LXT Real Estate Broker L.L.C v Sir Real Estate LLC [2025] DIFC CFI 073 (26 March 2025)

Claim No: CFI 073/2024

THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS

IN THE COURT OF FIRST INSTANCE

BETWEEN

LXT REAL ESTATE BROKER L.L.C

Claimant

and

SIR REAL ESTATE LLC

Defendant

AMENDED ORDER WITH REASONS OF H.E. DEPUTY CHIEF JUSTICE ALI AL MADHANI

UPON the claim having been filed on 17 October 2024 (the “Claim”)

AND UPON the Defendant’s Application No. CFI-073-2024/1 dated 10 December 2024 for the Claimant to provide security for the Defendant’s costs of these proceedings in the amount of USD 1,750,000 (the “Application”)

AND UPON the Defendant’s Application No. CFI-073-2024/2 dated 16 December 2024 seeking to strike out the Claim and/or that immediate judgment is entered (the “Strike Out Application”)

AND UPON the Order of Judicial Officer Maitha AlShehhi dated 15 January 2025

AND UPON the Consent Order dated 19 February 2025 providing that the deadline for the Claimant to file and serve its evidence in answer to the Application was retrospectively extended to Wednesday 29 January 2025

AND UPON the hearing for the Defendant’s Security for Costs Application before H.E. Deputy Chief Justice Ali Al Madhani dated 25 February 2025, with both the Claimant and the Defendant’s representatives in attendance (the “Hearing”)

AND PURSUANTTO the Rules of the DIFC Courts (“RDC”)

IT IS HEREBY ORDERED THAT:

1. The Application is granted; Security for Costs for the projected costs amount will be permitted until the Strike Out Application.

2. Quantum for Security for Costs shall be USD 250,499.26.

3. The Security shall be paid into the Court account within 10 days from the date of issue of the amended Order.

4. Costs of the Application shall be assessed on the standard basis. Parties shall file their costs submissions, to be no longer than 3 pages, within 7 working days of the date of issue of the amended Order.

Issued by:
Delvin Sumo
Assistant Registrar
Date of issue: 19 March 2025
Date of Re-Issue: 26 March 2025
At: 10am

SCHEDULE OF REASONS

1. This Application is brought by the Defendant to secure an order granting security for costs from the Claimant, in the amount of USD 1,750,000 (the “Intended Quantum”), as it is the Defendant’s position that the Claimant, a company, is unable to pay the Defendant’s costs if ordered to do so pursuant to Rule 25.102(2) of the Rules of the DIFC Court (“RDC”). The Intended Quantum represents 67% of the Defendant’s anticipated costs in proceedings.

2. As a reiteration of the background and procedural history is largely irrelevant to the Application, I will dispense with this section and delve immediately into a discussion of the submissions presented at the Hearing

Relevant Rules

3. RDC 25.101 reads:

“The Court may make an order for security for costs under Rule

25.100 if it is satisfied, having regard to all the circumstances of the case that it is just to make such an order; and

(1) one or more of the conditions in Rule 25.102 applies; or

(2) an enactment permits the Court to require security for costs.”

4. RDC 25.102(2) reads:

“The conditions are:

…

(2) the claimant is a company or other body (whether incorporated inside or outside the DIFC) and there is reason to believe that it will be unable to pay the defendant’s costs if ordered to do so:

…”

Assessment of RDC 25.102(2)

5. The determinative issue is whether the Claimant is reasonably anticipated to be able to cover the Defendant’s costs if ordered to do so, and if not whether the Court can use its discretion to engage its jurisdiction to make an order for Security.

6. It is the Defendant’s position that there is good reason to believe that the Claimant is, or will become, unable to pay the Defendant’s costs in the event of an adverse costs order. This is due to the uncertainty as to the identity of the litigation funders, who are not a party to the proceedings nor within the jurisdiction of the DIFC Courts, and the Claimant has been silent on other potential sources of funding. For this, the Defendant seeks 67% of the estimated total cost of defending the Claim.

