VEGIE BAR v EMIRATES NATIONAL BANK OF DUBAI PROPERTIES [2020] DIFC CA 001 — Indemnity costs and non-party liability for speculative appeals (31 March 2021)

What was the specific dispute between Vegie Bar LLC and Emirates National Bank of Dubai Properties that led to the application for indemnity costs?

The litigation arose from a failed real estate dispute where Vegie Bar LLC (VB), an entity registered in the DIFC, sought to challenge a judgment that had dismissed its various applications and granted immediate judgment in favor of Emirates National Bank of Dubai Properties PJSC (Emirates). Following the dismissal of VB’s appeal, Emirates sought to recover its legal costs, arguing that the appeal was entirely devoid of merit. The dispute centered on whether the conduct of VB and its director, Mr. Naki Alkalajleh, in pursuing the appeal justified a departure from the standard basis of costs assessment.

The court examined the nature of the appeal, concluding that it was not merely unsuccessful but fundamentally flawed. The court noted that the underlying litigation had reached a point where the Claimant’s position was untenable, yet the appeal was persisted with, causing the Defendant to incur significant additional expenses. As noted in the court's findings:

It is necessary to repeat that the costs in question as indemnity costs are the costs of the appeal, not the costs of the proceedings. The Judge had held that VB’s applications should be dismissed and that Emirates should have immediate judgment, and had so held on the proposed amended particulars of claim.

The dispute ultimately transformed into a contest over the financial consequences of this litigation, with Emirates seeking to ensure that it was not left out of pocket by a company that appeared to be insolvent or otherwise unable to satisfy a substantial costs order. The total amount sought on account of costs was AED 2,080,234.24, highlighting the significant financial stakes involved for the parties. [Source: https://www.difccourts.ae/rules-decisions/judgments-orders/court-appeal/vegie-bar-llc-duly-incorporated-company-registered-difc-regd-no-0907-v-1-mr-naki-alkalajleh-2-emirates-national-bank-dubai-prope]

Which judges presided over the Court of Appeal hearing for Vegie Bar LLC v Emirates National Bank of Dubai Properties [2020] DIFC CA 001?

The matter was heard by a panel of the DIFC Court of Appeal 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 being issued on 31 March 2021.

What legal arguments did Mr. Roger Bowden for Vegie Bar LLC and Mr. Tom Montagu-Smith QC for Emirates National Bank of Dubai Properties advance regarding the costs application?

Mr. Tom Montagu-Smith QC, representing Emirates, argued that the appeal was speculative and unreasonably brought, thereby meeting the threshold for indemnity costs under the Rules of the DIFC Courts (RDC). He further contended that Mr. Naki Alkalajleh, as the director who controlled and funded the litigation for his own financial benefit, should be joined as a party for costs purposes. Emirates’ position was that it would be inequitable for the director to hide behind the corporate veil of an insolvent entity while driving litigation that had no realistic prospect of success.

Conversely, Mr. Roger Bowden, representing both VB and Mr. Alkalajleh, resisted the application for indemnity costs and the joinder of the director. The defense maintained that the litigation was pursued in good faith and that the standard basis of assessment was appropriate. However, the court found the arguments for the Claimant insufficient to overcome the evidence of the speculative nature of the appeal. By the time of the hearing, the alignment of interests between the company and its director was clear, as they were represented by the same legal counsel, and the court treated their submissions as a unified front against the costs application.

What was the precise doctrinal issue the court had to resolve regarding the joinder of Mr. Naki Alkalajleh for costs?

The court was required to determine whether it possessed the jurisdiction and the equitable basis to pierce the corporate veil for the sole purpose of a costs order. The doctrinal issue involved the application of RDC 38.67, which governs the joinder of non-parties for costs. The court had to decide if Mr. Alkalajleh’s role as the "real party" to the litigation—specifically his role in promoting and funding the proceedings for his own financial benefit—warranted a departure from the principle of separate corporate personality. The court had to balance the protection of the corporate form against the court's inherent power to prevent abuse of process and ensure that a successful defendant is not deprived of its costs by a shell company.

How did the Court of Appeal apply the test for indemnity costs in the context of a speculative appeal?

