Neda v (1) Naval (2) Neema [2024] DIFC SCT 197 (31 July 2024)

Claim No: SCT 197/2024

THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS

In the name of His Highness Sheikh Mohammed Bin Rashid Al Maktoum, Ruler of Dubai

IN THE SMALL CLAIMS TRIBUNAL
BEFORE SCT JUDGE MAITHA ALSHEHHI

BETWEEN

NEDA

Claimant

and

(1) NAVAL
(2) NEEMA

Defendants

Hearing :	18 July 2024
Judgment :	31 July 2024

UPON the claim having been filed on 17 May 2024 and amended on 20 May 2024 (the “Claim”)

AND UPON the Defendants’ defence dated 21 June 2024

AND UPON the Claimant’s skeleton argument dated 3 July 2024 (the “Claimant’s Skeleton”)

AND UPON the Defendants’ reply to the Claimant’s Skeleton dated 15 July 2024

AND UPON a hearing having been listed before SCT Judge Maitha AlShehhi on 18 July 2024, with the Claimant’s representative in attendance and the First Defendant attending on behalf of himself and authorised to attend on behalf of the Second Defendant (the “Hearing”)

AND UPON reviewing the documents and evidence filed and recorded on the Court file

IT IS HEREBY ORDERED THAT:

1. The Defendants shall pay the Claimant the amount ofUSD 50,641.86.

2. Pursuant to DIFC Practice Direction No. 4 of 2017, simple interest shall accrue at the rate of 9% per annum on the above-mentioned amount from the date of this Order until date of full payment.

3. The Defendants shall pay the Claimant the DIFC Courts’ filing fee in the amount ofUSD 3,380.

Issued by:
Hayley Norton
SCT Judge and Assistant Registrar
Date of issue: 31 July 2024
At: 1pm

THE REASONS

Parties

1. The Claimant is Neda (the “Claimant”), a law firm registered in the DIFC, Dubai, the UAE.

2. The First Defendant is Naval (the “First Defendant”), an individual resident in Dubai, the UAE.

3. The Second Defendant is Neema (the “Second Defendant”), an individual resident in Dubai, the UAE.

4. The First and Second Defendants will collectively be referred to as the “Defendants”, except where separation is necessary.

The Claim

5. The Claimant and the Defendants entered into an engagement letter dated 14 January 2022, wherein the Claimant would provide legal services and advice for the Defendants in exchange for payment of legal fees (the “Engagement Letter”).

6. Pursuant to the Engagement Letter, the Claimant submits that it provided legal advice to the Defendants in respect of a complex and high stakes shareholder dispute, and issued an invoice in line with the Engagement Letter.

7. The Claimant confirms that the Defendants approached them on or around 16 November 2021 for urgent complex legal advice. The Partner heading the case advised the Defendants that it was difficult to give a budget estimate while making it clear that hourly rates will be imposed in an email dated 24 November 2021 (the “November Email”), which read:

“Re terms, in a nutshell at this stage it’s difficult to give a budget estimate so we propose to charge on a time spent basis for the mapping exercise (at a 20% discounted hourly rate) and keep you informed on fees level on a weekly basis. Once we have fully mapped things and had a call with you to agree strategy (this should be done within the next two weeks max) we should have sufficient visibility to get you a fee estimate for the next stage(s) - would this approach work?”

8. The Second Defendant responded to the November Email saying“I see this more as one-time well thought through advice on how we prepare for worst case and get our ducks lined up. Which should be crystalised in a week at most”. However, the First Defendant responded shortly after that they need “medium and long-term legal strategy (especially once we get the next Term sheet in the next 2-3 weeks”.

9. Further, the Claimant asserts that the wording of the First Defendant’s email proposes that this would go beyond the scope of a single conference, which it did. The Claimant also asserts that the Defendants knew that it was not possible to formulate a precise budget as this was not a limited arrangement.

10. The Claimant contends that it had undergone extensive work on the matter and attended calls, meetings and drafted emails, recorded in the timesheet associated with the Invoice, including but not limited to advice concerning shareholder meetings, shareholder agreements and ADGM company law.

11. The Claimant asserts that it received “super urgent” requests from the Defendants as mentioned in the subject headline of the email for more work to be done, which they completed and billed accordingly.

12. Furthermore, the Claimant asserts that the Defendants were aware of the seniority of the practitioners overseeing the case, as well as their hourly rates, as they dealt with them in emails and calls.

13. The Claimant states that it requested KYC information from the Defendants on 8 December 2021 and followed up on 14 December, but received it late and during the holiday season, which contributed to the late issuance of the Engagement Letter (i.e 14 January 2022).