7. The Defendant relies on RDC 25.99(2) to provide evidence that the Court has discretion on these facts to make an order for security:

“Any factors relevant to the exercise of the Court’s discretion, such as the location of the claimant’s assets and any practical difficulties which may arise in enforcing any order for costs.”

8. It is the Defendant’s argument that:

a) The Claimant does not appear to be generating any significant revenue, and up until recently it did not have a valid licence to do so in any event.

b) The Claimant does not provide evidence that it holds any liquid assets within the DIFC (or any jurisdiction within which an adverse costs order could be enforced, as it may be the case that the controlling shareholder, a Spanish citizen, may be holding assets on behalf of the Claimant in Spain).

c) The Claimant has failed to be transparent regarding its current financial position despite repeated requests.

d) The Claimant’s reliance on the litigation funding agreement dated 10 October 2023 (the “Agreement”) with Arbitrium Litigation Financing Ltd LLC (the “Funder”) in and of itself is evidence that the Claimant is not itself in a position to discharge any adverse costs orders – this is not seriously or substantially challenged by the Claimant.

9. The Defendant challenges the financial position of the Funder, stating that its 2023 Financial Statements did not provide surety that it would be in a position to satisfy any adverse costs order for the following reasons:

a) The initial financial statements were out of date.

b) Essential entries have been redacted, making it impossible to see how other entries were calculated.

c) The statements were not audited.

d) There were missing pages without explanation.

e) The Agreement has not been disclosed, and as per the Claimant’s letter in response to the Defendant’s Security for Costs Application dated 11 February 2025, the Claimant asserted that they were not required to disclose the Agreement. Therefore, it is reasonable to infer that the contents of the alleged Agreement would undermine the Claimant’s financial position, and the Court must treat the Agreement as unsubstantiated and uncorroborated.

f) The 2024 statements do not include the notes to the financial statements despite expressly confirming that they would.

g) The 2024 statements confirm that, for the first time, the Funder is an LLC incorporated in Delaware.

h) The 2024 statements do not suggest that the Funder is in a strong enough position to lend enough money to pay an adverse costs order in full as the total current assets are recorded only as USD 995,104 with a yearly decline.

10. The Defendant advances its assertion that the Claimant is unable to pay by relying on a letter dated 9 February 2025, from the Claimant, which suggests that the Agreement was entered into by two separate Funder entities, which are registered in Delaware and the Abu Dhabi Global Market (ADGM) respectively. It remains ambiguous which entity owes a contractual obligation to the Claimant, and so an assessment of the financial strength of the relevant entity cannot be independently made.

11. Additionally, the alleged Agreement has been subject to various amendments between 2024 and 2025 – two amendments of which have been post the Defendant raising the issue of Security. The Defendant suspects that the Delaware entity has been added to the Agreement to allow its accounts to be presented to the Court, as the ADGM entity does not appear to have any accounts or assets at all.

12. The 9 February 2025 letter also failed to explain what was meant by the intention of the Funder to “cover” an adverse costs order in the absence of a secured undertaking by the Funder to the DIFC Court and to the Defendant. The promise to cover is unsecured and unenforceable.

13. The Defendant progresses its position to state that an order for Security is just on the facts as the Claimant has made previous unsuccessful claims against it in the DIFC Courts, this Application was brought at the earliest opportunity, the Claimants have failed to demonstrate how Security would stifle their claim, and it is an abuse of process for a company to bring a substantial claim while simultaneously refusing to offer Security. Further, in regard to the previous failed claim, the Defendant had to take steps at a considerable inconvenience to reach a settlement on outstanding costs after the Claimant acted in breach of the DIFC Court order (2023) by delaying payment.

14. The Defendant also requests the Court to consider the Claimant’s conduct outside of proceedings due to the Claimant making serious allegations of fraud and dishonesty while providing unreliable and unsubstantiated evidence.

