NEST INVESTMENTS HOLDING LEBANON v DELOITTE & TOUCHE [2021] DIFC TCD 003 — Permission to appeal and costs apportionment (13 September 2021)

This order addresses the Claimants' application for permission to appeal findings regarding limitation periods and auditor liability under Lebanese law, alongside the consequential costs orders following the trial of preliminary issues.

Did the Claimants in Nest Investments Holding Lebanon v Deloitte & Touche establish a real prospect of success for their appeal regarding the limitation period start date?

The Claimants sought permission to appeal the Court’s determination that their claims against the Defendant auditors were statute-barred under Lebanese law. Central to this dispute was the "Start Date Issue," which concerned whether the five-year limitation period commenced when the auditors presented their reports to the general meeting. The Claimants argued that the Court erred in its construction of the relevant limitation triggers, asserting that their claims remained viable.

Justice Sir Richard Field, applying the test from Swain v Hillman [2001] 1 All ER 91, evaluated whether the proposed appeal had a "realistic" rather than "fanciful" prospect of success. Finding merit in the Claimants' arguments regarding the interpretation of the limitation period, the Court granted the application on this specific ground.

The Claimants shall have permission to appeal the Court’s finding that the limitation period applicable to claims against the Defendant auditors is five years starting from the date when the relevant auditor reports were put before the general meeting.

NEST INVESTMENTS HOLDING LEBANON v DELOITTE & TOUCHE [2020] DIFC TCD 003 — Appeal against preliminary issues order (23 April 2020)

Which judge presided over the TCD 003/2020 permission to appeal hearing on 13 September 2021?

Justice Sir Richard Field presided over the Technology and Construction Division (TCD) hearing. The order was issued on 13 September 2021, following the Court’s earlier determination of preliminary issues regarding the application of Lebanese law to the auditor liability claims.

What were the opposing arguments regarding the Scope of Article 178 Issue in Nest Investments Holding Lebanon v Deloitte & Touche?

The Claimants argued that the term "supervisory faults" under Article 178 of the Lebanese Code of Commerce (LCC) should be interpreted narrowly. They contended that certain auditor defaults—specifically failures to report suspected money laundering under Lebanese Law No. 318 of 20 April 2001—fell outside the scope of Article 178. By excluding these from the "supervisory" category, the Claimants hoped to bypass the limitation hurdles associated with that specific provision.

Conversely, the Defendants argued that Article 178 was intended to be comprehensive, covering the entire spectrum of an auditor's professional duties. They maintained that the Court’s initial finding was correct in law and that the Claimants’ attempt to bifurcate auditor defaults was a misconstruction of the statute.

What was the precise legal question the Court had to answer regarding the Scope of Article 178 Issue?

The Court was tasked with determining whether the phrase "supervisory faults" in Article 178 LCC constitutes an exhaustive category for auditor liability or if it permits a distinction between "supervisory" and "non-supervisory" defaults. The doctrinal issue centered on whether the statutory language is broad enough to encompass all professional failures, including regulatory reporting obligations, thereby subjecting all such claims to the same limitation regime.

How did Justice Sir Richard Field apply the test for permission to appeal to the Scope of Article 178 Issue?

Justice Sir Richard Field rejected the Claimants' attempt to narrow the scope of Article 178. The Court reasoned that the statutory language was clear and that the Claimants' interpretation lacked a sound legal basis. The judge emphasized that the construction of the article was straightforward and did not support the bifurcation suggested by the Claimants.

In my judgment, this proposed appeal has no realistic prospect of success and I therefore refuse permission for this part of the proposed appeal.

The Court concluded that the phrase "supervisory defaults" was intended by the legislature to cover the entire range of potential auditor errors, leaving no room for the Claimants' proposed distinction.

Which specific statutes and rules were applied by the Court in TCD 003/2020?

The Court primarily applied Article 178 of the Lebanese Code of Commerce (LCC) to determine the scope of auditor liability and the applicable limitation period. Additionally, the Court referenced Lebanese Law No. 318 of 20 April 2001 regarding money laundering obligations. Procedurally, the Court relied on RDC 44.19 (a) and (b) for the permission to appeal criteria, and RDC 38.6 and 38.7(1) for the assessment and apportionment of costs.

How did the Court utilize the cited precedents in determining the costs and appeal criteria?

The Court utilized Swain v Hillman [2001] 1 All ER 91 to define the "real prospect of success" threshold for the permission to appeal. Regarding costs, the Court looked to Adil v Frontline Development Partners Ltd [2014] CFI-015 to confirm that interest on costs serves to provide proper compensation. Furthermore, the Court cited Vegie Bar LLC v Alkalaijleh [2020] CA DIFC 001 to reinforce its unfettered discretion in ordering payments on account of costs, and Swift v Brake & Ors [2020] EWHC 2416 (Ch) to support the general principle that judgments should not be stayed pending an appeal.

What was the final disposition and the monetary relief ordered by the Court?

The Court granted permission to appeal the "Start Date Issue" but dismissed the application regarding the "Scope of Article 178 Issue." Regarding costs, the Court ordered the Claimants to pay 55% of the Defendants' costs for the preliminary issues trial and 75% of the Claimants' costs for the Permission Application. The Court also ordered an interim payment on account of costs.

Within 28 days of the date hereof, the Claimants must make an interim payment of USD 1,690,479 to the Defendants in respect of the costs herein awarded against them.

The Court also set the interest rate for prejudgment costs at 9% per annum.

What are the wider implications of this decision for DIFC practitioners?

This decision reinforces the high threshold for appealing findings of foreign law in the DIFC Courts. Practitioners must be prepared to demonstrate a "realistic" prospect of success when challenging a judge's construction of foreign statutes. Furthermore, the ruling on interim payments underscores the Court's willingness to exercise its discretion under RDC 38 to ensure that successful parties are not unduly delayed in recovering costs, even while an appeal process is initiated.

Where can I read the full judgment in Nest Investments Holding Lebanon v Deloitte & Touche [2021] DIFC TCD 003?

The full judgment is available on the DIFC Courts website: https://www.difccourts.ae/rules-decisions/judgments-orders/technology-and-construction-division/tcd-003-2020-1-nest-investments-holding-lebanon-sl-2-jordanian-expatriates-investment-holding-company-3-qatar-general-insurance-6 or via the CDN: https://littdb.sfo2.cdn.digitaloceanspaces.com/litt/AE/DIFC/judgments/technology-and-construction-division/DIFC_TCD-003-2020_20210913.txt

Cases referred to in this judgment:

Legislation referenced:

• Lebanese Law No. 318 of 20 April 2001
• Article 178 LCC (Lebanese Code of Commerce)
• RDC 44.19 (a) and (b)
• RDC 38.6
• RDC 38.7 (1)