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Salutary Lessons in DIFC Contract Law: Hexagon Holdings (Cayman) Limited v. DIFC Authority and DIFC Investments LLC (CFI-013-2019) | Akin Gump Strauss Hauer & Feld LLP

What this Write-up Discusses

Termination for basic breach less than DIFC Deal Law – failure to give observe of termination in just a fair time – no matter whether a reservation of legal rights extends the time period for termination – affirmation – anticipatory breach – agreements to concur – the importance of cross-examining on all substance troubles.

On 4 August 2022, Justice Robert French, sitting down in the DIFC Court docket of Appeal, dismissed an software by the Claimant, Hexagon Holdings (Cayman) Limited (“Hexagon”), for permission to attraction from the Judgment of Justice Sir Jeremy Cooke dated 2 March 2022, which experienced dismissed Hexagon’s promises in entire. So ended a single of the most significant damages statements to reach total trial in the DIFC Courts, with a merged claim worth of US $500 million. 

The trial was the culmination of a 16-12 months saga amongst Hexagon and the DIFC Authority and its subsidiary, DIFC Investments (jointly, the “Defendants”), relating to a unsuccessful joint undertaking to build land in the Dubai Intercontinental Money Centre (the “DIFC”). In the conclude, immediately after a few decades of tough-fought litigation (which includes an original strike-out of Hexagon’s claim), Hexagon’s declare proved to be totally unmeritorious, with the Defendants profitable on each individual product challenge at trial. Akin Gump1 (Graham Lovett, Michael Stewart and Sophia Cafoor-Camps) and Tom Montagu-Smith QC acted for the Defendants.

The circumstance concerned a number of intriguing authorized issues stemming from the peculiar information: Hexagon claimed that between 2006 and 2012, the Defendants had breached a joint undertaking arrangement and had also renounced the exact agreement in 2012, and nonetheless Hexagon did not purport to terminate right up until 2018. The Court docket read arguments pertaining to agreements to concur, withdrawal of renunciation, decline of the ideal to terminate beneath DIFC Agreement Law for failure to give well timed see, and typical regulation affirmation. The scenario also serves as a salutary reminder for practitioners that the DIFC Courtroom involves witnesses to be challenged in cross-evaluation on all product points in dispute. 

The assert connected to a DIFC legislation governed joint undertaking arrangement entered into in 2003 and amended in 2004 (the “AJVA”). In the AJVA, the parties agreed to take numerous ways to create a joint venture organization which would build what is now just one of the past undeveloped plots of land in the DIFC. The methods incorporated: (i) the execution of a shareholders’ arrangement which, critically, was to reflect the terms of the AJVA, like the phrases as to how the challenge would be funded (ii) the incorporation of a joint venture enterprise (the “JVCo”) and (iii) the transfer of the land to the JVCo. The events agreed to use best endeavours in good faith to obtain those people measures as soon as reasonably practicable. 

Hexagon alleged that the Defendants experienced breached those people obligations concerning 2006 and 2012. The case eventually set at trial was that Defendants experienced in no way genuinely supposed to commence with the joint enterprise and had engaged in the pretence of negotiations.

The six-yr statutory limitation period less than DIFC Agreement Law for breach of contract meant that only an alleged breach in 2012 was in time. Hexagon purported to terminate in late 2018. Hexagon’s scenario was that in the six-calendar year period of time between the in-time breach and purported termination, the events experienced engaged in settlement negotiations to resolve the dispute, in the course of which time it validly reserved its termination suitable. When individuals negotiations last but not least broke down in late 2018, Hexagon had for that reason validly elected to terminate. 

There was also a independent claim that the Defendants renounced the AJVA in 2012. The Defendants accepted that they experienced despatched a letter in 2012 stating that the AJVA was no more time binding owing to various things (the “2012 Renunciation”). However, subsequently the Defendants had reconsidered their situation and unequivocally recommitted to the joint enterprise, and all negotiations from then onwards proceeding on that footing. In 2018, when the negotiations broke down, the Defendants experienced even issued a recognize expressly necessitating that the events continue in accordance with the conditions of the AJVA. The Defendants argued that any renunciation was as a result withdrawn as at the day of the purported termination.

Crucial Problems

The vital troubles in dispute were:

1. Did the Defendants breach the obligation to use their most effective endeavours in great faith to negotiate a shareholders’ settlement?

2. Did the Defendants withdraw the 2012 Renunciation, such that it was not obvious that there would be fundamental non-performance at the date of termination in 2018 (as necessary by Article 88 of the DIFC Contract Legislation for termination for anticipatory breach)?