14. The Claimant acknowledges that initially it informed the Defendants that it would provide weekly updates as to the progress of the matter, however, regrettably, they did not do so due to the urgent nature of the advice sought and how things quickly evolved which made it difficult.

15. However, the Claimant submits that it informed the Defendants by way of email on the estimated accrued amount on 20 December 2021 (“20 December Email”) which the Defendants failed to acknowledge and to respond while continuing to instruct the Claimant by responding to other emails.

16. The 20 December Email reads as follows:

“Dear Naval and Neema,

We just wanted to let you know that we are working to finalise our internal KYC and housekeeping matters as soon as possible and will be sending you an engagement letter. Given our relationship with you, we propose a 20% discount to our standard hourly rates. We also wanted to let you know that our current time on the clock for the file is approximately USD 44,900. We note this is a rough estimate as we are still waiting for the KYC to be processed after receiving your documents; once this is done we can have the file fully set up and give you a more accurate number (together with a breakdown of the time spent if helpful).”

17. Further, the Defendants continued to instruct the Claimant on the matter, which pursuant to the Engagement Letter meant they accepted the fee.

18. The Claimant adds that it issued the invoice on 8 April 2022 to the amount of USD 58,141.86, which ought to have been paid within 30 days of issuance (the “Invoice”), i.e. by 8 May 2022, in accordance with the terms of the Engagement Letter.

19. The Claimant submits that the Defendants never objected to the Invoice but still deferred payment with no legal justification. On the contrary, the Claimant asserts that the Defendants acknowledged the work conducted by the partners and praised them for work done.

20. The Claimant takes the view that the Defendants’ conduct has been unreasonable because the Defendants acknowledge that the Invoice amount is owed. However, the Defendants have either not engaged with, or rejected, numerous offers by the Claimant to settle their debt for less than the total Invoice amount and the amount is due and payable for over two years now.

21. The Claimant’s position is that there was never an agreement for a limited budget and submits that there is no proof of such allegation and relies on the November Email which states that fees would be on a“time spent basis”, with a 20% discounted hourly rate.

22. The Claimant confirms receipt of USD 7,500 from the Second Defendant on 14 January 2024 and submits that the amount of USD 50,641.86 remains unpaid.

23. Therefore, the Claimant seeks the outstanding amount of USD 50,641.86, plus interest pursuant to the Late Payment of Commercial Debts (Interest) Act 1998 or any other interest the Court deems appropriate.

24. The Claimant further seeks its costs in initiating these proceedings to the amount of USD 5,200 and recovery of the DIFC Court filing fee.

The Defence

25. The Defendants refused to sign the Engagement Letter on the basis that it contained provisions which were never agreed upon, such as the fee arrangement and inclusion of all team members.

26. The Defendants submit that they were surprised to receive the Invoice and blame the Claimant for failing to notify them of the accrued amount in a timely manner or provide weekly updates as agreed.

27. The Defendants acknowledge the work that had been done by the Partner in charge of the case and submit that their position is not that the amount is not due, or timesheets were falsely reported. Their position is that the Claimant failed to provide a weekly update as agreed and failed to abide by their original agreement of a limited budget or one time arrangement.

28. The Defendants assert that the Claimant also failed to notify them that every team member would bill them for their time spent on the case and ultimately failed to inform them that the scope of work had been changed.

29. The Defendants submit that the Claimant had a fiduciary duty and responsibility to inform them when the budget was not adhered to and that the scope of work was being changed from a limited to an hourly basis open-ended, which was never agreed.

30. The Defendants submits that there was no material outcome of the legal advice given by the Claimant.

31. The Defendants submit that they initially liaised and agreed with Mr Nelson of the Claimant’s firm on a budget of USD 10,000 and that the payment would be made in two phases. The first phase was to be paid by them personally and the second phase would be paid by their angel investors. For that reason, the Defendants submit that the Claimant was aware of the limited budget and should not have decided unilaterally to charge on an hourly basis.

32. The Defendants assert that the limited budget is evidenced in the Claimant’s suggestion that they would provide a weekly update, which it did not, and the reason the Claimant would make such a recommendation is because they were aware that they were working on a limited budget.

33. The First Defendant asserts that he did not receive the 20 December Email as it was sent to the spam/junk folder. Therefore, he could not have been aware of the amount accrued as it is not his responsibility to follow up with the Claimant for a weekly update on the budget as a result of the Claimant’s negligence.

34. The Defendants assert that they only became aware of the amount and the hourly charges imposed by the Claimant after receiving the Engagement Letter, which was received late in any event.

35. The Defendants are surprised to see that the Claimant allowed for this amount to be accumulated in the Invoice without informing them and submit that they were never informed of the hourly rate mechanism. Therefore, it is not justifiable to charge them when the fee arrangement was made on a limited basis.