15. To summarise the Defendant’s submissions, the threshold in RDC 25.102(2) has been met as the Claimant has failed to provide any material evidence that itself or the Funder are financially able to pay an adverse costs order, that the order could be enforced by the DIFC Courts, or that a legitimate litigation funding agreement exists between them. The Defendant is therefore not satisfied that the financial position of either company can be trusted, and so Security is necessary and proportionate.

16. The Claimant’s rebuttal is that, having regard to the circumstances of the case, that it is not just to make an order in favour of the Defendant as the Defendant failed to demonstrate that it would be “difficult, if not impossible” to enforce a costs order against the Claimant as the Claimant lacks the financial resources to satisfy an adverse costs order. Notably, the Claimant rejects that the Defendant has shown:

a) Any evidence of failure by the Claimant to pay its creditors, including litigation costs;

b) That the Claimant is insolvent or in the process of winding up;

c) That the Claimant has taken any steps to hinder enforcement of a costs award;

d) That the Claimant has displayed any history of non-compliance with costs orders; or

e) That the Claimant is a payment vehicle with no material assets in the UAE.

17. The Claimant further summarises the Application to be oppressive as the Defendant has applied to strike out all of the Claim which is inconsistent with seeking security for the entirety of the Claim. The Claimant suggests that this is a strategy engaged to prevent the litigation occurring so that the Defendant does not have to meet its case on the merits.

18. On the matter of whether the Claimant is able to cover an adverse costs order, it submits that while it does have limited resources (attributed to the Defendant, as before the acquisition of some of the Claimant’s assets and the formalisation of the Partnership Agreement between the parties the Claimant consistently generated annual revenues of approximately AED 12 million, and AED 2.4 million through the partnership with the Defendant), the Agreement with the Funder provides cover of up to USD 1 million; the Claimant rejects that the Defendant’s projected costs are to exceed USD 1 million.

19. To note, I will take the Claimant’s admission that it has limited personal resources and would not be able to independently finance the case as an agreement between the parties that the Claimant engaging the Funder was necessary to assist in financially balancing the parties. Therefore, the question is whether the Funder will be able to finance the Claim alone, without consideration as to the Claimant’s contributions, as per the threshold set by RDC 25.102(2).

20. The Funder’s recently audited financial statements for 2024 demonstrate a total net asset value of USD 5.6 million, and so the Claimant submits that it is more than bale to meet its obligations pursuant to the Agreement without difficulty.

21. Nonetheless, the Claimant submits that awarding security for costs is not just for multiple reasons. Any anticipated financial difficulties, which are denied by the Claimant, arise directly from the Defendant’s conduct of misrepresenting the Gross Revenues to the Claimant’s client by more than AED 439 million, therefore depriving the client of AED 53 million in Partnership Fees, which forms the basis of the Claim and is the reason as to why the Claimant has to rely on litigation funding.

22. The Claimant further contends that the unpaid Partnership Fees should then stand as security for the Defendant’s costs, and the Defendant’s submissions in the Strike Out application denying that anything is owed lack reality and will regardless be determined quickly. The Claimant denies that the claim is based on unlawfully obtained confidential information as the Claimant is entitled to access the Defendant’s records as per the Agreement.

23. The Strike Out Application is equally misconceived but nonetheless should have been heard before this Application to save on costs, or in the event that it failed, the Defendant would be obligated to meet the Claimant’s costs of the Application, therefore nullifying any need for security as the Defendant’s liability will itself stand as security.

24. In its letter dated 1 July 2024, the Defendant’s solicitors estimated costs to be between USD 5m to USD 10m, but failed to provide a breakdown, explanation or justification – the current estimate is 25% of the original, which demonstrates the Defendant’s inconsistency and lack of transparency as an attempt to confuse and force the Claimant to vacate proceedings on the basis that it could not afford to engage. The letter also threatened a counterclaim due to a series of allegedly misconceived points that the Claimant was not entitled to share documents (that were referred to in open court) with the Funder. Finally, the Defendant brought criminal litigation proceedings against the Claimant’s counsel, which was dismissed by Dubai Police, within 9 days of service of these proceedings.