3. If there was a breach:

a)  Was it in time?

b)  Did Hexagon terminate within just a reasonable time, as required by Short article 87(2) of the DIFC Deal Regulation?

c)  Alternatively, did Hexagon affirm the AJVA at typical regulation?

d)  Would Hexagon have carried out but for the breach?

e)  If there was a breach and/or renunciation and termination was legitimate, had Hexagon experienced any decline of revenue, or alternatively reliance decline?

The Judgement

Justice Sir Jeremy Cooke comprehensively observed for the Defendants on all the over concerns, issuing his 106-web site judgment a 7 days just after the trial finished. 

1. Breach of the AJVA

On a suitable construction of the AJVA, the Decide discovered that the obligation to use very best endeavours in superior faith to agree a shareholders’ agreement did not demand a celebration to change the terms of the AJVA. The AJVA claimed the shareholders’ arrangement had to comply with its terms, which in specific obliged Hexagon to fund the enhancement via ‘liquid finance’ – i.e. cash. There was no obligation to concur a little something contrary to these funding conditions (or certainly other undertaking specifics specified in the AJVA). The Judge’s interpretation of the AJVA was supported by the simple fact that any alleged obligation to get to arrangement over and above the terms of the AJVA would be an agreement to agree, missing an aim yardstick to adjudge the parties’ conduct and so unsure and unenforceable.  

His Honour discovered that Hexagon had sought to depart from the terms of the AJVA from 2006 onwards, by proposing alternate phrases that limited (and sooner or later fully taken out) the dollars financial investment obligation. There was no breach by the Defendants in failing to agree to all those proposals. Contrary to Hexagon’s fanciful conspiracy idea that the Defendants had been hardly ever dedicated to the joint venture, the Choose also observed that the Defendants acted in superior religion at all times and had built concessions in the negotiations which they had no obligation to make.

The Decide further located that:

1. The allegations of breach of deal have been all statute barred

2. Any appropriate to terminate would in any celebration have been shed for two causes:

a) Very first, Hexagon failed to exercise its termination right in a realistic time, as expected by DIFC Deal Law. The Judge explained that a bash could not keep a proper to terminate above a interval in surplus of six yrs.

b) 2nd, Hexagon had affirmed the AJVA as a make any difference of popular legislation. No matter whether there has been an affirmation is a multifactorial assessment. The Choose found that affirmation had occurred because of to: (i) the passage of time, and (ii) Hexagon’s publish breach perform, which was steady with the existence of the AJVA. 

The reality that Hexagon produced sporadic reservations of legal rights in correspondence was not adequate to protect against an affirmation in the situation. This aligns with recent Court of Charm authority in England & Wales2, which held that, whilst a reservation of legal rights will often have the result of preventing subsequent perform constituting an election, that is not an invariable rule, and a finding of election is dependent on the totality of the situation. There may appear a time when delay in working out a suitable will be of such a duration that, notwithstanding a reservation of rights, a get together will be held to have affirmed.  

One stage of fascination is that the Choose identified both equally a failure to exercising a termination suitable within a fair time less than DIFC Agreement Law, and affirmation as a make any difference of the popular legislation of England & Wales. This implies that the DIFC Contract Legislation is not a comprehensive code, and co-exists with the popular law of contracts, despite the fact that this issue was not instantly argued just before the Courtroom. This is an critical problem that will will need to be answered in because of course.

2. Renunciation of the AJVA

The renunciation declare was also dismissed by the Choose on the basis that the Defendants experienced recommitted to the AJVA pursuing the 2012 Renunciation and would have performed its phrases. Hexagon could not depend on Short article 88 of the DIFC Contract Law (termination for anticipatory non-overall performance), which requires that it be clear that there will be essential non-general performance at the time of termination. This is a beneficial reminder that an anticipatory breach is a matter ‘writ in water’, and a get together who fails to make an election will lose a termination ideal in which the non-performing social gathering resumes general performance.    

3. Causation

Hexagon’s witness admitted in cross-examination that right after the Global Money Disaster it was not “foreseeable” that the Claimant would proceed on the authentic funding conditions (i.e. 100 % dollars funding). Even more, the evidence produced concerning Hexagon’s skill to fund the growth in funds was vastly inadequate and Hexagon experienced failed to comply with a document manufacturing buy as to its willingness and capacity to fund, primary to the Judge drawing adverse inferences. The Decide consequently uncovered that Hexagon would not have proceeded with the AJVA in any party. As no undertaking would have happened, the alleged breaches – even if they did manifest – did not induce any decline.

