VEGIE BAR v EMIRATES NATIONAL BANK OF DUBAI PROPERTIES [2020] DIFC CA 001 — Indemnity costs and non-party liability (17 March 2021)

How did the DIFC Court of Appeal address the liability of Vegie Bar LLC and its director, Mr. Naki Alkalaljeh, for the AED 2,080,234.24 costs award?

The dispute originated from a failed appeal by Vegie Bar LLC (VB) against a judgment that granted immediate judgment in favor of Emirates National Bank of Dubai Properties (Emirates). Following the dismissal of the appeal, Emirates sought to recover its legal costs, which were substantial. The Court of Appeal had to determine not only the basis of assessment—standard versus indemnity—but also whether the corporate veil should be pierced to hold the company’s director, Mr. Naki Alkalaljeh, personally liable for these costs. The court found that the litigation was driven by Mr. Alkalaljeh for his own financial benefit, despite the company's inability to meet the resulting financial obligations.

The Claimant and Mr Naki Alkalaljeh jointly and severally pay the Defendant AED 2,080,234.24 on account of the costs payable by them.

The court’s decision to impose joint and several liability was rooted in the finding that Mr. Alkalaljeh was the "funder and controller" of the proceedings. By joining him as a party specifically for the purposes of costs, the court ensured that the defendant was not left with an unenforceable judgment against an impecunious corporate entity. The ruling serves as a stark reminder that directors who actively manage and fund litigation for personal gain cannot hide behind the corporate structure when those proceedings are deemed meritless or abusive.

Which judges presided over the Court of Appeal hearing in Vegie Bar v Emirates National Bank of Dubai Properties on 25 January 2021?

The appeal and subsequent costs applications were heard by a panel consisting of Chief Justice Zaki Azmi, Justice Roger Giles, and H.E. Justice Ali Al Madhani. The hearing took place via teleconference on 25 January 2021, with the final judgment and order issued on 17 March 2021.

What arguments did Mr. Roger Bowden and Mr. Tom Montagu-Smith QC advance regarding the assessment of costs?

Mr. Tom Montagu-Smith QC, representing Emirates, argued that the appeal brought by Vegie Bar was speculative and lacked any reasonable prospect of success, thereby justifying an order for indemnity costs. He contended that the conduct of the litigation, characterized by the pursuit of meritless points, took the matter outside the "norm" of standard litigation. Furthermore, he argued that Mr. Naki Alkalaljeh, as the individual who directed and funded the litigation, should be joined as a party to ensure the defendant could recover its costs.

Mr. Roger Bowden, representing Vegie Bar and Mr. Alkalaljeh, attempted to resist the application for indemnity costs and the joinder of the director. The defense maintained that the litigation was a legitimate exercise of the company's rights and that the costs sought were disproportionate. However, the court found these arguments unpersuasive, noting that the director’s personal involvement and the nature of the appeal warranted the court’s intervention to prevent an injustice to the defendant.

What was the precise legal question regarding the court's discretion to award indemnity costs under RDC 38.17?

The central legal question was whether the conduct of the appellant, Vegie Bar, and its director, Mr. Alkalaljeh, met the high threshold required to depart from the standard basis of costs assessment. The court had to determine if the appeal was "speculative at best" and "unreasonably brought," thereby triggering the court's discretion under RDC 38.17 and Practice Direction No 5 of 2014. Additionally, the court had to resolve the jurisdictional and procedural requirements for joining a non-party director for costs purposes under RDC 38.67, specifically whether the director’s control and funding of the litigation for personal benefit provided a sufficient nexus for personal liability.

How did the Court of Appeal apply the test for indemnity costs and non-party liability?

The Court of Appeal applied a rigorous test, emphasizing that indemnity costs are reserved for cases where the conduct of the paying party is "out of the norm." The judges reasoned that because the appeal was fundamentally flawed and pursued despite the lack of a viable legal basis, it constituted an unreasonable use of the court’s time and resources. Regarding the director, the court applied the principle that a non-party who promotes and funds litigation for personal gain should not be shielded by the company's limited liability status.

That Mr Naki Alkalaljeh pay the Defendant the costs of the appeal and the proceedings below jointly and severally with the Claimant.