25. The Claimant also submits that, nevertheless, ordering security for costs up to and including trial from the outset is usually disproportionate, as the issues in the proceedings are not yet known (save for the Strike Out Application) and the litigation funding cover defeats the threshold question as the Claimant has a perfectly reasonable cover.

26. Further, the Claimant notes that the Application violates the Crabtree Principle, where security would not usually be ordered if the issues would be litigated anyway on the counterclaim. The Defendant has not provided particulars of its intended counterclaim and crossclaims, though it is reasonable to assume that there is likely to be a substantial overlap between them. In that event, the Court should not order security for costs.

27. Without prejudice and in the alternative, the Claimant is prepared to offer what it considers to be reasonable security for costs if the Court determines that security should be granted:

a) To cover the Strike-Out Application;

b) To cover proceedings up to the Case Management Conference; and

c) The offer is contingent on the Defendant’s compliance with its financial disclosure obligations under the Partnership Agreement

28. In my view, as a matter of the Court’s discretion, I concede with the Defendant that the threshold set by RDC 25.102(2) has been met, and so the Court has jurisdiction to order security for the Defendant’s costs to be paid by the Claimant.

29. There are several reasons for this, all of which pertain to the facts surrounding the Funder and the Agreement. On record, I do not accept the Defendant’s submissions concerning the Claimant’s company revenue; any submissions surrounding this step too close to a deliberation on the case facts and issues, which should not be addressed at this stage in proceedings pursuant to RDC 25.110. Additionally, as the Claimant claims to have a Funder, I find its personal financial standing to be not yet relevant, though this may change in the course of proceedings if the level and quantum of Security is to be reviewed.

30. I also reject the Claimant’s submission that unpaid Partnership Fees should stand as Security for the same reasons as above; such consideration again wades too close to a determination on an aspect of the Claim. Again, this can be reviewed at a later stage.

31. As a matter of the RDC.102(2) threshold, in my view the ambiguity surrounding the Funder, its shareholders and most recent financial statement is enough to satisfy that there is reason to believe that it may be unable to pay the Defendant’s costs, whether partially or totally, if ordered to do so.

32. On the disclosure of the Agreement, I do concede that Practice Direction No.2 of 2017 Article 4 does not require disclosure of a copy or any part of the Agreement unless ordered otherwise by the Court. From the evidence established thus far, I am satisfied that something akin to an Agreement or arrangement exists, as the Funder’s identity had been disclosed on 13 June 2024, and they have been copied into correspondence using professional emails, and the existence of an Agreement for the funding of the current dispute has been acknowledged. This is all that is required by the Practice Direction, and the Defendant’s rejection to correspond with the Funder, as stated in the letter dated 1 July 2024, does not negate this.

33. Therefore, I will proceed on the assumption that some sort of Agreement exists between the Claimant and the Funder. It is the ambiguity around the Funder itself and the enforceability of the Agreement that validly raises cause for concern.

34. The fact that it remains unclear as to which entity – Delaware or ADGM – is liable for the Agreement casts uncertainty as to the enforcement of the Agreement in the event of an adverse costs order, nor is there information provided in respect to the owners or controllers of the Funder in order to identify where the Funder may be registered. If it is the Delaware entity, which I find to be more likely considering that the ADGM entity does not appear to have assets or revenue attached to it and the Claimant has failed to state which entity it has engaged, I concur with the Defendant that it will face unnecessary and prejudicial difficulties, delays and expense in enforcing a DIFC Courts order in a foreign jurisdiction where the Funder is not a party to the Agreement.

35. There is also ambiguity surrounding the financial position of the Funder due to conflicting figures on its liquidated and non-liquidated assets – one of which estimates its assets as below the USD 1m pledge – as well as conflict over the ownership of the non-liquidated assets which stands to affect whether the pledge could be released. In the event of a potentially under-capitalised foreign Funder, it reasonably follows that an order for Security should be made. So, on the assumption that an Agreement exists and that the USD 1m is available to the Claimant, in my view there is no prejudice to the Claimant to draw down Security from the Funder as per the terms of their Agreement.

