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

A contractual party may seek advice on whether a counterparty is in default and rely on contractual enforcement rights, provided it has not itself prevented performance. An unremedied payment breach can constitute an event of default even where other sums have already been repaid. Contractual protections must be applied according to their natural meaning and cannot be extended by rewriting the agreement in the name of commercial common sense.

Where acceleration makes the whole debt immediately payable, repayment-schedule protections may cease to operate. An indemnity expressed as an obligation to pay as principal debtor is primary, not merely secondary. A mortgagee is not generally obliged to sell or develop mortgaged property, although reasonable repairs may be required.

The claimant bank sought approximately US$432 million under a restructuring agreement following fraud in its trade-finance business. The second to fourth defendants were individual guarantors and the first defendant was said to hold traceable proceeds of the fraud. The defendants disputed the occurrence and enforceability of events of default, alleged that the Bank had procured their arrests and prevented performance, asserted discharge from guarantee obligations, and counterclaimed for breach of duties as mortgagee in possession.

The court also considered the Bank’s proprietary claim to Afren shares derived from assets funded with misappropriated money. The central issues were whether Plantation’s failure to remit villa-sale proceeds amounted to an event of default and entitled the Bank to enforce security, whether the defendants remained liable under the restructuring agreement, and whether the Bank had mishandled the secured property.

1. Judgment for the Bank. The defences of the second and third defendants failed. The Bank was entitled to judgment against the second, third and fourth defendants for the sums outstanding under the RSA. The counterclaims were dismissed, and the Afren shares were declared to be held on trust for the Bank.
2. The evidence showed that the Bank had not procured the arrests or prosecutions. The arrests followed investigation and referral by the Financial Audit Department and Dubai State Security. Even if the Bank had made a report, it was subject to a positive statutory duty to report wrongdoing. The Bank had also made the Standby Loan Facility available subject to conditions precedent which Plantation had not satisfied.
3. Plantation was obliged by clause 7.2(d) to pay over villa-sale proceeds exceeding US$150,000 per month upon receipt. That obligation operated independently of the repayment schedule. The fact that US$60.4 million had already been repaid did not excuse failure to remit additional proceeds. The failure, unremedied after notice, was an Event of Default under clause 18.1(d).
4. The definition of a Plantation Enforcement Event was subject to the provisos in clause 18.1(a). The Bank’s declaration on 20 July 2008 was therefore premature and breached clause 18.2. Acceleration on 21 July 2008 made the whole Rescheduling Amount immediately due, displaced the repayment-schedule provisos, and entitled the Bank to enforce. In any event, the next repayment date would have removed the relevant protection.
5. The alleged repudiatory breach was not accepted and could not release the defendants from liability. Clause 21.3 preserved clauses 4, 5 and 6 on termination by operation of law. Clause 6.1(b) imposed an independent indemnity as principal debtors. The contractual provisions also excluded the alleged guarantor’s defences.
6. The Bank had no duty to sell the Plantation security or complete its development. It was entitled to decide in its own interests whether and when to sell. The evidence did not show neglect, waste, impairment of security or breach of duty as mortgagee in possession. Any such duty would have been owed to Plantation, not to the individual defendants, and the appropriate equitable remedy would have been an account rather than common-law damages.
7. The Afren shares were Proceeds Assets. The release in clause 12.4 did not extend to claims concerning such assets, and the first defendant was not a party to the RSA. The Bank therefore retained its proprietary claim and, alternatively, acquired an equitable charge after demanding security under clause 13.1(b).

This was a first-instance Commercial Court judgment. The judgment records that an appeal against refusal to join related proceedings was dismissed by the Court of Appeal on 29 September 2013, and that an earlier injunction obtained by the second and third defendants was not continued by Tomlinson J.