Claim No. CFI 026/2022
THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS
IN THE COURT OF FIRST INSTANCE
BETWEEN
MARWAN MAHMOUD KHADOUR
Claimant
and
(1) YOUSEF SALAH HAWASH
(2) ALPHASEED TECHNOLOGY LIMITED
(3) DIFC REGISTRAR OF COMPANIES
Defendants
| Trial : | 13 June 2023 |
|---|---|
| Counsel : | Mr William Prasifka instructed by BSA Ahmad Bin Hezeem & Associates LLP for the Claimant Mr Yousuf Hawash litigant in person for the First Defendant |
| Judgment : | 14 June 2023 |
AMENDED JUDGMENT OF JUSTICE MICHAEL BLACK
UPON the Claimant’s Claim having been filed on 4 April 2022
AND UPON reviewing the parties’ submissions in the case file
AND UPON hearing Counsel for the Claimant and the First Defendant at the Trial listed before me on 13 June 2023 (the “Trial”)
IT IS HEREBY ORDERD THAT:
1. It is declared that:
(a) The First Defendant is a director of the Second Defendant.
(b) The Claimant is no longer a director of the Second Defendant.
2. The First Defendant shall pay the Claimant’s costs in this Claim, to be assessed by the Registrar if not agreed.
3. The First Defendant shall pay 50% of the amount claimed in the statement of costs to be paid on account before the costs are assessed, in the amount ofUSD 42,517.79.
Issued by:
Hayley Norton
Assistant Registrar
Date of issue: 14 June 2023
Date of re-issue: 20 June 2023
At: 8am
INTRODUCTION
1. In this case the Claimant, Marwan Mahmoud Khadour (“Mr Khadour”) seeks declaratory relief confirming that the First Defendant, Yousef Salah Hawash (“Mr Hawash”) has been appointed as a director of the Second Defendant, Alphaseed Technology Limited (“Alphaseed”) and correspondingly that the Claimant has ceased to be a director under two resolutions the shareholders of the Second Defendant passed on 7 January 2022: (i) accepting the resignation of the Claimant as a director of the Second Defendant and (ii) appointing the First Defendant as a director of the Second Defendant.
2. Mr Khadour also seeks relief;
“To the extent necessary an order that the First Defendant comply with his obligations to take up his position as director of the Second Defendant and to take responsibility for all matters relating to the Second Defendant.”
3. The Third Defendant, the DIFC Registrar of Companies (“ROC”), is joined only to ensure that it is aware of any declaration made. No substantive relief is sought against the ROC. The ROC filed an Acknowledgement of Service stating that it will comply with a court order in respect of this case and it has thereafter played no active part in the proceedings.
THE FACTS
4. On 6 August 2019, Mr Khadour incorporated MJF Holding Limited (“MJF”) in the Abu Dhabi Global Market (“ADGM”). The purpose of MJF was to take advantage of the business opportunities involving, among other things, the tokenisation of artwork.
5. Mr Khadour was a 15% shareholder in MJF and the other 85% was held by NJH Limited, a Jebel Ali Free Zone company, the shareholding in which is apparently held by someone called Jimmy Houla who is said to be a lawyer. It is also said NJH held 75% of the shares in MJF in trust for Feras Kiawe (“Mr Kiawe”).
6. MJF has 4 subsidiaries including Alphaseed. According to the DIFC Public Register, Alphaseed was incorporated in the DIFC on 2 July 2020. Share Certificate No.1 dated 2 July 2020, certified as a true copy by the ROC, shows that upon incorporation Alphaseed was wholly owned by MJF. Mr Khadour became its sole director.
7. Mr Khadour says that he and Mr Kiawe invested significant sums in MJF and its subsidiaries. In March 2021, Jaafar Zaher (“Mr Zaher”), to whom Mr Kiawe owed money, was persuaded instead to accept a 5% shareholding in Alphaseed.
8. The extract from the DIFC Public Register which appears to have been accessed on 7 April 2023 shows Mr Khadour as the sole director and MJF and Mr Zaher as shareholders.
9. In or about October 2021, Mr Khadour and Mr Kiawe decided to sell their interests in MJF. Mr Zaher agreed as long as Mr Kiawe repaid the money owed to him.
