The Investment Dar Company KSCC v Blom Developments Bank SAL (Rev 1)

On a summary judgment appeal, a defence is arguable where expert evidence raises a genuinely triable issue about a company’s capacity and the validity of transactions under its constitutional restrictions. A contractual choice of English law does not determine questions of corporate capacity governed by the law of incorporation.

A contractual trust label does not establish a trust if the substance of the transaction and the parties’ obligations are inconsistent with one. Where the pleaded claims are arguable but an alternative restitutionary claim is likely to succeed, the court may order interim payment of the principal under CPR 25.7(1)(c), attaching conditions to the appeal under CPR 3.1(3).

The appellant appealed, with permission from Mann J, against an order made by Master Bragge on 23 July 2009. The master had granted Blom Developments Bank SAL summary judgment for US$10,733,292.55 on a trust claim arising from deposits made under a master wakala contract.

The contract was governed by English law, but the appellant’s constitutional documents required its activities to be Sharia-compliant and prohibited banking activities. The appellant contended that the transactions were ultra vires and void because, in substance, they involved interest-bearing deposits. It also disputed the existence and extent of any trust.

The central issues were whether there were triable issues on the contractual and trust claims, and whether an interim payment could nevertheless be ordered on the basis of an alternative restitutionary claim.

1. The appeal was allowed, conditional upon payment to Blom of an interim payment equal to the judgment sum.

2. There was an arguable issue that the transactions were ultra vires the appellant. The constitutional restriction concerned corporate capacity, and that issue was governed by the law of the place of incorporation. The English governing-law clause did not resolve it. The competing expert evidence on Sharia law could not be determined summarily.

3. The trust claim was also sufficiently arguable to prevent summary judgment. The substance of the arrangements involved pooled funds, unconditional repayment obligations and payments of anticipated profit. The contractual use of the word trust did not establish a trust. If the contract were void, it would be a nullity in all its aspects, and severance was at least arguable. Any trust remedy would potentially involve an account or interim payment, rather than automatic recovery of the whole deposited sum.

4. The court nevertheless considered that an interim payment was appropriate under CPR 25.7(1)(c). If the contract was valid, the contractual claim would succeed. If it was void, the proposed restitutionary claim based on failure of consideration or mistake would succeed in principle. The anticipated change-of-position defence was unlikely to succeed because the appellant had invested the funds on the assumption that they would have to be repaid.

5. The whole principal amount was therefore ordered to be paid to Blom unconditionally. The jurisdiction to attach that condition was confirmed by CPR 3.1(3).

• High Court (Chancery Division): appeal, brought with permission from Mann J, allowed conditionally upon payment of the judgment sum to Blom.
• Master Bragge: order dated 23 July 2009 granting Blom summary judgment for US$10,733,292.55 on the trust claim.