Dubai Islamic Bank PJSC v PSI Energy Holding Company BSC & Ors

Where a debt is governed by English law, whether it has been discharged is determined by English law. Foreign law governing security over foreign land cannot discharge or reduce the English-law debt merely because the foreign law treats enforcement as transferring ownership or extinguishing the debt.

A guarantor or surety cannot rely on a defence arising under a separate security agreement to which the guarantor is not a party. A very late amendment requires a heavy justification, including a real prospect of success and fairness to all litigants.

The claimant bank brought proceedings concerning approximately US$432 million allegedly due under a restructuring agreement. The second and third defendants sought permission to amend their defences and to adduce expert evidence of UAE and Dubai law.

The proposed case was that the bank’s possession of land in Dubai under a conditional assignment had extinguished or reduced the debt under the restructuring agreement because, under UAE law, the land’s value was treated as repayment. The restructuring agreement was governed by English law, while the conditional assignment was governed by UAE and Dubai law. The central issues were whether the proposed defence had a real prospect of success and whether the foreign-law evidence was relevant and admissible.

1. Applications refused. The second and third defendants’ applications to amend their defences and to adduce expert evidence of UAE and Dubai law were refused.
2. In deciding whether to permit a very late amendment, the court must balance justice between the parties with the interests of other litigants. The applicant bears a heavy onus, particularly where the amendment is made during the trial, contradicts a recently permitted pleading, and is not explained by newly discovered evidence. The proposed case must have a real prospect of success: Swain-Mason v Mills & Reeve [2011] EWCA Civ 14; [2011] 1 WLR 2735.
3. The RSA created the debt and was governed by English law. The conditional assignment was security for that debt. Whether the debt had been discharged was therefore a question of English law. A foreign bankruptcy law, moratorium or other foreign legislative act could not discharge an obligation governed by English law: Antony Gibbs & Sons v La Societe Industrielle et Commerciale des Metaux (1890) 25 QBD 899; Adams v National Bank of Greece [1961] AC 255. The same principle applied where foreign law governing security over land would treat possession as transferring ownership or extinguishing the debt.
4. The English court would treat the conditional assignment as a mortgage or charge subject to the equity of redemption. It would not treat the bank as absolute owner merely because a Dubai court might do so under the lex situs: British South Africa Co v De Beers Consolidated Mines Ltd [1910] Ch 502. The debt was not extinguished or reduced because the bank had taken possession without realising the security by sale or otherwise.
5. The second and third defendants were not parties to the conditional assignment. They could not rely on any defence available to Plantation under that separate agreement as discharging their liabilities under the RSA. There was no mutuality between any claim or defence Plantation might have against the bank and the defendants’ obligations as guarantors or indemnifiers: Lord v Direct Acceptance Corporation Ltd (1993) 32 NSWLR 362; Bowyear v Pawson (1881) 6 QBD 540.
6. The proposed amendment therefore disclosed no arguable defence, and the UAE/Dubai expert evidence was irrelevant and inadmissible.