This order addresses the Court’s power to award indemnity costs when a party pursues a "draconian" strike-out application rather than engaging in cooperative procedural dialogue following the transfer of a claim from the Small Claims Tribunal (SCT) to the Court of First Instance (CFI).
What was the specific nature of the procedural dispute between First Middle East Distribution DMCC and Orange Chameleon Ltd that led to the CFI 066/2022 costs order?
The dispute originated from the transfer of proceedings from the SCT to the CFI, which prompted the Claimant, First Middle East Distribution DMCC, to seek retrospective permission to amend its pleadings. Rather than engaging in a collaborative resolution, the Defendant, Orange Chameleon Ltd, filed a strike-out application (Application No. CFI-066-2022/2) challenging the Claimant’s ability to amend its case. The Claimant argued that the Defendant’s refusal to engage in dialogue and its insistence on a contested hearing for a procedural matter was unjustified and designed to inflate legal costs.
The core of the dispute centered on whether the Defendant’s aggressive procedural stance warranted a departure from the standard basis of costs. The Claimant contended that it had attempted to avoid unnecessary litigation by offering to settle costs issues, an offer the Defendant ignored. As noted in the Court's reasoning:
Rather, the Defendant opted to apply for a draconian measure and failed to avoid any unnecessary expensive satellite litigation.
The Claimant sought an indemnity costs order, asserting that the Defendant’s conduct in pursuing the strike-out application was outside the norm for such procedural disagreements. Further details on the case background can be found at the DIFC Courts website.
Which judge presided over the costs hearing in CFI 066/2022 and in what capacity did he sit?
The matter was heard by Deputy Chief Justice H.E. Ali Al Madhani, sitting in the Court of First Instance. The virtual hearing took place on 23 August 2023, with the final order with reasons issued on 5 December 2023.
How did First Middle East Distribution DMCC and Orange Chameleon Ltd characterize the necessity of the strike-out application during the costs submissions?
The Claimant argued that the Defendant acted inappropriately by commencing litigation without a factual or legal basis, specifically by forcing a contested hearing on the amendment application. The Claimant maintained that it had provided ample opportunity for the Defendant to avoid further costs, including a settlement offer on 3 November 2023, which the Defendant ignored.
Conversely, the Defendant argued that its opposition to the amendment was reasonable, particularly because the case involved a novel point of law regarding the effect of transferring a claim from the SCT to the CFI under RDC 53.41. The Defendant maintained that it was entitled to challenge the Claimant's procedural approach. As the Court recorded:
In response to the Claimant’s submission, the Defendant contended that it is cognisant to the fact that it has been unsuccessful in its Strike Out Application and the Claimant’s Application for retrospective permission to amend.
What was the precise legal question the Court had to determine regarding the transfer of proceedings under RDC 53.41?
The Court had to determine whether the transfer of a claim from the SCT to the CFI pursuant to RDC 53.41 automatically grants a party the liberty to amend its case as it wishes, or if such amendments remain subject to the standard requirements for permission. The Defendant argued that this was a "novel point" that had not been previously addressed, justifying its decision to withhold consent to the Claimant's application for retrospective permission to amend.
By what reasoning did Deputy Chief Justice H.E. Ali Al Madhani conclude that indemnity costs were appropriate in this matter?
Deputy Chief Justice H.E. Ali Al Madhani applied the criteria set out in DIFC Courts Practice Direction No. 5 of 2014, which requires the Court to consider whether a party’s conduct takes the situation "away from the norm." While the Court acknowledged that the underlying legal question regarding RDC 53.41 was novel, it found that the Defendant’s choice to pursue a strike-out application was disproportionate and unnecessarily aggressive.
The Court emphasized that the Defendant’s conduct was not penalized because its legal interpretation was incorrect, but because its procedural strategy was unreasonable. The Court stated:
It was the Defendant’s unnecessary actions and approach that were at odds with the narrow and straightforward scope of this litigation.
The Court further clarified the threshold for indemnity costs, noting:
It is important to note that the indemnity costs order has not been awarded because the Defendant’s analysis or its own interpretation of RDC 53.41 was wrong in retrospect, or that they had been mistaken as to the RDC’s effect.
Which specific DIFC statutes and RDC rules were central to the Court’s analysis of the costs dispute?
The Court primarily relied on RDC 38.7(1), which establishes the general rule that the unsuccessful party pays the costs of the successful party. The Court also referenced RDC 53.41 regarding the transfer of claims from the SCT to the CFI, which served as the basis for the Defendant's initial procedural challenge. Additionally, the Court cited DIFC Courts Practice Direction No. 5 of 2014, which provides the framework for determining when costs should be assessed on an indemnity basis rather than a standard basis, focusing on conduct that is "outside the norm."
How did the Court utilize the English authority of Williams v Jervis [2009] EWHC 1837 (QB) in its assessment of the Defendant’s conduct?
The Defendant relied on Williams v Jervis to argue that an indemnity costs order should not be awarded simply because a party was unsuccessful or because their evidence was not preferred. The Defendant used this case to suggest that the reasonableness of its conduct should be assessed based on the circumstances at the time, rather than the eventual outcome of the litigation. The Court acknowledged this authority but ultimately found that the Defendant's conduct—specifically the choice to pursue a "draconian" strike-out application—exceeded the bounds of reasonable procedural advocacy, regardless of the novelty of the legal point involved.
What was the final disposition of the Court regarding the costs in CFI 066/2022?
The Court ordered the Defendant to pay the Claimant’s costs on an indemnity basis. The order stipulated that if the parties could not agree on the quantum of these costs, a detailed assessment would be undertaken by the Registrar. The Court also noted that its decision to award indemnity costs was not intended to discourage parties from bringing legitimate applications before the Court. As the Court observed:
Parties are absolutely free to make their own application before this Court and my judgment on this dispute should not be regarded or viewed as a denial of opportunity to do so or curtailing the parties access to justice.
How does this decision impact the expectations for practitioners handling procedural disputes in the DIFC?
This ruling serves as a warning to practitioners that the DIFC Courts expect procedural disputes to be handled through cooperation and dialogue rather than immediate recourse to aggressive applications like strike-outs. Even when a case involves a novel point of law, practitioners must ensure that their procedural strategy is proportionate to the scope of the litigation. Failure to attempt a collaborative resolution before initiating "expensive satellite litigation" may result in the Court exercising its discretion to award indemnity costs, effectively shifting the financial burden of such tactics onto the party that initiated them.
Where can I read the full judgment in First Middle East Distribution DMCC v Orange Chameleon Ltd [2023] DIFC CFI 066?
The full judgment is available on the DIFC Courts website: https://www.difccourts.ae/rules-decisions/judgments-orders/court-first-instance/cfi-0662022-first-middle-east-distribution-dmcc-v-orange-chameleon-ltd-5 or via the CDN: https://littdb.sfo2.cdn.digitaloceanspaces.com/litt/AE/DIFC/judgments/court-first-instance/DIFC_CFI-066-2022_20231205.txt
Cases referred to in this judgment:
| Case | Citation | How used |
|---|---|---|
| Williams v Jervis | [2009] EWHC 1837 (QB) | Cited by the Defendant to argue against indemnity costs based on the reasonableness of conduct at the time of the application. |
Legislation referenced:
- RDC 38.7(1)
- RDC 53.41
- DIFC Courts Practice Direction No. 5 of 2014