36. The Defendants’ position is that the Claimant should have followed up with an email or call to explain the amount accrued as it would have terminated the relationship at that stage because it was too high for them.

37. The Defendants assert that they have previously dealt with international firms which required more work to be done by them and they have never received a bill this high. The Defendants submit that they are being billed for time spent and not due to the complexity of case.

38. The Defendants reject the Claimant’s assertion that KYC information was received late and submit that it was sent to them on 16 December, being a few days after The request was made.

39. The Defendants assert that the Claimant is relying on the First Defendant’s email of needing medium to long legal strategy as a statement to change the scope of work from limited to being open-ended and submit that the Claimant should have communicated and made it clear given that this entailed a higher cost instead of assuming the Defendants should have known the implications of the change.

40. As such, the Defendants refute the Claimant’s claim and submit that they must only pay the amount that was initially agreed which was USD 10,000 minus USD 7,500 already paid by the First Defendant.

Applicable Law

41. The jurisdiction clause is set out in clause 9 of the Engagement Letter and reads as follows:

“The laws of England and Wales govern these terms of engagement, and the parties submit to the non-exclusive jurisdiction of the courts of the Dubai International Financial Centre.”

42. The standard terms and conditions of the Engagement Letter also refers to the jurisdiction as follows:

“Our terms of engagement, and any non-contractual obligations arising out of or in connection with them, are governed solely by English law. All disputes under, or in any way connected with them shall be determined by the Dubai International Financial Centre Courts, to whose exclusive jurisdiction both you and we irrevocably submit.”

43. RDC 53.2 requires that the SCT hear only cases that fall “within the jurisdiction of the DIFC Courts”. The jurisdiction of the DIFC Courts is determined by Article 5(A) of the JAL, which provides a number of limited gateways through which the DIFC Courts have jurisdiction over a claim, which are, as relevant:

“(1) The Court of First Instance shall have exclusive jurisdiction to hear and determine:

(a) Civil or commercial claims and actions to which the DIFC or any DIFC Body, DIFC Establishment or Licensed DIFC Establishment is a party;

(b) Civil or commercial claims and actions arising out of or relating to a contract or promised contract, whether partly or wholly concluded, finalised or performed within DIFC or will be performed or is supposed to be performed within DIFC pursuant to express or implied terms stipulated in the contract;

(c) Civil or commercial claims and actions arising out of or relating to any incident or transaction which has been wholly or partly performed within DIFC and is related to DIFC activities; . . .

(e) Any claim or action over which the Courts have jurisdiction in accordance with DIFC Laws and DIFC Regulations.

(2) The Court of First Instance may hear and determine any civil or commercial claims or actions where the parties agree in writing to file such claim or action with [the DIFC Courts] whether before or after the dispute arises, provided that such agreement is made pursuant to specific, clear and express provisions.”

44. For cases to be heard in the SCT, first, they must first fall within the DIFC Courts’ jurisdiction by engaging any of the jurisdictional gateways set out in the abovementioned Article.

45. Further to the above, the DIFC Courts have jurisdiction to hear and determine the Claim in accordance with Article 5(A)(1)(a) as the Claimant is a DIFC company as well as in accordance with Article 5(A)(1)(2) of the JAL on the basis that Clause 9 of the Engagement Letter is clear on the parties’ intention to resort to the DIFC Courts in case of any dispute and is the appropriate forum to hear the Claim.

Discussion

Have the parties agreed on a limited budget of USD 10,000?

46. The Claimant’s stance is that a limited fee arrangement was never agreed, while the Defendants’ view is that the parties agreed to a limited budget of USD 10,000 in exchange for legal advice and assistance.

47. As such, the amount mentioned in the Invoice is disputed by the Defendants based on the parties’ alleged agreement of a limited budget.

48. Due to the urgent nature of the advice sought by the Defendants, it is evident that the Claimant accepted the Defendants’ instructions in November 2021 and provided its legal services before entering into an Engagement Letter as demonstrated in the email exchanges between the Claimant and the Defendants in respect of the legal strategy proposed to take this forward.

49. It is also evident from the email exchanges provided that the Claimant arranged online meetings and conducted a lot of groundwork to assist the Defendants in their legal hurdle due to the nature of the mandate and complicated matter, and even took instructions on short notice.

50. For example, the First Defendant’s email to the Claimant dated 7 December 2021 shows that the Claimant acted beyond the scope of one conference by advising the client on multiple potential outcomes, which the Defendants were content with at the time:

“Folks,

Thank you ALL, as always, for your advice and guidance today. While we take every opportunity to resolve the Board issue amicably,I appreciate your push to get ready for every eventuality.

