that “it is not enough simply to argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of construction.” But such warnings against allowing the parties to mount “fishing expeditions” should be considered in light of Mummery J’s comments in Doncaster Pharmaceuticals Group Ltd v. Bolton Pharmaceutical Co 100 Ltd [2006] EWCA Civ 661:
The court should also hesitate about making a final decision without a trial where, even though there is no obvious conflict of fact at the time of the application, reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case.
30. In addition to the Defendants’ obligation to prove that the Claimant’s claim has no realistic prospect of success, pursuant to RDC 24.1(2) the Defendants must also prove that “there is no other compelling reason why the case or issue should be disposed of at a trial.” Per Megarry J in Miles v Bull [1969] 1 QB 258 at 266A, there will be a compelling reason for trial where “there are circumstances that ought to be investigated.” An example of a “circumstance that ought to be investigated” is one in which the parties’ actions in respect of a key transaction or event are difficult to discern or understand. For example, in Global Marine Drillships Limited v Landmark Solicitors LLP [2011] EWHC 2685 (Ch), Henderson J described how such a situation might arise:
In a similar way, I think it is at least arguable that, if Ms Jones was indeed authorised by Global Marine to pay £4.5 million to a Cheshire car dealer for the ostensible purpose of purchasing the insurance, the transaction assumes such a strange complexion, and so many obvious suspicions are raised, that the ability of the claimant to rely on the unvarnished terms of the Undertaking must be put in question, and the full facts of the matter need to be carefully scrutinised at trial. It would, in other words, be a classic example of the kind of case where there is an “other compelling reason” why it should go to trial, even if the court were not satisfied that the defendants had a real prospect of successfully defending the claim…
31. The preceding paragraphs, in my view, contain those rules and principles which are most relevant to the Defendants’ Applications and to which, therefore, I will have regard to as I determine them.
The Clause 3 Breaches: fundamental or non-fundamental non-performance?
32. The first of Hexagon’s grounds that I will discuss is the ground related to the Clause 3 Breaches. The first question that must be addressed so far as the Clause 3 Breaches are concerned is whether they amounted to fundamental or non-fundamental non-performance of the Amended Agreement. This is an important question as DIFC contract law makes a distinction between these two types of non-performance of contracts and provides distinct regimes for aggrieved-party termination for each. Where fundamental non-performance of a contract is established, under Article 86 of the Contract Law the aggrieved party is immediately afforded a right to terminate the said contract:
Right to terminate the contract
(1) A party may terminate the contract where the failure of the other party to perform an obligation under the contract amounts to a fundamental non-performance.”
Where there is no fundamental non-performance, however, there is no such immediately-exercisable right. However, subject to certain conditions, an aggrieved party may later obtain a right to terminate. Article 81 of the Contract Law is the relevant provision in such circumstances, about which more will be said below. In either case, under Article 87 of the Contract Law, the right of a party to terminate a contract is exercised by notice on the other party. Before looking at these provisions more closely against the facts of the instant case, it is necessary to determine whether the Clause 3 Breaches constituted fundamental or instead non-fundamental non-performance of the Amended Agreement.
33. To recap, the Clause 3 Breaches relate to alleged breaches by the Defendants of clauses 3.1, 3.2 and 3.3 of the Amended Agreement. The timeframe for performance of the obligations under Clause 3.1 was specified as being “as soon as is reasonably possible after the Effective Date.” Clause 3.2 required the parties to use their best endeavours in good faith to complete the steps in Clause 3.1 “as soon as in [sic] reasonably practicable after the date of this Amendment Agreement” and the obligation to incorporate the Joint Venture Company was expressed as being required to be performed “immediately.” With the exception of Clause 3.3 which required DIFCA to “do all it can to promote the Project,” the obligations under Clause 3 were all prescribed to be performed within a timeframe specified in the Amended Agreement. And although the timeframe for performance of the obligation under clause 3.3 is silent in terms of an actual date, the consequence of Article 64(c) of the Contract Law is that this obligation was required to be performed within a reasonable time after conclusion of the Amended Agreement:
Time of performance
A party must perform its obligations:
(a) if a time is fixed by or determinable from the contract, at that time;
(b) if a period of time is fixed by or determinable from the contract, at any time within that period unless circumstances indicate that the other party is to choose a time;
(c) in any other case, within a reasonable time after the conclusion of the contract.” (emphasis added)
As such, it can be said that all Clause 3 Breaches were time-related breaches.
