This ruling addresses the complex intersection of settlement conduct and external litigation pressure, clarifying how the DIFC Court of Appeal exercises its discretion under RDC 38.8 when parties engage in aggressive pre-trial tactics.
What was the total value of the damages claim brought by Theron Entertainment against MAG Financial Services in the underlying dispute?
The litigation between MAG Financial Services (MFS) and Theron Entertainment (Theron) originated from a commercial tenancy dispute where Theron sought significant damages for alleged breaches of contract. The scale of the initial claim was substantial, reflecting the high stakes of the commercial real estate disagreement.
MFS’s settlement offer was made in the light of Theron’s AED 10,310,407 damages claim as revealed in the documents, plus costs of AED 775,000.
The dispute ultimately resulted in a much more modest recovery for Theron, highlighting the disparity between the initial claim and the court's final assessment. The court had to reconcile these figures while determining the appropriate costs order for both the first instance proceedings and the subsequent appeal. Further details on the underlying judgment can be found at the DIFC Courts website.
Which judges presided over the Court of Appeal hearing for MAG Financial Services v Theron Entertainment?
The matter was heard by a panel of the DIFC Court of Appeal consisting of Chief Justice Michael Hwang, Justice Sir Richard Field, and H.E. Justice Omar Al Muhairi. The ruling on costs was delivered on 7 May 2018, following the Court's earlier determination of the appeal and cross-appeal against the decision of H.E. Justice Ali Al Madhani.
What arguments did Theron Entertainment advance regarding the conduct of MAG Financial Services to influence the costs order?
Theron Entertainment argued that it should be awarded 60% of its total costs, citing its net recovery and MFS’s obstructive litigation conduct. Theron specifically pointed to MFS’s failure to file an Acknowledgement of Service, delays in responding to document requests, and late amendments to pleadings.
Crucially, Theron highlighted that MFS had initiated a criminal complaint regarding bounced rent cheques, which forced Theron’s sole shareholder, Mr. Igor Krayushkin, to leave Dubai to avoid arrest. Theron contended that this "frivolous" criminal pressure, combined with MFS’s failure to comply with court orders regarding the custody of rent cheques and the release of security for costs, warranted a favorable costs order for the Respondent.
What was the specific legal question the Court of Appeal had to answer regarding the rejection of MFS’s settlement offer?
The primary doctrinal issue was whether Theron’s rejection of MFS’s settlement offer dated 31 March 2016 should trigger a reduction in the costs awarded to Theron under RDC 38.8. The court had to determine if the offer was a genuine attempt to settle that should have been accepted, or if the surrounding circumstances—specifically the concurrent criminal proceedings initiated by MFS—rendered the offer invalid for the purposes of cost-shifting.
How did Justice Sir Richard Field apply the test for settlement offers under RDC 38.8 in light of the criminal proceedings?
Justice Sir Richard Field scrutinized the timing and nature of the settlement communications. He concluded that the pressure exerted by the criminal complaint against Theron’s shareholder undermined the legitimacy of the settlement offer as a basis for penalizing the offeree.
In my view, the pending police proceedings resulting from MFS’s complaint to the police were at least in part calculated to bring pressure on Theron to honour the rent cheques regardless of the merit
The court reasoned that because the offer was made while MFS was actively pursuing criminal charges, it could not be viewed as a standard commercial settlement offer. Consequently, the court refused to penalize Theron for rejecting the offer, as the conduct of MFS in the criminal sphere tainted the settlement process.
Which specific RDC rules did the Court of Appeal apply to determine the costs order in CA 006/2017?
The Court relied on RDC 38.6, 38.7, 38.8, and 38.9. Rule 38.6 establishes the court's broad discretion regarding costs, while 38.7 sets the general rule that the unsuccessful party pays the costs of the successful party. Rule 38.8 requires the court to consider all circumstances, including the conduct of the parties and any admissible offers to settle. Rule 38.9 further clarifies that "conduct" includes actions taken before and during proceedings, and whether a party has pursued or defended allegations unreasonably.
How did the Court of Appeal treat the communications sent by MFS between 7 April 2016 and 4 May 2016?
The Court assessed whether these communications constituted valid offers to settle under the RDC. Justice Sir Richard Field determined that they lacked the necessary clarity and finality to be treated as formal offers for the purposes of cost-shifting.
In my opinion, none of the communications sent on behalf of MFS to Theron’s solicitors in the period 7 April 2016 to 4 May 2016 contained sufficiently definite proposals to constitute offers of settlement which the Court should take into account pursuant to RDC 38.3.
This finding reinforced the court's stance that only clear, unambiguous, and procedurally sound offers can be used to influence a costs order, especially when the offeror's conduct is otherwise questionable.
What was the final disposition and monetary allocation of costs ordered by the Court of Appeal?
The Court of Appeal balanced the successes and failures of both parties across the first instance and appellate proceedings.
Having regard to the net balance in Theron’s favour of AED 953,904.81 resulting from the sums awarded to Theron and to the matters canvassed in paragraphs 23, 24 and 25 above, I am of the view that Theron should have 40% of its costs below and that MFS should have 65% of its costs on appeal. 27.
The court also noted that additional complaints regarding conduct were insufficient to further alter the costs order.
How does this ruling change the practice for litigants using settlement offers as a tactical tool in the DIFC?
This case serves as a warning that the DIFC Court of Appeal will look behind the face of a settlement offer to examine the broader context of the litigation. Practitioners must anticipate that if a settlement offer is made while the offeror is simultaneously pursuing external pressure tactics—such as criminal complaints—the court may disregard the offer entirely under RDC 38.8. Litigants cannot expect to benefit from the "without prejudice as to costs" protections if their pre-trial conduct is deemed to be an attempt to exert improper pressure on the opposing party.
Where can I read the full judgment in MAG Financial Services v Theron Entertainment [2018] DIFC CA 006?
The full judgment is available on the DIFC Courts website: https://www.difccourts.ae/rules-decisions/judgments-orders/court-appeal/ca-0062017-mag-financial-services-llc-v-theron-entertainment-llc
Cases referred to in this judgment:
| Case | Citation | How used |
|---|---|---|
| N/A | N/A | N/A |
Legislation referenced:
- DIFC Rules of the DIFC Courts (RDC): 38.3, 38.6, 38.7, 38.8, 38.9
- Tenancy Contract (Article 36)