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Generative AI: A global guide to key IP considerations
Artificial intelligence (AI) raises many intellectual property (IP) issues.
Middle East | Publication | 四月 2023
In August 2022, the DIFC Court of Appeal dismissed the application by Hexagon Holdings (Cayman) Limited (“Hexagon”), the Claimant, for permission to appeal the judgment of Justice Cooke thus concluding, after 3 years, one of the highest value damages claims heard in the DIFC Courts1.
The proceedings offer three salient lessons to parties and legal practitioners alike:
In December 2003, Hexagon and the Dubai International Financial Centre Authority (“DIFCA”) entered into a joint venture agreement (“JVA”), which was amended in May 2004 (“AJVA”), to establish a joint venture company to develop a plot of land in the DIFC. The rights and obligations under the AJVA were later assigned to the Dubai International Financial Centre Investments LLC (“DIFCI”). Hexagon brought claims against both the DIFCA and DIFCI; for ease of reference, this note will refer to them collectively and singularly as the “Defendants”.
The AJVA required the land to be developed within four and a half years of the AJVA’s execution; despite this, to this day, the land remains undeveloped.
Among other things, Clause 3 of the AJVA required the Parties to execute a shareholders’ agreement to reflect the terms of the AJVA, to incorporate a joint venture company, to fund the project, and to effect transfers of land. Clause 3 stipulated that the Parties would use “their best endeavours in good faith to complete the steps and procedure … as soon as is reasonably practicable”2 (the “Clause 3 Obligations”).
The development of the plot did not progress for the following reasons:3
Over the next several years, Hexagon continued to attempt to negotiate more favourable terms and obtain concessions from the Defendants, with limited success. The project land remained undeveloped.
On 19 November 2018, Hexagon purportedly terminated the AJVA, alleging that the Defendants had breached the AJVA in such a way as to amount to “fundamental non-performance”, per Article 86 of the DIFC Contract Law. Article 86 states as follows:
“86. Right to terminate the contract
On 6 March 2019, Hexagon commenced proceedings against the Defendants. Hexagon sought a declaration that its 2018 termination was effective and that it was entitled to damages from the Defendants.4
Alternatively, Hexagon argued that its termination was an anticipatory repudiation of the Defendants’ alleged intended fundamental non-performance of the AJVA, per Article 88 of the DIFC Contract Law. Article 88 states as follows:
To support its claims, Hexagon relied upon two letters from the Defendants of 12 June 2012 and 27 September 2012 (“Letters of Renunciation”), which purported to renounce the AJVA and which were followed up with oral renunciations in meetings between the Parties in 2016 and 2017. However, the Letters of Renunciation were themselves subsequently disavowed by the Defendants, and the Defendants argued that they had demonstrated an intention to be bound by the AJVA before Hexagon’s 2018 termination.5
The key issues between the Parties were:
Clause 3 Obligation and Good Faith
Hexagon’s case was that the Defendants had never intended to engage in the joint venture with Hexagon and that the Defendants’ participation in negotiations had been “filibustering on a grand scale”7 . Hexagon alleged that the Defendants had engaged in various breaches of the terms of the AJVA and in particular, the Clause 3 Obligation to use “best endeavours in good faith” to enter into a shareholders’ agreement. Notably, Hexagon would only agree to a shareholders’ agreement with terms that were more favourable to it than those incorporated in the AJVA. Hexagon alleged that the Defendants’ refusal to agree to these terms was a breach of the Clause 3 Obligation. A further “oddity” of the case8, was the involvement of a third party, called “Nexus”. Clause 3 of the AJVA provided for Nexus to draft the shareholders’ agreement in circumstances where many of the terms were already incorporated into the AJVA (and just needed to be transposed into the shareholders’ agreement). However, for whatever reason, Nexus never prepared a shareholders’ agreement for the Parties.
Justice Cooke found that a “best endeavours in good faith” duty cannot require a party to a contract to vary or renegotiate the existing terms of that contract.9 The most the obligation could require was that the Parties had to agree to a shareholders’ agreement that accorded with the terms of the AJVA – the Defendants were not required to agree to terms other than those. This was so even where the commercial reality surrounding the project had clearly changed as a result of the impact of the global financial crisis.
Justice Cooke also held that to the extent that a “best endeavours in good faith” obligation did require a party to negotiate, this amounted only to a mere agreement to negotiate, which agreements are typically unenforceable.