34. Hexagon proceeded with its response to the Applications on the basis that the Defendants had conceded, for the purposes of the Applications, to having committed fundamental breaches of the Amended Agreement. Accordingly, Hexagon did not itself outline why, as it saw it, the Clause 3 Breaches were of a fundamental as opposed to a non-fundamental nature. Unfortunately, however, this starting position of Hexagon’s appears to have been assumed as a result of a misreading or mischaracterisation of the Defendants’ submissions. In its “Application for
Strike Out
and/or Immediate Judgement,” being the submission Hexagon relied on in taking this starting position, the Defendants stated: “…therefore, this Application proceeds on the assumption that the Claimant is able to establish the Other Alleged Breaches…” Earlier in that submission, where the “Other Alleged Breaches” was defined – and this appears to be where the confusion has come from – the Defendants had stated: “the grounds upon which the Claimant purports to have been entitled to [terminate the Amended Agreement include]…that the Defendants’ alleged failure to perform its obligations under [clause 3 of the Amended Agreement] amounted to “fundamental non-performance” (the “
Other Alleged Breaches
”).” In my view, and while acknowledging that this passage could have been worded more clearly, the “Other Alleged Breaches” which the Defendants for the purposes of the Applications conceded to were the alleged breaches themselves and not to their status as fundamental or otherwise. This interpretation is supported – conclusively, I think – by another statement of the Defendants,’ several paragraphs later: “the Other Alleged Breaches, which relate to the failure to perform certain obligations within a timeframe, do not amount to “fundamental non-performance” justifying termination of the [Amended Agreement] as a matter of DIFC law.” (emphasis added) The Defendants had not, then, conceded to breaches which amounted to fundamental non-performance of the Amended Agreement, rather only to the occurrence of breaches without specifying a degree of seriousness. Accordingly, it was for the Claimant to demonstrate that the breaches amounted to fundamental non-performance of the Amended Agreement. Again, however, it did not.
35. The Defendants have elaborated on their stance. They take the position that the Clause 3 Breaches were simple breaches of the obligation to perform the Clause 3 Obligations within a particular timeframe. For a time requirement breach to constitute fundamental non-performance of a contract, they submit, and, in turn, for it to give rise to a right on the part of an aggrieved party to terminate, time must be “of the essence” under the contract. The Defendants argue that clause 3 neither expressly nor impliedly provides that the time for performance of the Clause 3 Obligations was intended to be of the essence of the Amended Agreement. “In these circumstances,” the Defendants stated in written submissions,
The Claimant cannot contend as a matter of DIFC law or common law that the Clause 3 Breaches, individually or collectively, constituted “fundamental non-performance” for the purposes of Article 86(1) of the DIFC Contract Law (interpreted by reference to Article 86(2)(b)).
36. In my view, the Defendants are correct. In Spar Shipping AS v Grand China Logistics Holding (Group) Co Ltd [2015] EWHC 718 at [96], Popplewell J summarised the condition for a time requirement in a contract to be “of the essence” of the contract:
(2) …where the obligation…falls to be performed by a certain time, the question has often been formulated as “whether time is of the essence.” Other formulations include whether the term is an essential term or a fundamental term, although Lord Diplock who has played a large part in the development of the jurisprudence in this area, uses the expression fundamental breach to connote a repudiatory breach of an innominate term in contradistinction to a breach of condition.
