Nyoka v Nunzio [2024] DIFC SCT 098 (29 July 2024)


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Nyoka v Nunzio [2024] DIFC SCT 098

July 29, 2024 SCT - JUDGMENTS AND ORDERS

Claim No: SCT 098/2024

THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS

In the name of His Highness Sheikh Mohammed Bin Rashid Al Maktoum, Ruler of Dubai

IN THE SMALL CLAIMS TRIBUNAL
BEFORE SCT JUDGE MAITHA ALSHEHHI

BETWEEN

NYOKA

Claimant/Defendant in Counterclaim

and

NUNZIO

Defendant/Claimant in Counterclaim

Hearing :9 May 2024
Further submissions :19 June 2024 and 26 June 2024
Judgment :29 July 2024

JUDGMENT OF SCT JUDGE MAITHA ALSHEHHI

UPON the claim having been filed on 4 March 2024 (the “Claim”)

AND UPON the Defendant’s defence with counterclaim dated 23 April 2024 (the “Counterclaim”)

AND UPON the Claimant’s reply to the Counterclaim dated 1 May 2024 (the “Claimant’s Reply)

AND UPON the Defendant’s response to the Claimant’s Reply dated 8 May 2024

AND UPON a hearing having been listed before SCT Judge Maitha AlShehhi on 9 May 2024 with the Claimant’s representative and the Defendant’s representative in attendance (the “Hearing”)

AND UPON the expert report dated 19 June 2024 (the “Expert Report”) following the Order of SCT Judge Maitha AlShehhi dated 16 May 2024 (the “16 May Order”)

AND UPON the Claimant’s reply and the Defendant’s reply to the Expert Report dated 26 June 2024

AND UPON reviewing the documents and evidence filed and recorded on the Court file

IT IS HEREBY ORDERED THAT:

1. The Defendant shall pay the Claimant the amount ofAED 486,952.77for works completed as of 12 January 2024.

2. The Claimant shall pay the Defendant the amount ofAED 306,661for third-party contractor works carried out by the Defendant.

3. The Defendant’s other counterclaims in respect of payment of daily delay penalty, rent and loss of profit shall be dismissed.

4. The Defendant shall pay the Claimant the DIFC Courts’ filing fee in the amount ofAED 24,347.65.

5. The Claimant shall pay the Defendant the DIFC Courts’ filing fee in the amount ofAED 15,333.05.

Issued by:
Hayley Norton
SCT Judge and Assistant Registrar
Date of issue: 29 July 2024
At: 2pm

THE REASONS

Parties

1. The Claimant is Nyoka (the “Claimant”), a company registered in Dubai, the UAE.

2. The Defendant is Nunzio (the “Defendant”), a company registered in the DIFC, Dubai, the UAE.

The Claim

3. The Claimant entered into several agreements with the Defendant in respect of the interior works and fit out of the Defendant’s restaurant within the DIFC, namely the Letter of Intent dated 23 June 2023 (“LOI”), the Bill of Quantities dated 18 July 2023 (“BOQ”) and the Fit-Out and Joinery Works agreement dated 7 August 2023 (“Fit-Out Agreement”). These contracts will be collectively referred to as the “Agreements”.

4. The Claimant submits that it performed all its work in accordance with the BOQ (with 95.23% completion) and the Defendant failed to pay them despite multiple follow ups and issuance of a legal notice.

5. The Claimant further states that they sent a total of 23 weekly reports in relation to the progress of the work at site to keep the client always informed and updated.

6. The Claimant states that the Defendant never raised any issue to the Claimant in relation to the quality, timing or progress of the work before abruptly terminating the relationship. Therefore, the delay in payment is a clear and unequivocal breach of its obligations pursuant to the Payment Terms in the executed BOQ.

7. The Claimant relies on the terms of the BOQ to demonstrate that the Defendant defaulted in payments, and is read as follows:

“Milestone 1- 40%- Advance on Contract Signing

Milestone 2- 55%- Progressive work billing

Milestone 3- 5%- On Completion

All invoices must be settled within 3 days of our progress invoice. Any delays in the same may result in the timelines getting affected, and the Nyoka reserve the right to suspend all works until progress payments are settled.”

8. As per the BOQ, the duration of the project was set out to be“120 days, from the date of site access/ the receipt of building permit/advance payment whichever comes later. The above-mentioned timelines is subject to timely approvals, clearances and payments. Any delay in these can lead to an extension in project timelines during the course of this project”.

9. The Claimant submits that it received the DIFC permit on 18 July 2023 and as per the above, the completion day would fall on 20 November 2023.

10. However, due to the Defendant’s delays in advance payments, material and design finalisation approval, approval of variation quotations and so forth, the Claimant’s work was delayed and it had to apply for a request for an extension of time twice; once on 3 November 2023 and again on 1 December 2023 (the “EOT”). The completion day fell on 31 December 2023, which, according to the Claimant, was also conditional upon the Defendant’s payment.

