NESSIM v NADER [2024] DIFC CFI 013 — Reinsurance indemnity and strike-out application (06 August 2024)

This order addresses a complex dispute over the governing law of a reinsurance contract and the procedural viability of a USD 70 million indemnity claim, clarifying the Court’s approach to stay applications and the threshold for striking out pleadings in reinsurance litigation.

What is the specific factual dispute between Nessim and Nader regarding the USD 70 million reinsurance indemnity?

The litigation concerns a dispute between Nessim, an insurance company incorporated in Sharjah, and Nader, a syndicate of reinsurers incorporated in Bahrain. The Claimant seeks an indemnity under a reinsurance contract for claims arising from an underlying Marine Hull & Machinery Policy and a Marine Hull War Policy. The insured vessel, which was covered for a sum of USD 70 million, became the subject of underlying proceedings that have necessitated this secondary action against the reinsurer.

The core of the dispute lies in the documentation of the Reinsurance Contract. While the parties agree that the contract was evidenced by a 2015 cover note, they remain in sharp disagreement over whether a subsequent document, the "Facultative Reinsurance Placement" dated 28 June 2018, forms part of the binding terms. As noted in the judgment:

It is common ground that the Reinsurance Contract was evidenced by a cover note for the underwriting year 2015 (the “Cover Note”) and but there is an issue between the parties as whether a document entitled "Facultative Reinsurance Placement " dated 28 June 2018 (“the Placement Document”), contains or evidences terms of the Reinsurance Contract.

The Claimant argues that the Reinsurance Contract incorporates specific clauses—including those related to Sue and Labour—that entitle it to indemnity for legal costs and expenses incurred in the underlying litigation. The Defendant, however, contests the applicability of these terms and the governing law of the contract, leading to the current procedural impasse.

Which judge presided over the Nessim v Nader application in the DIFC Court of First Instance?

The application was heard by Justice Michael Black KC in the DIFC Court of First Instance. The hearing took place on 25 July 2024, with the resulting Order with Reasons issued on 6 August 2024. Justice Black KC addressed both the stay application and the strike-out application during this session, emphasizing the need for efficient case management in light of the parallel proceedings.

What were the specific legal arguments advanced by the parties regarding the strike-out and stay of proceedings?

The Defendant, Nader, argued that the proceedings should be stayed pending the resolution of the "Underlying DIFC Proceedings" and the "Sharjah Proceedings." They contended that the Reinsurance Contract is governed by English law and that the Claimant’s attempt to rely on UAE law in the current Particulars of Claim was an abuse of process, given that the Claimant had previously relied on English law in the underlying litigation. Consequently, the Defendant sought to strike out paragraphs 10, 11, and 26 of the Particulars of Claim under RDC 4.15 and 4.16.

The Claimant, Nessim, resisted the stay, arguing that the issues in the present case were distinct from those in the underlying proceedings and that the court should proceed with the claim. Regarding the strike-out, the Claimant maintained that its pleading of UAE law was a properly arguable position, even if it conflicted with prior representations, and requested permission to amend its pleadings if the Court found them deficient.

What was the precise doctrinal issue the Court had to resolve regarding the order of applications?

The Court was tasked with determining the logical sequence for addressing the Defendant's dual-purpose application. Specifically, Justice Black KC had to decide whether to rule on the stay application or the strike-out application first. The doctrinal challenge was to ensure that the scope of the litigation was clearly defined before determining whether a stay was appropriate. As the Court observed:

It is logical to address the Strike-Out application before the Stay Application as it is necessary to understand what issues remain in contention in order to consider whether or not they should be stayed.

How did Justice Michael Black KC apply the test for strike-out and the discretion regarding witness statements?

Justice Black KC adopted a pragmatic approach to the strike-out application, focusing on whether the Claimant’s arguments were "properly arguable." While he ordered the strike-out of specific paragraphs that were deemed inconsistent or lacking a clear legal basis, he allowed the Claimant the opportunity to replead its case regarding the governing law. Regarding the evidence provided by legal practitioners, the Court affirmed its discretionary power:

I accept that these may be amongst some (but are by no means all) of the matters the Court may take into consideration in exercising its unfettered discretion.

