MAD ATELIER INTERNATIONAL v AXEL MANES [2022] DIFC CFI 030 — Costs order following unsuccessful procedural challenges (01 November 2022)

This order addresses the allocation of legal costs following the failure of the Defendants' procedural applications to set aside previous court directions in a dispute involving Mad Atelier International B.V.

What was the specific nature of the procedural dispute between Mad Atelier International B.V. and the Defendants, Axel Manes and Catherine Zhilla, that necessitated this costs order?

The litigation, registered as CFI 030/2022, involved a series of procedural skirmishes initiated by the Defendants, Axel Manes and Catherine Zhilla, against the Claimant, Mad Atelier International B.V. The dispute centered on the Defendants' attempts to challenge the court’s procedural trajectory, specifically through a "Set Aside Application" regarding an order issued by H.E. Justice Maha Al Mheiri on 29 June 2022, and subsequent "De Novo Applications" targeting the Registrar’s directions from 6 August 2022.

The Claimant sought to recover the costs associated with defending these applications, arguing that the Defendants’ procedural maneuvers were dilatory and lacked merit. The court had to determine whether the Defendants, having failed in their attempts to set aside the court’s directions, should bear the financial burden of the Claimant’s legal expenses. As noted in the court's reasoning:

The First and Second Defendants were unsuccessful in the Set Aside Application and the De Novo Applications. It is just that the Defendants are ordered to pay the costs of the Claimant on a standard basis for the reasons set out below.

The matter was ultimately resolved by H.E. Deputy Chief Justice Ali Al Madhani, who issued the order for costs on 1 November 2022, ensuring the Claimant was compensated for the resources expended in responding to the Defendants' unsuccessful applications.

Which judge presided over the costs determination in CFI 030/2022 and in what capacity did the court act?

The costs determination was presided over by H.E. Deputy Chief Justice Ali Al Madhani, sitting in the Court of First Instance of the DIFC Courts. The order was issued on 1 November 2022, following the court's review of the parties' written submissions regarding costs, which had been directed by the same judge in an earlier order dated 1 August 2022.

What were the specific legal arguments advanced by the Claimant and the Defendants regarding the allocation of costs?

The Claimant argued for costs to be awarded on an indemnity basis, contending that the Defendants’ conduct throughout the proceedings was designed to delay the litigation. Specifically, the Claimant asserted that the Defendants’ applications for a stay pending a Joint Judicial Committee (JJC) determination were unjustified, that their submissions were misleading, and that the "De Novo Applications" were an attempt to circumvent the court’s earlier directions.

Conversely, the Defendants, particularly the Second Defendant, urged the court to adopt a "reasonable approach" by reserving the decision on costs until the JJC reached a final determination on jurisdictional matters. Alternatively, they suggested that costs should be "costs in the case," meaning they would follow the final outcome of the substantive dispute rather than being awarded immediately. The First Defendant also raised concerns regarding the potential for the duplication of costs incurred by the Claimant, which the court noted via email correspondence received on 24 October 2022.

What was the precise doctrinal issue the court had to resolve regarding the request to reserve costs pending a JJC determination?

The court was required to determine whether it was appropriate to stay the assessment of costs pending a potential ruling from the Joint Judicial Committee (JJC) on jurisdictional conflict. The core doctrinal issue was whether the existence of a pending JJC application constitutes a valid legal ground to suspend the court's inherent power to award costs to a successful party in interlocutory applications. The court had to decide if the jurisdictional challenges raised by the Defendants—based on Dubai Decree No. 19 of 2016—were sufficient to override the standard principle that costs should follow the event.

How did H.E. Deputy Chief Justice Ali Al Madhani apply the "costs follow the event" doctrine and the threshold for indemnity costs?

The court applied the fundamental principle that the unsuccessful party bears the costs of the successful party. Justice Al Madhani rejected the Defendants' request to reserve the costs judgment, citing the lack of any genuine jurisdictional conflict that would necessitate waiting for the JJC. Furthermore, the court addressed the Claimant’s request for indemnity costs by applying a strict interpretation of the threshold required for such an award. The judge reasoned that while the Defendants' conduct was concerning, it did not reach the level of "deliberate misconduct" required to justify an indemnity award.

The Court takes a strict view in awarding costs on an indemnity basis and there is an exceptionally high threshold for the Claimant to demonstrate to the Court that costs should be awarded on an indemnity basis. I do not think this threshold has been met in this matter.

The court concluded that the standard basis was the appropriate measure for the costs incurred by the Claimant during the Set Aside and De Novo applications.

Which specific DIFC statutes and procedural rules did the court rely upon to justify the costs order?

The court primarily relied upon Rule 38.7(1) of the Rules of the DIFC Courts (RDC), which establishes the general rule that the unsuccessful party is ordered to pay the costs of the successful party. Additionally, the court referenced Practice Direction No. 5 of 2014 (DIFC Courts’ Costs Regime) to evaluate whether the circumstances warranted an assessment on an indemnity basis. The court specifically examined the factors listed in the Practice Direction, such as "deliberate misconduct" or "unreasonable conduct to a high degree," to determine if the Defendants' actions took the situation away from the norm.

How did the court use the precedents of Lakhan v Lamia and Credit Suisse v Emirates Hospital in its reasoning?

The court utilized these authorities to dismiss the Defendants' argument that costs should be reserved pending a JJC determination. By citing Lakhan v Lamia [2021] DIFC CA 001 and Credit Suisse v Emirates Hospital [2021] DIFC CFI 060, Justice Al Madhani confirmed that there was no jurisdictional issue between the Dubai Courts and the DIFC Courts under Article 5 of Dubai Decree No. 19 of 2016. Consequently, the court held that there was no legal basis to delay the costs order, as the jurisdictional challenges were effectively moot in the context of the current proceedings.

What was the final disposition of the court regarding the payment of costs and the timeline for compliance?

The court ordered the First and Second Defendants to pay the Claimant’s costs for both the Set Aside Application and the De Novo Applications on a standard basis. If the parties failed to agree on the quantum of these costs, the matter was to be determined by the Registrar. The court set a strict deadline for compliance:

The First and Second Defendants shall pay the Claimant’s costs within 14 days of the date of this Cost Order being issued.

This order effectively concluded the procedural dispute regarding the costs of these specific applications.

What are the wider implications of this ruling for practitioners regarding the DIFC Court’s approach to costs and jurisdictional challenges?

This ruling reinforces the DIFC Court’s commitment to the "costs follow the event" principle and serves as a warning to litigants that procedural applications aimed at delaying proceedings will likely result in adverse costs orders. Practitioners should note that the court is highly resistant to reserving costs pending JJC determinations, especially when the jurisdictional arguments have been previously addressed in established case law. Furthermore, the decision highlights the high evidentiary threshold required to secure indemnity costs; mere frustration with an opponent's dilatory tactics is insufficient unless "deliberate misconduct" or "abuse of process" is clearly established.

Where can I read the full judgment in Mad Atelier International B.V. v (1) Axel Manes (2) Catherine Zhilla [2022] DIFC CFI 030?

The full judgment can be accessed via the DIFC Courts website: https://www.difccourts.ae/rules-decisions/judgments-orders/court-first-instance/cfi-0302022-mad-atelier-international-bv-v-1-axel-manes-2-catherine-zhilla-4

Cases referred to in this judgment:

Legislation referenced:

• Rules of the DIFC Courts (RDC), Rule 38.7(1)
• Practice Direction No. 5 of 2014 (DIFC Courts’ Costs Regime)
• Dubai Decree No. 19 of 2016, Article 5