Why did Sir Real Estate LLC argue that LXT Real Estate Broker L.L.C should provide security for costs in the amount of USD 1,750,000?
The dispute arises from a claim filed by LXT Real Estate Broker L.L.C against Sir Real Estate LLC on 17 October 2024. The Defendant, Sir Real Estate LLC, sought security for costs, contending that the Claimant, a corporate entity, lacked the financial substance to satisfy an adverse costs order. The Defendant’s application was predicated on the assertion that the Claimant’s financial position was precarious, particularly given its reliance on an external litigation funding agreement.
As noted in the court’s records:
This Application is brought by the Defendant to secure an order granting security for costs from the Claimant, in the amount of USD 1,750,000 (the “Intended Quantum”), as it is the Defendant’s position that the Claimant, a company, is unable to pay the Defendant’s costs if ordered to do so pursuant to Rule 25.102(2) of the Rules of the DIFC Court (“RDC”).
The Defendant argued that the "Intended Quantum" represented approximately 67% of its anticipated costs for the proceedings. The core of the dispute centers on whether the Claimant’s reliance on third-party funding, coupled with a lack of transparency regarding its own assets, triggers the court's power to mandate security to protect the Defendant from the risk of an unenforceable costs order. Source: CFI 073/2024
Which judge presided over the security for costs application in CFI 073/2024?
The application was heard by H.E. Deputy Chief Justice Ali Al Madhani in the DIFC Court of First Instance. The hearing took place on 25 February 2025, with the final Amended Order with Reasons issued on 26 March 2025.
What specific arguments did LXT Real Estate Broker L.L.C and Sir Real Estate LLC advance regarding the financial viability of the litigation funder?
The Defendant argued that the Claimant’s reliance on Arbitrium Litigation Financing Ltd LLC (the "Funder") was, in itself, an admission of the Claimant's inability to self-fund an adverse costs order. Sir Real Estate LLC challenged the Funder’s financial standing, citing that the provided 2023 financial statements were unaudited, redacted, and incomplete, thereby failing to provide surety that the Funder could satisfy a potential costs order.
Conversely, the Claimant maintained that its financial position was robust, pointing to the Funder’s 2024 audited financial statements. The Claimant asserted that these documents demonstrated a net asset value of USD 5.6 million, which it claimed was more than sufficient to meet any obligations arising from the litigation. As stated in the court's summary of the Claimant's position:
The Funder’s recently audited financial statements for 2024 demonstrate a total net asset value of USD 5.6 million, and so the Claimant submits that it is more than bale to meet its obligations pursuant to the Agreement without difficulty.
What is the jurisdictional threshold under RDC 25.102(2) that the Court had to address in LXT Real Estate Broker L.L.C v Sir Real Estate LLC?
The court had to determine whether the "reason to believe" threshold under RDC 25.102(2) was satisfied. Specifically, the court examined whether the Claimant—a corporate body—would be unable to pay the Defendant’s costs if ordered to do so. The doctrinal issue involved balancing the Claimant's right to pursue its claim against the Defendant's right to be protected from the risk of an impecunious claimant, particularly where the identity and financial health of the litigation funder remained shrouded in ambiguity.
How did H.E. Deputy Chief Justice Ali Al Madhani apply the court’s discretion in granting the security for costs order?
The judge exercised his discretion by focusing on the lack of transparency regarding the Claimant's assets and the Funder's financial documentation. He concluded that the ambiguity surrounding the Funder and the Claimant's failure to provide clear evidence of liquid assets within the jurisdiction necessitated an order for security. The court emphasized that while it must avoid stifling legitimate claims, the lack of surety regarding the Funder’s ability to pay justified the application.
Regarding the exercise of this discretion, the court noted:
In my view, as a matter of the Court’s discretion, I concede with the Defendant that the threshold set by RDC 25.102(2) has been met, and so the Court has jurisdiction to order security for the Defendant’s costs to be paid by the Claimant.
Which specific RDC rules and legal principles governed the court's decision in this matter?
The court’s decision was primarily governed by RDC 25.101, which establishes the court's power to order security for costs if it is satisfied that it is "just to make such an order." The court specifically applied RDC 25.102(2), which provides the condition that the claimant is a company and there is "reason to believe that it will be unable to pay the defendant’s costs." Additionally, the court referenced RDC 25.99(2), which allows the court to consider factors such as the location of the claimant's assets and practical difficulties in enforcing costs orders.
How did the court utilize the cited RDC rules to distinguish between the Claimant’s proposed security and the Defendant’s requirements?
The court used RDC 25.102(2) to validate the Defendant’s concerns regarding the Claimant's financial opacity. While the Claimant proposed a lower amount based on the Costs and Management Conference (CMC) stage, the court focused on the immediate risks posed by the pending Strike Out Application. The court noted the Claimant's argument:
The Claimant’s proposed reasonable estimate up to and including the CMC is AED 750,000, 40% of which could be ordered as Security, which amounts to a maximum of AED 300,000.
However, the court ultimately determined that the security should be limited to the scope of the Strike Out Application, balancing the Defendant's protection against the proportionality of the amount ordered.
What was the final disposition and the specific monetary relief ordered by the court?
The court granted the Defendant’s application for security for costs. The judge ordered the Claimant to pay the sum of USD 250,499.26 into the Court account within 10 days of the issue of the amended order. This amount was specifically calculated to cover the Defendant’s estimated costs up to and including the Strike Out Application.
The court’s reasoning for the final quantum was:
For the aforementioned reasons, I will grant the Application and award Security for Costs in the sum of USD 250,499.26, which will cover the Defendant’s estimated costs up to and including the Strike Out Application.
What are the wider implications of this ruling for practitioners dealing with litigation funding in the DIFC?
This decision serves as a warning to practitioners that the DIFC Courts will not accept vague or redacted financial evidence from litigation funders as a substitute for clear proof of solvency. Litigants must anticipate that if a claimant relies on third-party funding, the court will scrutinize the funder’s financial statements with the same rigor as it would the claimant’s own. Failure to provide transparent, audited, and complete financial documentation will likely lead to an order for security for costs, particularly when the funder is outside the jurisdiction of the DIFC Courts.
Where can I read the full judgment in LXT Real Estate Broker L.L.C v Sir Real Estate LLC [2025] DIFC CFI 073?
The full judgment can be accessed via the DIFC Courts website: https://www.difccourts.ae/rules-decisions/judgments-orders/court-first-instance/cfi-0732024-lxt-real-estate-broker-llc-v-sir-real-estate-llc-1 or via the CDN link: https://littdb.sfo2.cdn.digitaloceanspaces.com/litt/AE/DIFC/judgments/court-first-instance/DIFC_CFI-073-2024_20250326.txt
Cases referred to in this judgment:
| Case | Citation | How used |
|---|---|---|
| Unnamed 2023 Case | N/A | Cited regarding breach of court orders by delaying payment |
Legislation referenced:
- RDC 25.101
- RDC 25.102(2)
- RDC 25.99(2)
- RDC 25.110