The court reasoned that Mr. Alkalaljeh was not merely an officer of the company but the primary driver of the litigation. By standing to benefit personally from the outcome, he assumed the risk of costs. The court’s reasoning was consistent with the principle that the court has the inherent power to prevent its processes from being used as a tool for financial abuse by individuals hiding behind insolvent corporate vehicles.

Which specific DIFC and English authorities did the court rely upon to justify its costs orders?

The court relied on several key precedents to support its decision. For the assessment of costs on an indemnity basis, the court cited Balmoral Group Ltd v Borealis Ltd [2006] EWHC (Comm) 2531, which established the factors for departing from the standard basis. The court also referenced Three Rivers District Council v The Governor and Company of the Bank of England [2006] EWGC 816 (Comm) and Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson [2002] EWCA Civ 879 regarding the exercise of discretion in costs.

Regarding the payment on account, the court looked to the rationale established in AL KHORAFI v BANK SARASIN-ALPEN [2011] DIFC CA 026 — Permission to appeal granted (24 May 2011), which provides the framework for ordering payments on account pending final assessment. Additionally, the court cited Al-Awlaqi v Tabarak Partners LLP CFI 023-2009 regarding the consideration of the financial circumstances of parties during costs assessments.

How did the court utilize the cited precedents to shape its final order?

The court used Balmoral to confirm that the "basic rule" of standard costs can be displaced when the conduct of the litigation is inappropriate. By citing Kiam v MGN Ltd (No 2) [2012] 1 WLR 2810 and Natixis SA v Marex Financial [2019] EWHC 3163 (Comm), the court reinforced its authority to hold non-parties liable for costs when they are the "real party" behind the litigation. These cases provided the doctrinal foundation for the court to pierce the corporate veil for costs purposes, ensuring that the defendant was not left without a remedy against the individual who actually controlled the failed appeal.

What was the final disposition and the specific monetary relief ordered by the Court of Appeal?

The Court of Appeal granted the defendant's applications in full. The court ordered that the costs of the appeal be assessed on an indemnity basis. Furthermore, it ordered that Mr. Naki Alkalaljeh be joined as a party for costs purposes and be held jointly and severally liable with Vegie Bar for the costs of both the appeal and the proceedings below.

The Claimant and Mr Naki Alkalaljeh jointly and severally pay the Defendant AED 2,080,234.24 on account of the costs payable by them.

Additionally, the court ordered that the USD 86,864.50 previously paid into court as security for costs be released to Emirates immediately. The claimant and Mr. Alkalaljeh were also ordered to pay the costs of the applications themselves, to be assessed if not agreed.

What are the wider implications of this ruling for DIFC practitioners?

This judgment serves as a significant warning to directors and shareholders who fund litigation through insolvent or undercapitalized DIFC entities. It confirms that the DIFC Courts will not hesitate to exercise their powers under the RDC to hold individuals personally liable for costs when they are the "real party" behind the litigation. Practitioners must now advise clients that the corporate veil is not an absolute shield against costs orders, especially when the litigation is deemed speculative or when the director stands to gain personally. The high threshold for indemnity costs remains, but this case demonstrates that the court is increasingly willing to use its discretion to penalize unreasonable conduct and protect successful parties from the financial burden of meritless appeals.

Where can I read the full judgment in Vegie Bar v Emirates National Bank of Dubai Properties [2020] DIFC CA 001?

The full judgment can be accessed via the DIFC Courts website: https://www.difccourts.ae/rules-decisions/judgments-orders/court-appeal/vegie-bar-llc-duly-incorporated-company-registered-difc-regd-no-0907-v-emirates-national-bank-dubai-properties-pjsc-2020-difc-ca or via the CDN link: https://littdb.sfo2.cdn.digitaloceanspaces.com/litt/AE/DIFC/judgments/court-appeal/DIFC_COA_Vegie_Bar_Llc_A_Duly_Incorporated_Company_Registered_In_The_Difc_Regd_No_0907_20210317.txt

Cases referred to in this judgment:

Legislation referenced:

• RDC 38.6
• RDC 38.8
• RDC 38.13
• RDC 38.17
• RDC 38.18
• RDC 38.19
• RDC 38.67
• Practice Direction No 5 of 2014