11. The Claimant submits that the Defendant was supposed to pay the 5 December 2023 invoice within 3 days of its issuance, and it failed to do so till date. Therefore, despite multiple follow ups, the Claimant notified the Defendant by way of email on 8 January 2024 (“January Email”) that they were unable to continue working up until payment in made in respect of outstanding invoice.

12. The January Email reads:

“Further to the trailing email, continuous follow ups by phone calls & what’s app messages to release the outstanding payment, we have not received any update from you till date, and our requests were conveniently ignored by you.

Hence, we hereby notify you that we are unable to proceed with any works at site from tomorrow as per the instructions from our Finance department.

Work permit is expiring on 09/01/2024, 7:00 hrs and we will not be requesting DIFC for the renewal until the payments are settled.

Further works shall be completed upon release of below payments:

1. 3rd progress payment (in full). Invoice submitted on 5th December 2023. Please refer to the attached email.

2. Security cheque to be returned.

3. Prolongation claim. Please refer to the attached email.

4. Final payment to be released before the final inspections by Authorities & DIFC. Invoice submitted on 6th January 2024. Please refer to the attached email.”

13. The Claimant asserts that the Risk Register provided to the Defendant proves that the Defendant was aware of its actions and its failure to take decisions which resulted in delays. The Claimant further asserts that the Defendant did not object to the EOT sought, which in this case was inevitable due to the Defendant’s action of not approving on time and failure to make timely payment.

14. The Claimant contends that it was left in shock when it received the Defendant’s termination letter dated 12 January 2024 (the “Termination Letter”) and submits that it is not entitled to do so, especially after agreeing on a payment plan (which was proposed by the Defendant) on 8 January 2024, after receipt of the January Email.

15. The Claimant adds that the Defendant did not give them any opportunity to remedy the issues, if any, and avoid termination; instead, it proceeded to end the contract without clear communication or reasoning behind it given that a payment plan was agreed upon 3 days before receiving the Termination Letter.

16. The Claimant takes the view that the Fit-Out Agreement provides for a remedy period which should have been provided to the Claimant. However, the Defendant failed to pay on time and failed to provide a remedy period and proceeded to end the Agreements.

17. The Claimant’s view is that had the Defendant paid on time, it would have been able to complete 100% of the work. As such, any delay in work is because of the Defendant’s failure to make regular payment as per the Agreements.

18. The Claimant disputes the inspection report produced by the Defendant after terminating the Agreements and questions its validity given that it was produced 24 hours after termination and was not provided to them. Therefore, they are of the view that there is misrepresentation of facts in the report.

19. Further to the above, the Claimant asserts that the Inspection Report was not a true representation of the works completed by the Claimant, as it included old photos of the site and some of the works listed were not part of the BOQ.

20. The Claimant is only claiming for the works it performed and expresses that the Defendant includes amounts in their Counterclaim that were not in their scope of work.

21. The Claimant seeks the following reliefs from the Courts:

(a) Costs for the Defendant’s breach of contract to the amount of AED 486,952.77;

(b) Interest on the outstanding amount in accordance with Practice Direction No 4 of 2017;

(c) Return of the security deposit cheque and equipment which have been left at the Defendant’s site, as they were denied access; and

(d) DIFC Courts’ filing fee.

The Defence and Counterclaim

22. The Defendant submits that it had already made payment covering 69.026% of the total project price (including variations) and is not liable to pay anything else as the amount covers the works completed by the Claimant.

23. The Defendant rejects the Claimant’s claims and submits that the Claimant is inconsistent in its claim wherein it is not clear as to whether the Claimant is seeking compensation in relation to economic loss for default payment or for breach of contract.

24. The Defendant takes the view that the Claimant breached the terms of the Agreements by failing to carry out the works with reasonable care and skill, and by failing to complete the project within the time required by the Agreements which caused delays to the re-opening of the restaurant. Therefore, they submit that the Claimant owes damages for losses incurred for incomplete work and having to hire third party contractors to replace or finish the works carried out by the Claimant.

25. Due to the delay in the handover of the project, the Defendant submits that it was entitled to terminate the Agreements and to seek delay penalties from the Claimant, exercising its right under Clause 19(7) of the Fit-Out Agreement to terminate the services of the Claimant which reads as follows:

"In the event that the Employer foresees that the progress of the work of the Second Party is behind the schedule, or the quality of the work is not as specified, the Employer has the right to terminate the Contract after giving 7 days’ notice to the Second Party and appoint a third party/parties to complete the works on behalf of the Second Party and at the expense and risk of him. In such an event the Employer will have the right to transfer all material/equipment supplied or ordered by the Second Part to the new party/parties in order to complete the project.”

26. The Defendant submits that although the Claimant was behind in its project, the quality of work was not satisfactory as it was not up to standard and not in line with the executed Agreements, which was explained to the Claimant in the Termination Letter.

27. The Defendant submits that it could not detect the poor quality of work and deficiencies beforehand as it was all cement and flooring, and the actual work was not visible to them.