As we agreed, we will execute the following process:

1. Have an internal discussion with Nathan on Thursday to get his alignment on our proposed Board Member (low probability of success)

2. If that fails, I will call for an urgent Board Meeting with Nessim, Neema, Nathan and me for early next week where I will present our position to Nessim

3. If we still don't have a resolution, I will then send out an invitation to all Shareholders asking for an AGM (is that the right term for the meeting?)

4. And if THAT fails, I guess we hand over the 'nuclear launch codes' to Noah and duck for cover :-)

Please see attached a draft of the invitation. Nikholai per your advice, I've kept this as positive and upbeat as possible. Please review this and give me your feedback and any guidance on how to make this more impactful and persuasive. I will also appreciate a draft of what a 'Proxy Nomination Form' should look like for shareholders who cannot attend the meeting”

51. The fee arrangement is set out in paragraph 5 of the Engagement Letter as per below:

“Fees and other charges

Unless otherwise agreed, our fees will be charged by reference to the time spent on the matter at our Discounted Hourly Rates, which represent an approximate 20% discount to our Standard Hourly Rates as stated in the table below:”

52. There is no evidence before me in the form of email, WhatsApp message, Engagement Letter or otherwise that would indicate that the parties have agreed on a limited budget of USD 10,000. The Defendants’ argument that the provision of weekly updates would indicate that a limited budget was agreed upon is not upheld as there is nothing else in the November Email that supports such an interpretation.

53. On the contrary, I am of the view that the Claimant’s November Email clearly states that the firm would proceed with a “time spent basis” with discounted rates of 20% and the Defendants should have objected to this if a limited budget was agreed, however, no objection whatsoever was received. Accordingly, this means that even if the Defendants did not receive the 20 December Email which contains the accrued amount, I find that the Defendants failed to raise any objection to the November Email as it clearly stated the billing mechanism to be charged on an hourly basis rather than a limited agreement.

54. Accordingly, I shall reject the Defendants’ defence that the 20 December Email was sent to the junk folder for lack of evidence.

Is the Invoice payable in full?

55. Although the Claimant failed to provide weekly updates to the Defendants as to the amount accrued, the fact remains that the initial agreement in emails was for payment to be made on an hourly basis which is a standard mechanism in international firms.

56. The Defendants do not seem to contest the validity of the timesheet submitted by the Claimant nor submit that the Claimant did not perform its job. In contrast, they acknowledge its hard work and commitment in this.

57. The fact that there was no material outcome of the Claimant’s advice is not relevant in my opinion on whether the Invoice should be paid or not. The fact remains that the Claimant billed the Defendants for the hours spent preparing the advice and is requesting payment accordingly.

58. Likewise, having reviewed the Engagement Letter, it appears that there is no obligation to obtain instructions to incur costs, and where matters are urgent, it does not seem to be realistic.

59. It is said that the Claimant had professional obligations to inform the Defendants of the likely costs associated with its proposed strategy and to inform them of any alternative strategies which might be pursued for lower fees.

60. Further to the above, I am of the view that the Claimant complied with this in its November Email when it informed the Defendants that it will charge with discounted hourly rates. Although I am aware that the Claimant failed to provide weekly updates as agreed, the Claimant did provide an estimated figure almost a month after which is a normal practice for law firms.

61. Given that the Claimant provided the Defendants with an update via the 20 December Email as to the incurred fees, and the Defendants continued to engage with the Claimant and requested more work to be done without asking for further details or raising any objection via email to either the November Email or the 20 December Email then I am of the view that the Defendants were aware of the billing mechanism and the final amount that may accrue.

62. Hence, I find that the Invoice is payable, and the Defendants must pay the Claimant the outstanding amount due as per the Invoice due to the Defendants’ continued engagement with the Claimant.

63. Also, since the Second Defendant proceeded to pay a portion of the amount it further suggests that the amount is due and payable.

Findings

64. The Defendants shall pay the Claimant the outstanding amount of USD 50,641.86.

65. Pursuant to DIFC Practice Direction No. 4 of 2017, simple interest shall accrue at the rate of 9% per annum on the above-mentioned amount from the date of this Order until date of full payment.

66. As the Claimant has been successful in its claim, then it is only entitled to recover the DIFC Courts’ filing fee and does not extend to its costs for initiating the claim. As such, the Defendants shall pay the Claimant the DIFC Courts’ filing fee in the amount of USD 3,380.

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You are here: BAILII >> Databases >> The Dubai International Financial Centre >> Neda v (1) Naval (2) Neema [2024] DIFC SCT 197 (31 July 2024) URL: http://www.bailii.org/ae/cases/DIFC/2024/DSCT_1974.html

The Dubai International Financial Centre

Neda v (1) Naval (2) Neema [2024] DIFC SCT 197