10. On 13 October 2021, NJH, Mr Kiaewe and Mr Khadour entered into a share sale agreement (the “Share Sale Agreement”) with Mr Hawash whereby Mr Hawash agreed to purchase MJF for AED 1 plus discharging its debts which amounted just under USD 2 million and included the monies due to Mr Zaher and further sums due from MJF to Mr Khadour and NJH. I will return to the Share Sale Agreement in more detail shortly, but the most important provision for present purposes was that Mr Hawash agreed to become the sole director in place of the former directors of MJF and the “Special Purpose Vehicles” and to become responsible for all matters relating to MJF and the Special Purpose Vehicles.
11. It is Mr Khadour’s case that Alphaseed was a Special Purpose Vehicle within the meaning of the Share Sale Agreement, he resigned and was replaced by Mr Hawash. Consequently, he says, Mr Hawash should have caused Alphaseed to register the change of director from Mr Khadour to himself with the ROC.
THE SHARE SALE AGREEMENT
12. In the definitions section of the Share Sale Agreement “Special Purpose Vehicle” is defined as “means a Special Purpose Vehicle company owned by MJF”. There is no other definition of “Special Purpose Vehicle” nor any list, nor have I been directed to a definition under the applicable law (as to which I will revert below).
13. “The Effective Date” was defined as “the date of this Agreement”, which was, as already noted, 13 October 2021.
14. It was expressly agreed that:
Section 3: Sale of Shares
(1) On the Effective Date, [Mr Hawash] agrees to purchase for the sum of 1 AED (The “Purchase Price"):
(a) The 85% (85 Percent) shareholding owned by NJH (including the shareholding of [Mr Kiawe] held in trust by NJH); and
(b) The 15% (15 Percent) Shareholding owned by [Mr Khadour] in MJF.
(2) In return for the shareholding obtained, [Mr Hawash] undertakes to accept liability for all debt incurred by MJF;
Section 4: Transfer of Shares
(3) The Parties shall attend to the preparation and signature of all applications, documents, forms and agreements as may be required to affect the transfer of the sale of shares and attend to such transfer procedures as expeditiously as possible.
(4) The Parties shall arrange the date for the share transfer completion and proceed to complete such as expeditiously as possible.
Section 5: Change of Directors
(5) On the Effective Date:
(a) the current directors of MJF and the Special Purpose Vehicles will resign;
(b) [Mr Hawash] will become the sole director of MJF and the Special Purpose Vehicles;
(c) [Mr Hawash] will be solely responsible for all matters relating to MJF and the Special Purpose Vehicles.
Section 9: Responsibility of the Debts of MJF
(6) On the Effective Date, [Mr Hawash] accepts responsibility for all debts incurred by MJF, the directors of MJF and any Special Purpose Vehicles wholly owned by MJF any time before the Effective Date;
(7) [Mr Hawash] further accepts liability for and undertakes to pay each of Marwan, NJH and Jaafar Zaher within 2 (two) years of the Effective Date the debts recorded in Schedule 1.
Section 15: Governing Law and Dispute Resolution
(8) This Agreement shall be governed by and construed in accordance with the laws and regulations of the Emirate of Dubai(to the exclusion of the Dubai International Finance Centre laws and regulations[sic]. [my emphasis]
(9) In the event of any dispute or difference arising between the Parties out of or relating to this Agreement or to the breach thereof, the Parties shall use their best endeavors to settle such dispute or differences. To this end the Parties agree to have any dispute mediated through a formal mediation process, in an effort to reach a just and equitable solution satisfactory to all of the Parties. If they do not reach such solution through the mediation process within 30 days of the commencement of the mediation process, then the dispute or difference shall be resolved by and before the Dubai Court (to the exclusion of the Dubai International Financial Centre Courts). [my emphasis]
15. It seems the parties took care to exclude the jurisdiction of this Court. In the circumstances the claim for relief seeking an order that Mr Hawash comply with his obligations to take up his position as director of Alphaseed and take responsibility for all matters relating to Alphaseed is tantamount to specific performance of the Share Sale Agreement and expressly excluded from the jurisdiction of this Court.