The Court reasoned that the Claimant’s proposition regarding the governing law was not inherently frivolous or vexatious, despite the Defendant's protestations. Regarding the stay application, the Court weighed the timing of the underlying trial, noting:

I agree that timing is key in the resolution of what I consider to be a rather simple and mundane case management issue.

Which statutes and RDC rules were central to the Court’s decision in Nessim v Nader?

The Court’s decision was grounded in the Rules of the DIFC Courts (RDC), specifically RDC 4.2(6) regarding the stay of proceedings, and RDC 4.15, 4.16(1), and 4.16(2) regarding the strike-out of pleadings. Additionally, the Court referenced Article 8 of DIFC Law No. 3 of 2004, which provides the jurisdictional framework for the DIFC Courts. The application of these rules was essential to the Court’s determination that it retained the authority to manage the proceedings despite the pending external litigation.

How did the Court utilize English and DIFC precedents to determine the governing law and strike-out threshold?

The Court relied on a robust body of reinsurance case law to navigate the governing law dispute. It cited Scottish Metropolitan Assurance Co Ltd v Groom and Insurance Co of Africa v SCOR (UK) Reinsurance Co Ltd to contextualize the interpretation of reinsurance contracts. Furthermore, the Court looked to The Industrial Group Limited v Abdelazim EL Shikh EL Fadil Hamid to establish the hierarchy for determining applicable law. In addressing the strike-out, the Court applied the principle from Nancy v Narcissa [2023] CFI 098, confirming that there is no blanket prohibition on lawyers providing witness statements, though the Court retains discretion over the weight afforded to such evidence.

What was the final disposition and the specific orders made by the Court?

The Court dismissed the Defendant's application to stay the proceedings, directing the parties to agree on directions leading to a trial in or about April 2025. However, the Court granted the strike-out of paragraph 10, the first sentence of paragraph 11, and specific wording in paragraph 26 of the Particulars of Claim. The Claimant was granted leave to amend its pleadings:

The Claimant shall have permission (if so advised) to amend the Particulars of Claim to replead its case that the Federal laws of the UAE are the governing laws of the Reinsurance Contract no later than 14 days following the date of this Order.

The costs of the application were ordered to be "costs in the case," meaning they will be determined at the conclusion of the substantive proceedings.

What are the wider implications for practitioners regarding reinsurance litigation in the DIFC?

This case serves as a reminder that the DIFC Courts will prioritize the orderly definition of issues through strike-out applications before entertaining stays, even in complex cross-border reinsurance disputes. Practitioners must be prepared for rigorous scrutiny of their pleadings, particularly when asserting governing law clauses that may contradict prior litigation positions. The case also clarifies that while the Court is willing to strike out poorly pleaded claims, it remains flexible in allowing amendments where a "properly arguable" case exists.

I am satisfied that the Insurer has demonstrated that such a proposition is properly arguable under English law and therefore cannot be struck out.

Practitioners should anticipate that the DIFC Courts will maintain a firm hand on case management, as evidenced by the Court's refusal to stay proceedings simply because of parallel litigation in other jurisdictions.

Where can I read the full judgment in Nessim v Nader [2024] DIFC CFI 013?

The full judgment can be accessed via the DIFC Courts website: https://www.difccourts.ae/rules-decisions/judgments-orders/court-first-instance/cfi-0132024-nessim-v-nader or via the CDN link: https://littdb.sfo2.cdn.digitaloceanspaces.com/litt/AE/DIFC/judgments/court-first-instance/cfi-0132024-nessim-v-nader.txt

Cases referred to in this judgment:

Legislation referenced:

• DIFC Law No. 3 of 2004, Article 8
• RDC 1.6
• RDC 4.2(6)
• RDC 4.15
• RDC 4.16(1)
• RDC 4.16(2)