What was the nature of the dispute between SOL International Properties and Burger & Lobster Restaurant (Dubai) regarding the assets left on the premises?
The dispute arose when the Claimant, SOL International Properties Limited, filed a claim in June 2021 seeking to exercise a statutory and contractual lien over assets left at its premises by the Defendant, Burger & Lobster Restaurant (Dubai) LLC. The Defendant was already in liquidation at the time the Claimant commenced these proceedings. The Claimant attempted to bypass the insolvency regime by relying on provisions within the DIFC Leasing Law to assert priority over the assets, rather than adhering to the mandatory stay on proceedings against insolvent entities.
The litigation was short-lived, as the Claimant eventually applied to discontinue its claim in January 2022. However, the procedural missteps taken by the Claimant during the six-month duration of the case led to a significant costs dispute. As noted in the Registrar’s reasons:
The Claimant now appeals that Costs Order and I provide reasons for my Costs Order below which go hand in hand with my reasons for dismissing the Permission Application.
The core of the dispute shifted from the underlying lien claim to the Claimant’s liability for the Defendant’s legal expenses, which the Court ultimately determined should be paid on an indemnity basis due to the Claimant’s failure to respect the insolvency process.
Which judge presided over the Permission Application in CFI 059/2021 and when was the order issued?
The application for permission to appeal was heard and determined by Registrar Nour Hineidi of the DIFC Court of First Instance. The order dismissing the application and providing the detailed schedule of reasons was issued on 12 April 2022.
What were the respective positions of SOL International Properties and Burger & Lobster Restaurant regarding the costs of the litigation?
The Claimant, SOL International Properties, sought to appeal the initial costs order issued on 21 January 2022, which had awarded the Defendant its costs in full. The Claimant’s position was that the costs were excessive or improperly awarded. Conversely, the Defendant, represented by its liquidators, maintained that the Claimant’s decision to initiate and maintain proceedings against a company in liquidation without first obtaining leave of the Court—as required by the DIFC Insolvency Law—was a fundamental procedural error that forced the Defendant to incur unnecessary legal expenses.
The Defendant argued that these costs should be recoverable in full to ensure that the company’s creditors were not prejudiced by the Claimant’s "empty claim." The Registrar agreed with the Defendant’s position, emphasizing that the Claimant’s ignorance of the statutory requirements for proceeding against an insolvent entity did not excuse the resulting litigation costs.
What was the precise legal question the Court had to answer regarding the Claimant’s application for permission to appeal?
The Court was tasked with determining whether the Claimant had satisfied the threshold for permission to appeal the Registrar’s earlier Costs Order. This required the Court to evaluate whether the initial decision to award costs on an indemnity basis was legally sound and whether the amount claimed by the Defendant was reasonable. The doctrinal issue centered on whether the Claimant’s failure to comply with the mandatory leave requirements under the DIFC Insolvency Law constituted an "abuse of process" sufficient to trigger the Court’s discretion to award indemnity costs under the Rules of the DIFC Courts (RDC).
How did Registrar Nour Hineidi apply the test for indemnity costs in the context of the Claimant’s procedural conduct?
Registrar Hineidi applied the criteria set out in Practice Direction No. 5 of 2014, which governs the exercise of judicial discretion when awarding costs on an indemnity basis. The Registrar concluded that the Claimant’s conduct fell outside the norm because it ignored the statutory stay on proceedings against an insolvent company. By failing to seek leave of the Court, the Claimant forced the Defendant to defend a claim that was procedurally defective from its inception.
The Registrar’s reasoning emphasized that the award of indemnity costs serves as a mechanism for the Court to express its disapproval of such conduct. As stated in the judgment:
I consider the Claimant’s conduct in these proceedings to be an abuse of process.
Furthermore, the Registrar noted that the Claimant’s ignorance of the law was no defense. The Court found that the Claimant’s attempt to fast-track its priority as a creditor by relying on the Leasing Law, while ignoring the Insolvency Law, was fundamentally flawed and resulted in the waste of the Court’s and the Defendant’s resources.
Which specific DIFC statutes and RDC rules were applied to determine the Claimant’s liability for costs?
The Court relied heavily on Article 88(2) of the DIFC Insolvency Law (DIFC Law No. 1 of 2019), which mandates that no action or proceeding may be commenced or continued against a company in liquidation without leave of the Court. Regarding the costs assessment, the Court applied RDC 38.19, which dictates that when costs are assessed on an indemnity basis, any doubt as to whether the costs were reasonably incurred must be resolved in favor of the receiving party.
Additionally, the Court referenced Article 60 of the DIFC Leasing Law (Law No. 1 of 2020), which the Claimant had erroneously relied upon to justify its claim. The Registrar also cited Practice Direction No. 5 of 2014, which provides the specific factors—such as abuse of process and unreasonable conduct—that justify a departure from the standard basis of costs assessment.
How did the Court utilize the Defendant’s statement of costs to reach its final determination on the amount awarded?
The Court scrutinized the Defendant’s statement of costs, which totaled USD 106,526.43. The Registrar found this amount to be reasonable, noting that the litigation spanned six months and that the fees were primarily accrued by a single senior associate. The Court placed significant weight on the fact that the Defendant’s solicitor had signed a statement of truth regarding the costs incurred.
As the Registrar observed:
The Defendant’s solicitor signed a statement of truth at the end of its statement of costs, and I will take that amount on face value to be the correct amount incurred by the Defendant.
By accepting the statement of truth and applying the indemnity basis, the Court ensured that the Defendant was fully indemnified for the costs forced upon it by the Claimant’s improper litigation strategy.
What was the final disposition of the Permission Application and the associated costs order?
The Court dismissed the Permission Application in its entirety. The Claimant was ordered to pay the Defendant’s costs of the application. The Registrar specified the following regarding the assessment of these costs:
The Claimant is to pay the Defendant’s costs of the Permission Application to be immediately assessed upon the Defendant’s provision of its statement of costs within 7 days from the date of this order.
This order effectively finalized the litigation, ensuring that the Defendant’s estate was not further depleted by the costs of defending the Claimant’s unsuccessful appeal.
What are the wider implications of this decision for practitioners initiating claims against insolvent companies in the DIFC?
This decision serves as a stern warning to practitioners regarding the necessity of complying with the DIFC Insolvency Law. It reinforces the principle that the Court will not tolerate attempts to bypass the liquidation process through the creative use of other statutes, such as the Leasing Law. Practitioners must ensure that leave of the Court is obtained before commencing any action against an entity in liquidation. Failure to do so not only risks the dismissal of the claim but also exposes the claimant to indemnity costs, which the Court will readily award to signal its disapproval of procedural abuse.
Where can I read the full judgment in SOL International Properties Limited v Burger & Lobster Restaurant (Dubai) LLC [2022] DIFC CFI 059?
The full judgment can be accessed via the DIFC Courts website: https://www.difccourts.ae/rules-decisions/judgments-orders/court-first-instance/cfi-059-2021-sol-international-properties-limited-v-burger-lobster-restaurant-dubai-llc-liquidation
Cases referred to in this judgment:
| Case | Citation | How used |
|---|---|---|
| SOL International Properties v Burger & Lobster Restaurant | CFI-059-2021 | The primary proceedings from which the costs appeal arose. |
Legislation referenced:
- DIFC Insolvency Law (DIFC Law No. 1 of 2019), Article 88(2)
- DIFC Leasing Law (DIFC Law No. 1 of 2020), Article 60
- Rules of the DIFC Courts (RDC), Rule 38.19
- Practice Direction No. 5 of 2014 (PD 5)