16. On the other hand, Alphaseed is a DIFC establishment and the declarations sought as to who and who are not directors of Alphaseeddoappear to me to fall within the well-recognised principle that all matters concerning the constitution of a corporation are governed by the law of the place of incorporation. I do not regard any order I may make as back-door enforcement of the Share Sale Agreement. If I am persuaded that there is no serious issue as to the validity of the Share Sale Agreement, and that it extends to Alphaseed, that will form part of the factual background to my determination of the parties’ respective rights and obligations under the constitutional documents of Alphaseed.
THE POSITION OF MR HAWASH
17. His position on the Court documents has been difficult to discern and he has not been assisted by his decision not to retain legal counsel. His position became somewhat clearer when he gave evidence. Inevitably his principal issue is not the narrow one as to directorship of Alphaseed. What I was able to glean from his testimony was as follows: the main business of MJF was, or was to be, the tokenisation of artwork. He accepts that he entered into the Share Sale Agreement with the intention, in particular, of gaining access to two valuable pieces of artwork (allegedly worth EUR 70 million), the ownership structure of which passed through Alphaseed and for which he had a buyer. His complaint is that he has not been able take control of those artworks.
18. He accepts that the agreement of 13 October 2021 was made whereby he would purchase the shareholding of MJF but he claims that he was only to become a director of 3 Special Purpose Vehicles:
(1) Seven Gates SPV Limited (“Seven Gates”);
(2) Crisantemo Fine Art SPV Limited; and
(3) Hybrid Integration SPV [sic]
not Alphaseed.
19. He claims that each is an ADGM company, Sub Type “Special Purpose Vehicle”. I note that Seven Gates is referred to in the Share Sale Agreement. It is asserted in the Reply that:
“Seven Gates SPV Limited was not an SPV as referred to in the Share Sale and Settlement Agreement. It had been sold by MJF Holding prior to the Share Sale and Settlement Agreement and formed no part of the contracial [sic] agreement. It is an entirely separate entity and no steps have been taken to transfer its ownership or control to the First Defendant”
20. In the Share Sale Agreement it is stated at Section 7 that, in summary:
(1) Mr Khadour and NJH had transferred the shares in Seven Gates from MJF into their names;
(2) Seven Gates owns various properties and Mr Kiawe will transfer further properties to it;
(3) Mr Khadour and NJH will transfer 50% of the shares in Seven Gates to Mr Kiawe or his nominee and 10% to Mr Hawash who will become a director.
21. It does seem clear that Seven Gates was not a subsidiary of MJF at the Effective Date. It also appears that Mr Hawash has inserted “SPV” into the name of Hybrid Integration. The correct name appears from Mr Khadour’s evidence to be Hybrid Integration Holding Limited.
22. I am unpersuaded that the expression “Special Purpose Vehicle” as used in the Share Sale Agreement is intended to mean anything other than a subsidiary of MJF and included Alphaseed.
23. Mr Hawash states in his Defence that the shareholders of Alphaseed have not passed any resolutions accepting the resignation of Mr Khadour as a director of Alphaseed or appointing him as a director.
24. He also states that “The First Defendant doesn't remember that he signed this document”. While the Defence is ambiguous as to whether this is a reference to the Share Sale Agreement it does seem that it was intended to be a reference to the shareholders’ resolution of Alphaseed of 7 January 2022 apparently bearing his signature on behalf of MJF accepting the resignation of Mr Khadour as director and authorised signatory of the company and, possibly, to that appointing him as a director of the company.
25. His witness statement repeats much of what is in his Defence but he adds that Alphaseed owned 100% of a BVI company called Titan Investment Limited (“Titan”). He says that on 31 March 2021 Mr Hiawe had purchased 2 paintings, a Van Gogh and a Rubens, and transferred them to Titan. He said “[Mr Hiawe]undertakes to abide by the terms of the Purchase Agreements referred to in clause 8.2.1 above and to assist in securing all rights towards the Paintings in favour of [Alphaseed]” and “I agreed to purchase [MJF] and assume responsibility manage for its outstanding debts, as clearly stated in the contract. The contract also specified that all [MJF] shareholders agreed to transfer all assets, specifically mentioned in parts 7 and 8, to me as part of the agreement.”
26. It is clear that Mr Hawash is seeking to quoteSection 8: Paintingsfrom the Share Sale Agreement:
“8.1 The Parties acknowledge and confirm that:-
8.1.1 [Mr Hiawe] has executed on the 31st of January 2021 a Purchase Agreement for each of the Van Gogh Painting and the Rubens Paining transferring the rights of the Paintings to Titan Investment Limited, a company formed in the BVI and owned 100% by Alphaseed Technology Limited, a DIFC company, which in turn is 100% owned by MJF.
