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Posted In: Alert

Posted By: Singularity Legal

Tags: ADGM, Litigation, Global Enforcement and Debt Recovery

 165

ADGM Court of Appeal clarifies binding nature of English precedents

BACKGROUND

  1. The recent judgment in AC Network Holding Ltd v Polymath Ekar SPV1 (ADGMCA-2023-01) (“AC Network”), of the ADGM Court of Appeal (“ADGM Court of Appeal”) laid down important guidance on the issue of the extent of applicability of English law to the ADGM.

  2. Abu Dhabi Global Market (“ADGM”) was established as a financial free zone in the Emirate of Abu Dhabi, with its own civil and commercial laws, pursuant to federal and Abu Dhabi legislations including Abu Dhabi Law No. 4 of 2013. ADGM then adopted English law as its operational law by passing the Application of English Law Regulations 2015 (“Regulation”), which states in Article 1(1) that “The common law of England (including the principles and rules of equity), as it stands from time to time, shall apply and have legal force in, and form part of the law of, the Abu Dhabi Global Market.AC Network discusses the contours of this Article.

  3. Respondent No. 8, Ekar Holding Limited (“Ekar”), was a start-up car sharing company which was active in Abu Dhabi, Dubai and Saudi Arabia. The shareholders of Ekar had entered into a shareholder’s agreement (“SHA”) which gave the majority shareholders the right to drag-along other shareholders in a sale of share capital to a bona fide purchaser who made an offer on an arm’s length basis. The appellants were a group of minority shareholders in Ekar, and the respondents were the majority shareholders.

  4. The dispute arose out of a drag-along notice whereby the appellants’ shares were compulsorily acquired, and the entirety of the issued shares of Ekar were purchased by, and thereafter transferred to, Respondent No. 6 – Lux, for a total consideration of US$1.00.  

  5. The judge in the ADGM Court of First Instance (“ADGM CFI”) concluded that the majority shareholders and the purchaser were both controlled by Respondent No. 5 – Mr. Hashemi, that the purchase was not bona fide, and that the offer was not on arm’s length basis.  However, although he held that the majority shareholders had acted in breach of the SHA, he dismissed the claim against Mr. Hashemi for the tort of ‘unlawful means’ conspiracy. In doing so, the judge had to decide whether English common law required knowledge of unlawfulness of the means employed to establish the tort of unlawful means conspiracy.

  6. The judge said that English law was not settled on this point – while the decision of the English Court of Appeal in Meretz Investments NV v ACP Ltd [2008] Ch 244 (“Meretz”) stood for the proposition that no unlawful means conspiracy was established if the defendant acted in the belief that he had a lawful right to act as he did, a later decision of the same court in Racing Partnership v Done Bros Ltd [2021] Ch 233 (“Racing Partnership”), had considered Meretz and held that knowledge of unlawfulness was not required.

  7. The judge held that he was not sitting as an English court, and that Article 1(1) of the Regulation did not justify a conclusion that he was bound by a decision of the English Court of Appeal. Instead, he saw his task as that of ascertaining the correct position under English law, having regard to all relevant decisions which form part of English jurisprudence. He held that the view expressed in Meretz was the better view. Accordingly, he held that no unlawful means conspiracy was established on the ground that Mr. Hashemi had issued the drag-along notice pursuant to legal advice, and hence, it could not be said that he had knowledge that it constituted a breach of the SHA.

THE APPEAL

  1. There were two key issues before the ADGM Court of Appeal.
    1. The first issue was whether the judge was right to say that he was not bound as a matter of stare decisis by the decision in Racing Partnership and could reach his own conclusion as to what the correct position on this issue was under English law.
    2. The second issue was whether, under English law, the more recent decision of the English Court of Appeal in Racing Partnership must be taken, for the time being, as having settled the question of whether knowledge of the unlawfulness of the means is required as an ingredient of the tort of unlawful means conspiracy.

PARTIES’ SUBMISSIONS

  1. The appellants submitted that the ADGM Court of Appeal judge was bound by the decision in Racing Partnership just as an English judge would be because he was applying English law, and that the doctrine of precedent which is encapsulated by the phrase stare decisis is part of the English law. 
  2. The respondents pointed out that the Judge was primarily a judge of the ADGM courts, and he was not bound to behave as an English judge sitting in an English courtroom. They argued in favour of the ADGM CFI’s decision, stating that although for the purposes of the Regulation, decisions of the English Court of Appeal were highly relevant, the Regulation did not mandate the ADGM court to be bound by the doctrine of precedent by those decisions. They submitted that the court can examine and decide which of the two conflicting decisions appears to be correct as a matter of logic and common-sense.

JUDGMENT

  1. On the first issue, the ADGM Court of Appeal held that while it was clear that the judge was not sitting as a judge of the English High Court, he still had to give effect to the rule set out in Article 1(1) of the Regulation. The doctrine of precedent, or ‘stare decisis’, was part of the “common law of England” as set out in Article 1(1) of the Regulation. Therefore, while the judge had to determine the correct position under English law having regard to all relevant decisions, the effect of those decisions has to be determined by applying the doctrine of precedent. In other words, ADGM courts are free to apply any decision of the English courts only insofar as those decisions have precedential value, and their application does not contradict stare decisis.
  2. On the second issue, the ADGM Court of Appeal summarised the position of stare decisis as applicable to decisions of the English Court of Appeal under English law – the English Court of Appeal is bound to follow its own decisions, except for certain closely defined circumstances, viz.:
    1. the court is entitled to decide which of two conflicting decisions it will follow;
    2. the court is bound to refuse to follow a decision which cannot stand with a decision of the House of Lords, even if not expressly overruled;
    3. the court is not bound to follow a decision which was given per incuriam.
  3. The first of these exceptions was further explained as being limited to conflicting decisions where the latter decision is given in ignorance of the former decision. If the latter decision considered the former decision, the latter decision had to be followed, even if the reasoning of the latter decision was faulty, or its result unjust.
  4. Applying the rule so summarised, the ADGM Court of Appeal held that the essential question was not which of the two decisions of Racing Partnership or Meretz appeared to be correct as just a matter of logic and common-sense, but rather, whether Racing Partnership, being the decision that was later in time, had considered Meretz. Since in this case Racing Partnership had considered Meretz, and could not be said to be per incuriam, the judge was bound to follow the decision in Racing Partnership.

ANALYSIS AND CONCLUSION

  1. AC Network, by making it clear that English precedents have to be followed in the ADGM courts, has strengthened ADGM’s position as a sophisticated international financial centre. The key benefit of the doctrine of precedent is predictability, and incorporating the predictability of long-standing English jurisprudence in ADGM makes it more attractive to investors as a global financial and business hub.
  2. This position also makes the ADGM jurisdiction markedly different, and arguably more predictable (at least in this respect) than the DIFC. In fact, the ADGM Court of Appeal observed in AC Network that the approach in DIFC was different, as common law rules in various areas have been codified in the DIFC, and it is only if those codified rules or the laws of other relevant legal systems do not provide an answer that English law is applied. By contrast, ADGM courts will primarily follow English precedents.

Authors: Nandita Gopalan and Sanchit Suri