(3) It is possible by express provision in the contract to make a term a condition, even if it would not be so in the absence of such a provision. So a stipulation that time is of the essence, in relation to a particular contractual term, denotes that timely performance is a condition of the contract. The consequence is that delay in performance is treated as repudiatory, without regard to the gravity of the breach, such that the injured party may elect to terminate and recover damages in respect of the defaulting party’s outstanding obligations. (emphasis added)
37. To transpose Popplewell J’s exposition into the language of this jurisdiction, for a time requirement to be of the essence of a contract and, accordingly, for non-timely performance to amount to fundamental non-performance of that contract, the contract itself must expressly provide that such is the case. Returning to the instant matter, there is no such provision in the Amended Agreement stipulating that time is of the essence of that agreement; there is no term that might render timely performance of the Clause 3 Obligations a condition of the Amended Agreement and their breach as amounting to fundamental non-performance of it. It follows, I think, that the Clause 3 Breaches were non-fundamental breaches of the Amended Agreement. And it follows, in turn, that Article 86 of the Contract Law was not engaged by the Clause 3 Breaches and that Hexagon, therefore, did not qualify for the Article 86(1) right to terminate the Amended Agreement.
38. Being as they are non-fundamental breaches, the relevant provision in terms of termination is Article 81 of the Contract Law and in particular clause 3:
(3) Where in the case of delay in performance which is not fundamental the aggrieved party has given notice allowing an additional period of time of reasonable length, it may terminate the contract at the end of that period. If the additional period allowed is not of reasonable length it shall be extended to a reasonable length. The aggrieved party may in its notice provide that if the other party fails to perform within the period allowed by the notice the contract shall automatically terminate.
As a matter of uncontroversial fact, Hexagon has not taken the step required by Article 81(3) for termination under the Article to be valid: Hexagon did not give notice requiring performance of the Clause 3 Obligations within a reasonable period of time. Having failed to satisfy the requirements in Article 81(3), no termination right at DIFC law based on non-performance of the non-fundamental Clause 3 Obligations could have arisen. This is rather fatal to Hexagon’s case to the extent that the Claim relies on the Clause 3 Breaches as Article 81 provides the exclusive regime under DIFC law by which non-fundamental delay breaches can entitle an aggrieved party to terminate.
39. In my view, therefore, this ground of Hexagon’s Claim regarding the Clause 3 Breaches fails to disclose reasonable grounds for bringing the Claim and, moreover, it has no real prospect of success and nor is there a compelling reason why it should be disposed of at trial. The Clause 3 Breaches amounted to non-fundamental non-performance of the Amended Agreement and so any claim premised on their being fundamental breaches will unlikely have even a fanciful prospect of succeeding and much less a real prospect. And nor will Hexagon be able to amend its pleadings so that the Clause 3 Breaches are advanced as being non-fundamental delay breaches as, as shown above, it had not terminated the Amended Agreement in accordance with Article 81(3) of the Contract Law. For me, the Claim under the Clause 3 Breaches is of a simple nature and I think it can be struck out without any difficulty. And it is clear to me that further investigation will not assist Hexagon.
40. Before leaving this discussion, it should be noted that if given the opportunity, Hexagon will no doubt attempt to justify that the Clause 3 Breaches were in fact fundamental breaches. Indeed, in its grounding witness statement, Hexagon has made this relatively clear by means of emphasising Article 86(1) and (2)(c) and (d) of the Contract Law, which provide:
Right to terminate the contract
(1) A party may terminate the contract where the failure of the other party to perform an obligation under the contract amounts to a fundamental non-performance.
(2) In determining whether a failure to perform an obligation amounts to a fundamental nonperformance regard shall be had, in particular, to whether:
(c) the non-performance is intentional or reckless;
(d) the non-performance gives the aggrieved party reason to believe that it cannot rely on the other party’s future performance…” (emphasis added after Hexagon’s emphasis)