8.1.2 [Mr Hiawe] undertakes to abide by the terms of the Purchase Agreements referred to in clause 8.2.1 above (an obvious typo for 8.1.1) and to assist in securing all rights towards the Paintings in favor of [Alphaseed].”
27. The meaning of Section 8 is clearly that Mr Hiawe was to transfer the paintings into the indirect ownership of MJF via its direct (Alphaseed) and indirect (Titan) 100% subsidiaries. Mr Hawash (as he says) would then have access to the paintings through his acquisition of MJF. It is hard to understand his statement that he had nothing to do with Alphaseed when it was the vehicle by which he was receive access to the assets that were specifically mentioned in Section 8 of the Share Purchase Agreement.
28. On questioning his oral evidence was less equivocal than his written evidence. He accepted that he signed the Share Sale Agreement on 13 October 2021. He did not accept that the next day (14 October 2021) Mr Khadour submitted his resignation as director of Alphaseed by letter to the shareholders of the company. He did accept that on 26 October 2021 he sent a WhatsApp to Mr Khadour copying the text of a chat with lawyers in the following terms:
“I'm trying to get the lease agreement of alphaseed office done, I have submitted the cheques with all documents, at final stage in order to handle the agreement signed I need to have power of attorney from the existing director or I have to wait till all MJF transfer process done which I got updated from Hashem that will take time
Can I get POA for the office agreement where we can mention that we are in process to transfer the ownership of alphaseed and giving me the POA
Hello Yousef. So poa from marwan?
I guess that, any document can give the power to sign the agreement on behalf of Alphaseed”
Thus, he accepted that on 26 October 2021 he was pursuing control of Alphaseed, but he continued to deny that that it was intended he become a director. He accepted that he owned 95% of Alphaseed via MJF.
29. Mr Khadour executed a resolution of the board of directors the next day (27 October 2021) noting that Mr Hawash, had been appointed as a director of the company and had indicated his willingness to act as director of the company but that the process of the appointment of the director was consuming more time than initially expected and so it was resolved that Mr. Hawash was authorized to sign and execute on behalf of the company all the necessary documents concerning the office leasing and to do and perform any and all the acts as he shall deem necessary and advisable. Mr Hawash claimed that he did not authorise the resolution, that he had no knowledge of it and it was invalid. I cannot accept that he neither authorised nor knew of the resolution as it was clearly issued in immediate response to his request for authorisation to finalise the lease of Alphaseed’s office promises.
30. The formal validity of the resolution was not debated in the hearing, but since Alphaseed’s standard form of Articles of Association provide that the company shall have at least one director in accordance with DIFC law, following Mr Khadour’s resignation as sole director the powers of the directors must have reverted to the members. It follows that MHF as 95% shareholder in Alphaseed could have authorised Mr Hawash to act or ratified any action by him. It is however unnecessary for me to make a decision on the point.
31. Mr Hawash claimed that a resolution of the shareholders dated 7 January 2022 accepting Mr Khadour’s resignation apparently signed by him was a forgery. Although he had previously said he did not remember signing the document, he raised the issue of forgery for the first time in the hearing. I am not willing to entertain this last-minute allegation in particular in the absence of independent evidence concerning the signature or the opposing party having been give any opportunity to answer it. I do however note that on the same day there was another shareholders’ resolution that Mr Hawash admits he did sign. That resolution records that Mr Hawash had indicated his willingness to act as director of the company and it was resolved that was appointed as director with effect from 7 January 2022. Thus the resolution accepting Mr Khadour’s resignation appears to be entirely consistent with the resolution Mr Hawash admits he did sign, however it is not necessary that I finally determine its validity as Mr Khadour’s resignation was not expressed to require acceptance by the company but rather to take place automatically on the giving of notice (see paragraph 40 below).
32. Ultimately Mr Hawash accepted in cross-examination that his“100% main concern”was the handover of the assets and that the handover was“key”. Had handover take place, he said, there would be no issue.
