RAK CERAMICS P.J.S.C. v ASSALA DEVELOPMENTS SARL [2019] DIFC CFI 086 — Enforcement of settlement agreement and guarantor liability (06 October 2022)

What was the specific nature of the debt claim brought by RAK Ceramics P.J.S.C. against Assala Developments SARL and Mr. Ali Chaoui for USD 10,550,000?

The dispute originated from a distribution agreement between the Claimant, RAK Ceramics P.J.S.C., and the First Defendant, Assala Developments SARL (D1). Following a failure by D1 to meet payment obligations, the parties entered into a Settlement Agreement to resolve the outstanding debt. The Second Defendant, Mr. Ali Chaoui (D2), acted as a guarantor to facilitate the continued supply of products from the Claimant to D1.

The litigation was initiated after D1 failed to adhere to the payment schedule stipulated in the Settlement Agreement. The Claimant sought a money judgment for the full outstanding amount, invoking an acceleration clause triggered by the default. As noted in the court records:

This is the Claimant’s Part 8 application (the “Application”) for permission to grant the Claimant a money judgment order (“Order”) against the First Defendant (“D1”) and the Second Defendant (“D2”).

The total sum claimed and subsequently awarded was USD 10,550,000. The failure to pay the initial tranches of the settlement led to the Claimant seeking judicial intervention to secure the debt, as the Defendants failed to respond to the proceedings despite proper service.

Which judge presided over the RAK Ceramics v Assala Developments hearing in the DIFC Court of First Instance on 16 August 2022?

The matter was heard before H.E. Justice Shamlan Al Sawalehi in the DIFC Court of First Instance. The hearing took place on 16 August 2022, following the Claimant’s request for an oral hearing to address the application for a money judgment.

What legal arguments did Mr. Hugh Lyons of Baker McKenzie advance regarding the liability of Mr. Ali Chaoui as a guarantor in RAK Ceramics v Assala Developments?

Representing the Claimant, Mr. Hugh Lyons argued that the liability of both D1 and D2 was unequivocal and unambiguous. Regarding D2, the Claimant contended that despite the complexity of his formal signature on the final agreement, his active participation in the negotiations and his provision of a security cheque established a binding guarantee.

The Claimant argued that the Court should look to the substance of the commercial relationship, where D2’s conduct clearly manifested an intention to be bound as a guarantor to ensure the continued supply of goods. The Court accepted this position, noting that the Defendants chose not to appear or contest these arguments at the hearing. The Claimant further requested a concise, reasoned judgment to facilitate the potential enforcement of the award against the Defendants in Morocco.

What were the two primary legal questions H.E. Justice Shamlan Al Sawalehi had to resolve regarding the Settlement Agreement and guarantor liability?

The Court identified two specific doctrinal and jurisdictional issues: (a) whether the Claimant was entitled to a money judgment in relation to a debt claim arising under the Settlement Agreement, and (b) whether that order should extend to the Second Defendant, Mr. Ali Chaoui, given his role in the negotiations. The Court had to determine if the jurisdictional "opt-in" clause was sufficient to bind the parties and if the evidence of D2’s conduct was enough to establish his liability as a guarantor under the governing law of the United Arab Emirates.

How did H.E. Justice Shamlan Al Sawalehi apply the Part 8 procedure and the test for guarantor liability in RAK Ceramics v Assala Developments?

The Court determined that the Part 8 procedure was appropriate because there were no substantial disputes of fact regarding the debt. Justice Al Sawalehi emphasized that the Defendants had been served in accordance with RDC 9 and had failed to respond, allowing the Court to proceed under RDC 23.85. Regarding the liability of D2, the Court applied a standard of conduct-based consent.

it is sufficient for the guarantor to make an expressed offer and in the absence of any rejection by the guaranteed debtor, being the Claimant, it is well established that such consent between the deb

The Court reasoned that the Settlement Agreement’s jurisdictional clause was binding and that the Claimant’s evidence regarding the breach was sufficient to grant the order. As the Court noted:

Further, the Claimant acknowledged that pursuing this Claim under Part 8 proceedings precluded them from entering into a default judgment by virtue of RDC 8.6(2) in contrast to the applicable procedure under Part 7 proceedings. I am satisfied that the use of the Part 8 procedure has been adopted appropriately and I concede that there are no significant factual issues that needed to be dealt with in this case.

Which specific DIFC RDC rules and UAE statutes were applied by the Court to grant the money judgment in CFI 086/2019?

The Court relied on the following authorities:
* RDC 9: Regarding the validity of substituted service of the Claim Form on the Defendants.
* RDC 23.85: Empowering the Court to proceed with the hearing in the absence of the respondents.
* RDC 8.6(2): Governing the limitations of Part 8 proceedings regarding default judgments.
* UAE Law No. 19/1993 (Commercial Code): Applied as the governing law of the Settlement Agreement to interpret the commercial obligations and the nature of the guarantee.
* DIFC Courts’ Practice Direction No. 4 of 2017: Applied to determine the applicable interest rates on the judgment debt.

How did the Court utilize the precedent of Petition No. 1/2021 and the jurisdictional clause in the Settlement Agreement?

The Court utilized the jurisdictional clause to confirm its authority, citing the express "opt-in" language: "any dispute arising out of or in connection with this [Settlement] Agreement, including any questions regarding its existence, validity or termination, shall be subject to the exclusive jurisdiction of the Courts of the Dubai International Financial Centre."

Regarding interest, the Court referenced the General Assembly of the Dubai Court of Cassation (Petition No. 1/2021) to establish the market interest rate. This provided the necessary legal basis for the Court to award a 5% per annum interest rate on the principal sum from the date the debt became due, transitioning to a 9% rate post-judgment.

What was the final disposition and the specific monetary relief ordered by the Court in RAK Ceramics v Assala Developments?

The Court granted the Claimant’s application in full, ordering the Defendants to pay the outstanding debt and interest.

The First and Second Defendants shall, within 14 days of being served with this Judgment, pay to the Claimant the sum of USD 10,550,000.

Additionally, the Court ordered:

The First and the Second Defendants shall, in addition, pay simple interest on that sum of USD 10,550,000 at a rate of 5% per annum, which will incur from the date of the first instalment of the debt that became due on 1 February 2018, to the date on which the unpaid balance is paid by the Defendant, at a rate of 9%.

Finally, the Court ordered that the Claimant’s costs be assessed by the Registrar on an indemnity basis if not agreed between the parties.

How does this judgment influence the practice of enforcing settlement agreements and guarantor liability in the DIFC?

This judgment serves as a significant reminder that the DIFC Courts will strictly enforce settlement agreements where parties have opted into the Court’s jurisdiction, even if the underlying governing law is UAE law. Practitioners should note that the Court is willing to hold guarantors liable based on their conduct during negotiations, even in the absence of a formal signature on the final agreement, provided there is evidence of an "expressed offer" and acceptance. Furthermore, the case highlights the utility of the Part 8 procedure for debt claims where the facts are clear, provided the claimant is prepared to forgo the automatic nature of default judgments under Part 7.

Where can I read the full judgment in RAK Ceramics P.J.S.C v Assala Development SARL [2019] CFI 086?

The full judgment is available on the DIFC Courts website: https://www.difccourts.ae/rules-decisions/judgments-orders/court-first-instance/rak-ceramics-pjsc-v-assala-development-sarl-mr-ali-chaoui

Cases referred to in this judgment:

Legislation referenced:

• UAE Law No. 19/1993 (Commercial Code)
• Rules of the DIFC Courts (RDC) 8.6(2), 8.16, 9, 23.85
• DIFC Courts’ Practice Direction No. 4 of 2017