25th July 2023
Simon Hale appeared on behalf of the defendant bank in an appeal against a first instance decision in the Civil and Commercial Court of the Qatar International Court and Dispute Resolution Centre (the “QICDRC”), which raised issues of wider importance for the QICDRC and Qatari law.
Background
Judgment
a. The Appeal Court accepted the Bank’s argument that many relevant documents were not put before the first instance court, and that additional documents ought to be allowed into consideration within the appeal. This situation was mainly the fault of the bank’s former advocates, which left the first instance court facing “a formidable difficulty” (see [3]-[5]).
b. The Bank’s contention that the applicable law was indeed QICDRC law, there being no “explicit agreement” by the parties to apply another law, was also accepted (see [49]-[51]). At [51], the court considered the question of whether a choice of law clause stating “the laws of Qatar” was incompatible with a choice of QICDRC law, the QICDRC being a free zone within Qatar. The Appeal Court noted that this point had been considered but not decided in a previous case, Aycan Richards v Perera and International Financial Services Qatar LLC [2020] QIC (F) 17, at first instance. The Appeal Court also did not need to decide the point, but gave a strong indication that, because QICDRC law is “part of the applicable law of Qatar”, a choice of law clause providing that the “laws of Qatar” or the “laws of the State of Qatar” will govern an agreement or transaction was not inconsistent with applying QICDRC law.
c. The Appeal Court further upheld the Bank’s arguments that the First Instance Court’s reasoning about the structure of the project finance transaction had been wrong. The First Instance Court had found there was a binding contract between the Bank and Daruna in a letter dated 14 August 2016 from the Bank offering to provide equity finance . However, the Appeal Court determined that this letter was not an “offer that was capable of acceptance” that could bind the Bank, was subject to conditions precedent, and had not been accepted by either the signing of the shareholders’ agreements or by conduct (see [52]-[55]).
d. The Bank’s central argument was that the true agreement between the parties as to financing the project was solely that contained in the shareholders’ agreement (“SHA”) between Daruna and an SPV created by the Bank for the purposes of the transaction: a subsidiary named Kuthban, which was to take a controlling share in a further SPV called Um Slal Four Accommodation (“USFA”) (see [21] and [56]). The Appeal Court accepted the Bank’s submission that financing transactions routinely involve contractual structures with different corporate entities, and it is for the parties by their agreements to allocate legal liability between such entities. It was found at [59] that:
“If the contractual structure provides that a particular corporate entity is liable for funding, the fact that funding may be expected in substance come from the Bank itself is irrelevant. The Court will not rewrite the parties’ contractual arrangements”
e. However, the Court found that the “true picture” was that Daruna only agreed to the agreement being structured though the SHA with Kuthban on the basis that the Bank would remain obliged to provide the finance as set out in clause 5 of the SHA, “and would ensure that the obligations of Kuthban under that agreement were honoured by the Bank” (see [61]-[62]). The reasons for that conclusion are set out in full at [62], but essentially the Appeal Court determined that it could look behind the various SPV structures and consider the Bank directly liable.
f. After finding that the Bank did owe an obligation to “ensure that the obligations of Kuthban” were met (as set out in paragraph 6e. above), the Appeal Court found the Bank had breached that obligation. This was a point that had been conceded by the Bank’s former advocates at first instance (see [64] and [66]).
g. The Court did not allow the Bank to argue that the venture would always have failed in any event because Daruna could not provide the required Complimentary Shareholder Funding that it was obliged under the SHA to inject into the project. This was a new point which the Bank took for the first time on the appeal, and which the Appeal Court considered should have been raised by the Bank’s former lawyers at first instance. In any event, that there was no evidence to support it (see paragraphs [65]-[66]).
a. The Court rejected Sheikh Nasser’s claim for QR 142m of lost profits on the Umm Slal project (see [85]-[86]), and any and all claims relating to another project, the Al Khor project, which Daruna said it had lost as a consequence of the failure of the original project (see [88]). There was found to be, in both cases, no evidence to establish the loss claimed. The Court further rejected any claim by Daruna’s principal, Sheikh Nasser, for personal loss, on the basis that he was not a party to the agreement (see [89]).
b. However, the Court decided that a different head of loss should be awarded, with the aim of “compensating Daruna for the lost investment opportunities that would have been available to Daruna by the use of those funds if deployed elsewhere” (see [77]). The Court recorded the Bank’s submission that this issue was not pleaded and had not been raised before the first instance court but determined that it had the jurisdiction to consider a claim in circumstances were the claimant had potentially not been properly compensated (see [78]).
c. The Appeal Court then made the following assessment of the head of loss at [81]:
“The assessment is a matter for the court which is familiar with the economic circumstances and the general investment opportunities that would have been available to a prudent businessperson in the market during the relevant part of the period, taking into account the material risks. It is not necessarily a matter for specific evidence. Taking into account all the material matters in this case, we assess that amount to be QAR 400,000.”
Wider impact of the Judgment
Conclusion
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