4. Quantum

The Judge also most well-liked the Defendants’ proof on quantum, concluding that Hexagon’s expert “was incorrect on practically [all] the challenges that mattered”. The critical stage of difference concerning the experts was discounting. Hexagon’s expert did not perform a discounted income move assessment, whereby a price cut level primarily based on risk and accelerated receipt is applied to forecast gains. This was contrary to normal apply for valuations of this mother nature, according to the Defendants’ skilled. The Choose agreed, locating that the factors offered by Hexagon’s expert for not implementing discounting “built no sense”.

The Defendants’ expert’s evidence was that the proposed venture would not have been worthwhile for Hexagon as soon as funds flows ended up discounted, even if all of Hexagon’s other assumptions ended up approved. If this was recognized by the Decide, it was fatal to the quantum assert. Curiously, the Defendants’ pro was not cross-examined on the difficulty, and without a doubt on the huge majority of the essential points of difference concerning the experts. Instead, the Defendants’ specialist was mostly cross-examined on his integrity, with the evident intention remaining to check out to impugn his general proof based on alleged impartiality. The Choose discovered this tactic to have been “utterly misplaced” and make a variety of pointed criticisms of the Claimant’s perform in closing. The result was that the Court was sure to settle for the Defendants’ proof on unchallenged matters, including discounting, except if it was totally incoherent. The Decide noted that he would have completed so in any case, next cross-assessment of Hexagon’s qualified. 

This is a further more demonstration from the DIFC Court that the typical and robustness of advocacy is higher and the traditional guidelines of proof will be strictly used. In contrast to in the intercontinental arbitration space, where tribunals from time to time choose a a lot more informal tactic to evidence, failure to obstacle witnesses can end result in the DIFC Court’s arms currently being tied as to the acceptance of that evidence, and have significant ramifications for the scenario.

Authorization to Attraction

Hexagon to start with utilized for authorization to attractiveness to Justice Cooke. The grounds of attractiveness unsuccessful to challenge the Judge’s results with regards to breach, time bar and causation, which means the software was doomed from the outset. The balance of the grounds elevated ended up both a gross distortion of the Judgment or impermissible factual issues dependent on a ‘cherry picking’ of the evidence. The Decide in the end identified that Hexagon’s circumstance was “in element incoherent and in full unmeritorious”, and that, coupled with the flawed mother nature of the appeal, intended there was no actual prospect of success. Hexagon’s software for permission to enchantment was hence dismissed with indemnity expenditures. 

Hexagon’s even more application for authorization to appeal to the Courtroom of Attraction suffered from the exact same defects and achieved with the same fate, with Justice Robert French dismissing Hexagon’s application, yet again with indemnity charges.

Conclusion

Ultimately, the Defendants ended up totally vindicated. Hexagon’s baseless insinuations that the Defendants had ‘dragged their heels’ and failed to negotiate in great religion were resoundingly rejected on the evidence. To the contrary, they ended up located to have acted in superior religion at all times. 

For professional events, there are a number of classes:

1. Initial and foremost is that, when a right to terminate is considered to occur, the electing get together must act promptly and decisively. The law grants a minimal grace interval within which to make a conclusion. Get way too lengthy and you could be taken to have affirmed (or in DIFC Deal Law parlance, the affordable time time period for termination will expire). In the circumstance of anticipatory breach, there is also the threat that the other occasion will resume general performance. 

2. Convey reservations of legal rights and without having prejudice correspondence are beneficial tools to increase your correct to make an election, so lengthy all communications unequivocally commence on that basis. Even then, the Courts of England & Wales, and now the DIFC Courts, recognise that the passage of time may perhaps overwhelm a reservation.  

3. Failure to have interaction with Courtroom Orders for disclosure may well very well result in the drawing of adverse inferences which might finally be deadly to a assert or defence regardless of other variables.

4. Alleging dishonesty is quick to do but usually pretty difficult to evidence – significantly in the system of professional negotiations where by every single get together is acting in its possess most effective interests. If you are heading to allege dishonesty, you need to make sure that you can show it, or the Court docket is possible to take a dim watch of your claims.

1 The trial occurred while the staff was at Gibson, Dunn & Crutcher.
2 SK Delivery Europe Restricted v Money VLCC 3 Corp & Anor [2022] EWCA Civ 231.