OTHER MATTERS
33. Mr Zaher, Mr Khadour and Mr Hawash gave evidence on a range of other matters not directly relevant to the claims for relief before me. I gained the strong impression that the source of all of the difficulties lay at the door of Mr Kiawe.
34. Mr Zaher reluctantly agreed to take a small stake in Alphaseed because Mr Kiawe owed him money. Mr Zaher and Mr Khadour appear to have seen Mr Hawash’s interest in the paintings as a means terminating their relationship with Mr Kiawe.
35. I found Mr Khadour’s evidence on Mr Kiawe’s interest in the paintings to be vague but it is quite apparent from Section 8 of the Share Sale Agreement that responsibility for transferring rights in the paintings to Alphaseed lay with solely Mr Kiawe. It was also telling that during the course of Mr Hawash’s questioning of Mr Khadour, Mr Khadour said the Share Sale Agreement was“my exit plan”and that Mr Hawash’s problems with Mr Kiawe were“nothing to do with me.”
CONCLUSION
36. I have already stated that I consider that it is not within this Court’s jurisdiction specifically to enforce the Share Sale Agreement. I can however decide whether as a matter of DIFC law Mr Khadour has ceased to be the sole director of Alphaseed and Mr Hawash has replaced him.
37. Counsel for Mr Khadour, somewhat inconsistently with the way the matter is pleaded, sought in oral closing submissions to suggest that the various resolutions are essentially evidential of the parties’ agreements. Mr Hawash on the other hand throughout and in closing focused on the validity of the resolutions. I think he was correct to do so.
38. Mr Hawash’s main point was that there should have been more formality in the sense of properly convened and minuted meetings. In that he is wrong, Article 18L of the Articles of Association of Alphaseed (reflecting DIFC law) permits resolutions of General Meetings to be in writing.
39. Mr Hawash accepts first, that he became the owner of MJF under the Share Sale Agreement on 13 October 2021, secondly that MJH owns 95% of the shares in Alphaseed, and thirdly that he signed the resolution dated 7 January 2022 on behalf of MJF appointing him as director. It does not matter that Mr Zaher had not signed at time (although I find he did subsequently) as MJF’s shareholding was enough to carry a resolution of the company appointing a director under Article 25D of the Articles of Association.
40. By Article 26(v) of the Articles of Association a director's office is automatically vacated if he resigns his office by giving notice to the Company. There is no express stipulation as to form. Mr Khadour gave notice of his resignation on 14 October 2021 expressed to be effective as of the date of the letter. His office was automatically terminated on that date. There is no reason why that resignation should be regarded as invalid.
41. It follows therefore in my judgment that Mr Khadour validly resigned as the sole director of Alphaseed with effect from 14 October 2021 and that Mr Hawash was validly appointed as the sole director of Alphaseed with effect from 7 January 2022.
42. I have not been asked to express any view as to the relevant parties’ obligations to serve notice of the changes on the ROC and indeed it is a matter to addressed by the ROC under the ROC’s own enforcement powers. I will confine myself to making the following declarations in the terms as sought:
(1) the First Defendant is a director of the Second Defendant; and
(2) the Claimant is no longer a director of the Second Defendant.
COSTS
43. By RDC 38.30 the general rule is that the Court should make an immediate assessment of the costs at the conclusion of any hearing which has lasted no more than one day. If the hearing disposes of the claim, the order may deal with the costs of the whole Claim unless there are substantial grounds for disputing the sum claimed for costs that cannot be dealt with on the material available.
44. I am satisfied that the First Defendant should pay the Claimant’s costs of the whole Claim as the Claimant has succeeded in obtaining the substantive relief sought. The order I found to be beyond the Court’s jurisdiction was prefaced with the words, “To the extent necessary”.
45. The Claimant filed his Statement of Costs claiming USD 85,035.57. It set out a sum for“Expenses/Disbursements”without indicating their nature and under “Others”stated “This is made of numerous fixed fees that were agreed for stages of the matter”without informing the Court how the fixed fees were calculated. Consequently, I do not consider I am able to make an immediate assessment on the material available and the costs will have to be assessed by the Registrar or Assistant Registrar.
46. I will however, in accordance with paragraph 5 of Practice Direction No.5 of 2014, make an order for 50% of the amount claimed in the statement of costs to be paid on account before the costs are assessed, namely USD 42,517.79.