The Defendants’ Renunciation of the AJVA
Hexagon argued that the Defendants’ 2012 Letters of Renunciation gave rise to the right to terminate the AJVA pursuant to Article 88 of the DIFC Contract Law. The Court dismissed this claim.
Put simply, if Hexagon wanted to terminate the AJVA pursuant to Article 88 of the DIFC Contract Law, it ought to have done so when the Letters of Renunciation were issued, not six years later, and not after the Defendants had recommitted themselves to the AJVA.
The Limitation Issue Periods and the Reservation of Rights
Hexagon alleged breaches by the Defendants stemming from events as far back as 2006. This gave rise to limitation issues, which Hexagon sought to avoid by arguing that the breaches were “continuing breaches” or that it had reserved its rights to bring proceedings, such that limitation issues were not engaged.12 Hexagon’s arguments were dismissed.
The Court held that, as a matter of DIFC law, a cause of action arose when all the elements to make out the claim first became apparent. A party could not argue that a breach was “continuing” as a means of avoiding limitation issues. Further, the Court considered that a party’s reservation of rights did not negate the effects of the DIFC’s six year limitation period, emphasising that a reservation of rights should only be temporary. The Court’s findings in this regard meant that any cause of action which accrued before April 2012 was time-barred, with the result that Hexagon’s only causes of action that survived the limitation period were those that related to the Letters of Renunciation.
Failure to Terminate within a Reasonable Time / Affirmation
In the alternative, Hexagon argued that the Defendants’ breaches of the Clause 3 Obligations and the issuing of the Letters of Renunciation were fundamental breaches of the AJVA, and granted Hexagon an inalienable right to terminate. This claim was also dismissed.
Justice Cooke found that by its own conduct, Hexagon had affirmed the AJVA after the Defendants’ alleged breaches and after the Letters of Renunciation, thereby rendering Hexagon’s purported termination on this ground ineffective. In so holding, the Court relied upon correspondence from Hexagon’s counsel to the Defendants in October 2015 reminding them of their contractual obligations.
The Court held that Hexagon was required to exercise any termination within “a reasonable time” and that an occasional reservation of rights was not effective to overcome this. Justice Cooke considered that “I do not consider that a party can retain a right to terminate over a period in excess of six years from the date when such a right to terminate is said to have accrued. On this basis alone, the right of termination was lost.”13 Going a step further, Justice Cooke held that Hexagon’s own actions, in insisting that the DIFC negotiate a joint venture agreement on the basis that the AJVA remained valid and effective, affirmed the AJVA “notwithstanding any prior breaches by the Defendants”. 14
Notwithstanding the breach, would Hexagon have performed the contract?
Hexagon maintained that but for the Defendants’ breaches, the AJVA would have been completed. In support of this claim, it relied upon the evidence of its witnesses who claimed to have “hundreds of millions of dollars at their disposal”. However, no evidence of assets, bank accounts or loan agreements were produced to support these statements. Hexagon failed to comply with the Court’s order to produce documents to demonstrate its ability and willingness to invest in the project via “liquid finance”.15 Hexagon’s failure to produce these documents enabled the Court to draw adverse inferences regarding Hexagon’s ability to perform the contract, with the Court concluding that Hexagon would not have been able to proceed with the AJVA, irrespective of the Defendants’ purported breaches. Therefore, as no project would have occurred it was hard to establish what loss Hexagon would have suffered as a result of the Defendants’ purported breaches.16
For these reasons and others, the Court found that Hexagon’s case was fundamentally unsound and could not be made out. In contrast, the evidence indicated that the Defendants had acted in good faith and in a manner consistent with their obligations under the AJVA at all times. The Court accordingly declined to award the damages sought by Hexagon.
Since March 2022, when the first instance judgment was handed down, Hexagon has twice tried, and failed, to appeal the judgment.
In April 2022, the Court of First Instance declined to grant Hexagon’s application for permission to appeal,18 on the grounds that Hexagon’s application sought to “misquote and mischaracterise the judgment of the [first instance] Court”. 19 The Court considered that the appeal had no prospect of success, and was “in part incoherent and in whole unmeritous”.20 Permission to appeal was denied and indemnity costs were ordered.
In May 2022, Hexagon applied to the DIFC Court of Appeal for permission to appeal.21 Again, the Court dismissed this application, finding that:
To businesses contracting in the DIFC, this case and its appeals offer some key takeaways:
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