36. Overall, I am satisfied that the Claimant and its Funder present an unfavourable financial position to satisfy RDC 25.102(2), and so an order for Security for cCsts shall be made.

Level for Security for Costs

37. The Defendant seeks 67% of the estimated costs of proceedings, of which is calculated up to and including Trial. The Defendant stresses that erring on the side of caution is paramount, as too little Security will mean the Defendant will face significant difficulties in enforcing any costs orders over and above the Security provided. Additionally, the Claimant will not be prejudices by ‘overprovision’, as excess will be returned. There is no risk to this, as the Security will be held by the DIFC Courts, not by the Defendant.

38. The Defendant opposes the notion that Security should be paid in tranches if granted, as that method still leaves the Defendant exposed and it would be contrary to the overriding objective to compel the Defendant to engage in repeated procedural applications for payment or enforcement of additional tranches of security. Litigation costs are not incurred in tranches, and so Security should reflect this.

39. The Claimant rejects the Defendant’s terms on the level of Security for the following reasons:

a) The Defendant has not, at the time of the Hearing, filed its Defence, counterclaim(s) and crossclaim(s); speculating on the issues that need to be addressed is impossible, and so the natural endpoint would be the first Case Management Conference.

b) Further security, if required, can be applied for at the Case Management Conference once the issues in the Claim and the additional anticipated applications have been pleaded.

c) Ordering the Claimant to pay security for the entirety of the proceedings significantly prejudices the Claimant’s interests of fairly proceeding with the Claim as what is demanded by the Defendant exceeds the cover available of USD 1m.

40. The Claimant also submits an alternative to the Case Management Conference stage, by limiting Security to the Strike Out Application only, which the Defendant alleges will dispense of the Claim – it is contradictory to submit that the Strike Out Application is so strong that the Claim will be thrown from the Court, while also demanding Security to cover everything up to and including Trial costs.

41. I anticipate that the Strike Out Application will be a heavy application based on the Defendant’s assertion that this will be a final application in the dispute. Therefore, I see this as a natural barrier at which to limit Security.

42. I also concede with the Claimant that granting Security up until the Trial creates an additional issue of stifling the Claim, as the Claimant would need to sink an excess of funds that may prevent them from being able to pay for its own costs beyond the Strike Out Application and then the Case Management Conference; this is contrary to the overriding objective and the purpose of the Court’s responsibility over proportionate case management. Therefore, Security will not be subject to change or extension. If the Claimant succeeds at the Strike Out Application and proceedings extend to Trial, they have the benefit of their costs being paid and they will be in a better position financially and on the balance of convenience too.

43. Further, in the event that the Court dismisses the Strike Out Application, and the Defendant has legitimate grounds to rely to Security up until the Trial, the Defendant could suspend payment of the Claimant’s costs of the Strike Out Application and reserve payment to costs in the case if applicable.

44. Security for Costs should be equally proportionate and reasonable, not stifling and preventative. It is not a punishment for one party, but a surety to another in the event of financial uncertainty. This is why it is important to find a natural barrier in proceedings when granting Security, and why quantum should be carefully calculated in consideration with all elements of the case and the party’s positions.

45. To conclude on this part, the level to which quantum for Security will be calculated is the Strike Out Application, as the Defendant has submitted that this will be a determinative application that will allegedly throw the case from the Court. It therefore acts as a natural barrier to Security.

Quantum

46. The Defendant’s estimated costs, as per the schedule dated 9 December 2024, up to and including Trial but excluding “other expenses” (counsel’s fees and expert’s fees) totals to AED 3,680,000, which is 2.6% of the value of the Claim. Quantum for Security will be decided against the stages of the Claim – the Strike Out Application specifically, and so it stands that the schedule provided is not entirely helpful as it is dedicated to hours rather than stages. However, as much information has been gleaned from the schedule and suggested breakdown among the documents on the court file as possible, and this has guided my final figure. It is also important to note that the fact that the Claimant does have a Funder, irrespective of whether the Funder itself is a reliable source, does automatically entitle it to a reduced Security figure.