The court applied the criteria set out in Practice Direction No 5 of 2014, which allows for indemnity costs when the conduct of the paying party takes the situation "away from the norm." The judges reasoned that the appeal was not merely a vigorous pursuit of a legal right, but an unreasonable use of the court's time. By characterizing the appeal as "speculative at best," the court determined that the Claimant’s conduct constituted an abuse of the appellate process.

The reasoning emphasized that indemnity costs are a tool to protect the receiving party from the financial burden of defending against meritless claims. The court found that the Claimant’s persistence in the face of a clear judgment below necessitated a shift in the basis of assessment to ensure the Defendant was fully indemnified. As stated in the court's findings:

where a non-party promotes and funds proceedings by an insolvent company solely or substantially for his own financial benefit, he should be liable for the costs if his claim or defence or appeal fail

This reasoning established that the director’s personal involvement was the decisive factor in holding him liable, as he was the individual driving the litigation for personal gain while the company remained the nominal party.

Which specific RDC rules and statutory provisions did the court rely upon to justify the costs orders?

The court relied heavily on the RDC 38 series, which governs the assessment of costs. Specifically, the court cited RDC 38.17, which provides the court with the discretion to assess costs on either the standard or indemnity basis. RDC 38.18 and 38.19 were utilized to distinguish between the two: the standard basis requires proportionality and resolves doubts in favor of the payer, whereas the indemnity basis resolves doubts in favor of the receiver.

Furthermore, the court invoked RDC 38.67 to justify the joinder of Mr. Alkalajleh as a non-party for the purposes of costs. The court also referenced Practice Direction No 5 of 2014, which provides the interpretative guidance for exercising discretion in awarding indemnity costs, particularly in cases of "inappropriate conduct" or "abuse of process."

Which earlier cases did the court rely on to support its decision on indemnity costs and non-party liability?

The court cited several English authorities to support its application of the RDC. Balmoral Group Ltd v Borealis Ltd [2006] EWHC (Comm) 2531 was referenced to delineate the circumstances under which indemnity costs are appropriate. The court also looked to Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson [2002] EWCA Civ 879 and Natixis SA v Marex Financial [2019] EWHC 3163 (Comm) to refine the principles of non-party costs orders.

Regarding the payment on account, the court relied on DIFC precedents, specifically Al Khorafi v Bank Sarasin-Alpen (ME) Ltd [CFI 026-2009] and Al-Awlaqi v Tabarak Partners LLP [CFI 023-2009]. These cases established the rationale for ordering a payment on account of costs, ensuring that the successful party is not kept out of its money pending the final assessment of the total bill.

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

The Court of Appeal granted the applications in full, ordering that Mr. Naki Alkalajleh be joined as a party for costs purposes and that the costs be assessed on an indemnity basis. The court issued the following specific orders:

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

The USD 86,864.50 paid into court as security for the Defendant’s costs of the claim be paid out to the Defendant forthwith.

Additionally, the court ordered that Mr. Alkalajleh be held jointly and severally liable for the costs of the appeal and the proceedings below, effectively piercing the corporate veil to ensure the Defendant’s recovery.

How does this judgment change the practice for litigants in the DIFC regarding costs and corporate liability?

This judgment serves as a stern warning to directors who use corporate entities as vehicles for speculative litigation. It reinforces the DIFC Court's willingness to pierce the corporate veil for costs purposes when a director is the "real party" behind the litigation. Practitioners must now anticipate that if an insolvent company pursues an appeal that is deemed "speculative," the court will not hesitate to impose indemnity costs and hold the controlling director personally liable. This shifts the risk profile for directors, as they can no longer assume that the corporate structure provides an absolute shield against the financial consequences of unsuccessful, high-risk litigation.

Where can I read the full judgment in Vegie Bar LLC v Mr Naki Alkalajleh [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-1-mr-naki-alkalajleh-2-emirates-national-bank-dubai-prope 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_20210331.txt

Cases referred to in this judgment:

Legislation referenced:

• RDC 38.6 (General power to award costs)
• RDC 38.13 (Assessment of costs)
• RDC 38.17 (Indemnity vs Standard basis)
• RDC 38.18 (Standard basis rules)
• RDC 38.19 (Indemnity basis rules)
• RDC 38.67 (Joinder of non-party for costs)
• Practice Direction No 5 of 2014 (Discretion in costs)