MASHREQ AL ISLAMI FINANCE COMPANY v MR BABAR REHMAN [2019] DIFC CA 002 — Appellate review of indemnity costs and payment reconciliation (02 October 2019)

What was the nature of the dispute between Mashreq Al Islami Finance Company and Mr Babar Rehman regarding the Ijara Mosufa agreement?

The litigation arose from a default on a residential finance arrangement within the DIFC. Mr Babar Rehman had entered into an agreement to purchase a property, financed by the Claimant, Mashreq Al Islami Finance Company (formerly Al Badr Islamic Finance Company), through an Islamic finance structure.

He obtained finance from the Claimant (“Mashreq”) under an Ijara Mosufa agreement (the “Agreement”).

Following a series of missed payments starting in June 2009, the relationship deteriorated, leading to the formal termination of the agreement by Mashreq in September 2016. The ensuing legal battle centered on the precise calculation of outstanding arrears and the subsequent assessment of legal costs following the trial judge's decision to strike out the defendant's case due to his non-appearance. The core financial dispute involved a claim for AED 321,427.12, which the trial judge awarded after reviewing the claimant's reconciliation schedules.

Which judges presided over the appeal of Mashreq Al Islami Finance Company v Mr Babar Rehman in the DIFC Court of Appeal?

The appeal was heard by a panel consisting of Chief Justice Zaki Azmi, Justice Roger Giles, and H.E. Justice Shamlan Al Sawalehi. The proceedings took place before the Court of Appeal, which reviewed the initial judgment issued by H.E. Justice Omar Al Muhairi. The hearing was conducted on 26 August 2019, with the final judgment delivered on 2 October 2019.

What legal arguments did Mr Peter Smith and Ms Jouslin Khairallah advance regarding the payment reconciliation and indemnity costs?

Mr Peter Smith, representing Mashreq, argued that the trial judge correctly relied on the claimant’s evidence regarding the payment history. He maintained that the reconciliation schedules provided by the claimant’s recovery officer, Rabia Aslam, were accurate and that the defendant had failed to provide sufficient evidence to contradict these figures.

The Claimant argues that it has carefully calculated the total sums due from the Defendant pursuant to the various schedules of payments, taking into account the payments actually received from the Defendant from 3 September 2007 through 24 March 2016.

Conversely, Ms Jouslin Khairallah, representing Mr Rehman, contended that the trial judge failed to account for a payment of AED 495,485.80, which she argued was evidenced by a letter from the claimant. Furthermore, regarding costs, the defense argued that the trial judge’s award of indemnity costs was excessive and that the assessment improperly included costs incurred well before the commencement of the legal proceedings, which should not be recoverable under the Rules of the DIFC Courts (RDC).

What was the specific doctrinal issue the Court of Appeal had to resolve regarding the trial judge’s assessment of indemnity costs?

The Court of Appeal was tasked with determining whether the trial judge erred in his exercise of discretion under the RDC when awarding indemnity costs. Specifically, the court had to decide if the judge was entitled to include costs incurred by the claimant prior to the filing of the claim within the total assessment of AED 884,635.92. This required the Court of Appeal to interpret the scope of "costs of the proceedings" and whether the conduct of the defendant justified an indemnity basis of assessment that effectively captured pre-litigation expenditure.

How did the Court of Appeal apply the test for overturning factual findings and the principles of cost assessment?

The Court of Appeal applied a strict standard of review regarding the trial judge's factual findings. It held that the appellant bore a heavy burden to demonstrate that the judge was "clearly wrong" in his assessment of the payment history. Regarding the costs, the Court of Appeal scrutinized the trial judge's inclusion of pre-litigation expenses.

With respect, however, the Judge erred in including in the assessment costs incurred by Mashreq well prior to filing its claim. The costs described in subparagraphs (a) and (b) of para 12 of Mashreq’s

The Court reasoned that while the judge had the discretion to award indemnity costs, that discretion did not extend to awarding costs that were not properly categorized as costs of the proceedings. Consequently, the Court of Appeal exercised its power to vary the order, excising the pre-litigation costs from the total sum awarded.

Which specific RDC rules and statutory provisions governed the Court of Appeal’s decision on costs?

The Court of Appeal’s decision was primarily governed by the Rules of the DIFC Courts (RDC), specifically Part 38, which deals with the assessment of costs. The court referenced RDC 38.6, 38.17, 38.20, and 38.21 in its evaluation of whether the indemnity basis was appropriate and how the assessment should be conducted. The court emphasized that the power to award costs is limited to those incurred in the course of the litigation, and the inclusion of pre-litigation costs violated the fundamental principle that costs must be related to the proceedings themselves.

How did the Court of Appeal utilize the cited authorities to distinguish between recoverable and non-recoverable costs?

The Court of Appeal utilized the principle that a judge’s discretion in cost assessment is not absolute. By reviewing the trial judge's order, which had been issued without written reasons, the Court of Appeal determined that the inclusion of costs incurred prior to the claim filing was a legal error rather than a mere exercise of discretion. The court distinguished between the conduct of the parties—which justified the indemnity basis—and the nature of the expenses, which must be strictly tied to the litigation process.

What was the final disposition of the appeal and the resulting adjustment to the monetary relief?

The Court of Appeal allowed the appeal in part. While it dismissed the ground of appeal concerning the judgment amount of AED 321,427.12, finding no error in the trial judge's factual determination, it granted relief regarding the costs.

The Claimant’s calculations are deemed valid based upon a preponderance of the evidence, and I therefore find in favour of the Claimant as against the Defendant in the sum of AED 321,427.12…. comprising:

The court ordered that the original costs assessment of AED 884,635.92 be reduced to AED 575,311.92, reflecting the exclusion of the pre-litigation costs. No order was made regarding the costs of the appeal itself, meaning each party bore their own costs for the appellate proceedings.

What are the wider implications of this judgment for practitioners in DIFC banking and finance litigation?

This judgment serves as a critical reminder that indemnity costs are not a "blank check" for claimants to recover all expenses incurred in a dispute. Practitioners must ensure that any costs submitted for assessment are strictly categorized as costs of the proceedings. Furthermore, the case reinforces the high threshold required to challenge a trial judge’s factual findings on appeal, particularly when those findings are based on a reconciliation of complex financial accounts. Litigants should anticipate that the Court of Appeal will be reluctant to re-examine evidence unless a clear, demonstrable error is identified.

Where can I read the full judgment in Mashreq Al Islami Finance Company v Mr Babar Rehman [2019] DIFC CA 002?

The full judgment can be accessed via the DIFC Courts website: https://www.difccourts.ae/rules-decisions/judgments-orders/court-appeal/mashreq-al-islami-finance-company-pjsc-v-mr-babar-rehman-2019-difc-ca-002

Cases referred to in this judgment:

Legislation referenced:

• Rules of the DIFC Courts (RDC): Part 38 (Costs), specifically RDC 38.6, 38.17, 38.20, 38.21.