47. Several submissions have been put forward to justify and oppose the above figure and the Defendant’s estimated cost per hour. The Defendant rejects the Claimant’s position that the level of practitioner engaged, and the corresponding fees are disproportionate and inflated; it asserts that the estimates are calculated on the assumption that solicitors and counsel will have a similar level of involvement in the litigation. The there is also no identified witnesses, nor proposed approach to and volume of documents. These factors will be considered where relevant up to the Strike Out Application and will be reflected in the final quantum of the security awarded.

48. On the counsel engaged specifically, the Claimant submits that the costs have been artificially inflated by failing to appoint an associate and disproportionately budgeting 360 hours for the Partner and Senior Counsel and 335 hours for the Trainee and Paralegal – this strategy was summarised as nonsensical, as there is no reason to engage a Paralegal when a Trainee has already been selected. In my view, there is no need to consider the total hours submitted as the level is only to the Strike Out Application.

49. On the actual proposed quantum of AED 3,680,000, the Claimant suggests that this figure is simply wrong, as this is asserted on the basis that counsel expect to do as much work as solicitors – counsel’s fees are as standard lower than solicitor fees as the scope of work carried out by counsel is much more restricted. The Defendants have failed to identify counsel or state their fees, so there is no way to assess whether counsel fees are proportionate.

50. The expert fees of AED 1,400,000 are proposed by the Claimant to be excluded altogether, as the Court has not given permission for experts to be adduced at this stage nor is there any indication as to why expert evidence would need to be sought. I concur with this – no expert fees will be included in the Security quantum.

51. The Claimant’s proposed reasonable estimate up to and including the CMC is AED 750,000, 40% of which could be ordered as Security, which amounts to a maximum of AED 300,000.

52. My calculation is as follows:

a) Half of the sub-totalled estimate of AED 3,680,000 is AED 1,840,000. Thereabout is the estimated total cost up to and including the Strike Out Application.

b) In my view, half of that cost should be provided as Security, totalling AED 920,000.

c) As the Funder’s pledge is in USD, and in the interest of the avoidance of doubt, the converted rate will be supplied here. As of the date of drafting this Order, 17 March 2025, the conversion rate of AED to USD is 0.272. Therefore, AED 920,000 is equivalent to USD 250,500.00.

d) The total payable quantum for Security will be USD 250,500,00.

53. I concur that there is no prejudice in overestimating Security in this instance, as in the event of excess the monies will be refunded to the Claimant, and the Security to be ordered is well below the limit set by the Funder. Therefore, I find this figure to be fair, just and reasonable.

54. Security shall be paid into the Court account within 10 days of the date of issue of this Order.

Conclusion

55. For the aforementioned reasons, I will grant the Application and award Security for Costs in the sum of USD 250,499.26, which will cover the Defendant’s estimated costs up to and including the Strike Out Application.

56. Security shall be paid into the Court account within 10 days of the date of issue of this Order.

57. The level and quantum of Security is not subject to change as if the Stike Out Application fails, the Claimant’s costs will be paid, and a financial balance will be reached.

58. The Parties are invited to file short Costs submissions, no longer than three pages, within 7 days of the date of issue of this amended Order.

The Dubai International Financial Centre

CFI 073/2024 LXT Real Estate Broker L.L.C v Sir Real Estate LLC

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You are here: BAILII >> Databases >> The Dubai International Financial Centre >> LXT Real Estate Broker L.L.C v Sir Real Estate LLC [2025] DIFC CFI 073 (26 March 2025) URL: http://www.bailii.org/ae/cases/DIFC/2025/DCFI_073.html Cite as: [2025] DIFC CFI 073, [2025] DIFC CFI 73