28. In accordance with Clause 12 of the Fit-Out Agreement, if the Claimant fails to complete the works under the Agreements within the duration, the delay penalty shall be at the rate of AED 1,000 per day up to 5% of the price of the project.

29. The Defendant argues that there has been a delay of 58 days in respect of the delivery of the project. Therefore, the Defendant submits that it is entitled to claim AED 58,000 from the Claimant, which it can deduct from the total Outstanding Amount.

30. The Defendant rejects the Claimant’s assertion that the inspection report produced by them on 12 January 2024 is fake and submits that when they noticed the poor quality of work performed by the Claimant, they appointed a third party to view the site and produce a report accordingly.

31. The Defendant contends that they were under immense pressure from the DIFC management to re-open their premises, however, it was still pending due to the Claimant’s action of delaying the project and not completing it within time and up to the agreed standard and quality of work.

32. The Defendant asserts that the Claimant waived its right to a claim for an extension of time, as it failed to abide by the provisions of the Agreement, by failing to provide the extension of time request within the agreed period of three days.

33. The Defendant submits that the progress reports were not in line with the actual progress on the site and the request for variations from the Claimant did not request an extension of time request as well.

34. Due to the delay of the Claimant by submitting two requests for extension of time and pushing the completion date to 31 December 2023, the Defendant conducted an inspection of the project site to verify the work done by the Claimant. This inspection was carried out on 12 January 2024, which was the date the Defendant issued the Termination Letter, and a report along with photos was issued (“Inspection Report”).

35. The Inspection Report points out the following:

(a) In respect of “General Requirement under BOQ - due to incomplete work such as protection, waste disposal and poor site access, the work completed by the Claimant is 95% and not 100%;

(b) In respect of “Flooring work under BOQ”- due to poor workmanship, the vendor had to replace the screening to the floor and the new carpet and completion of work was 85% and not 100%;

(c) In respect of “Emergency and exit light system”- the Claimant failed to obtain necessary qualifications and work had to be carried out by third party contractor and completion of work upon inspection was 85% and not 100%;

(d) In respect of “Fire detection work and the lighting system”- it was not connected to system and work had to be carried out by third party contractor and completion of work upon inspection was 90% and not 100%;

(e) In respect of “Fire detection work and the lighting system”- it was not connected to system and work had to be carried out by third party contractor and completion of work upon inspection was 90% and not 100%;

(f) In respect of “Firefighting work”- the Claimant failed to obtain necessary certificates and completion of work upon inspection was 90% and not 100%;

(g) In respect of “Plumbing water supply & drainage”- the Claimant failed to obtain necessary certificates and completion of work upon inspection was 95% and not 100%;

(h) In respect of “Fire suppression works”- the Claimant failed to obtain necessary certificates and work had to be carried out by third party contractor and completion of work upon inspection was 50% and not 100%; and

(i) In respect of “LPG work”- the Claimant failed to obtain necessary certificates and work had to carried out by third party LG contractor and completion of work upon inspection was 75% and not 100%.

36. To rectify the issues mentioned above, the Defendant had to hire new contractors at the expense of the Claimant in line with Clause 19(7) of the Fit-Out Agreement so they could work on the issues and manage to open the restaurant as soon as possible. As such, incurring costs for the Claimant’s alleged incomplete work.

37. Without these systems being approved and certified by the relevant authorities, the Restaurant could not be opened which resulted in a loss of revenue or profit from sales.

38. The Defendant adds that the Claimant did not perform all the work it was required to and even when they did, it was not up to standard, and only 73% of the work was completed as per the Inspection Report, to the value of AED 1,496,892, which has already been paid to the Claimant. Therefore, the Claimant is not entitled to receive anything further.

39. Consequently, the Defendant is demanding payment of AED 427,770 from the Claimant in respect of the works carried out third party contractors to rectify the errors and omissions caused by the Claimant.

40. Additionally, due to the delays and defects caused by the Claimant, the Defendant has had to pay rent to the DIFC where the premises has not been used and the Defendant is unable to recover the money by way of operating their business. As such, the Defendant seeks to claim the rent amount of AED 1,952 per day for the period of 58 days and as such the Claimant will be liable to pay the rent amount in the sum of AED 113,233.78.

41. In addition, due to the Claimant’s delay in handing over the project (58 days from 16 November 2023 to 12 January 2024), the Claimant should pay the Defendant the amount in the sum of AED 113,233.78.

42. The Defendant Counterclaims the following:

(a) Payment of the amount of AED 58,000 for the payment of the delay penalty clause under the Agreement; and

(b) The amount of AED 174,000 for the payment of the projected loss of profit should the premises have been open under the agreed upon time frame between the parties.

Discussion

43. The parties agreed in writing by way of email to the SCT Registry on 13 and 14 May 2024 to elect the SCT to hear both the Claim and the Counterclaim, even if the value of the Counterclaim is more than AED 500,000.

44. The 16 May 2024 Order gave both parties the opportunity to elect 3 experts for the Courts’ consideration. Only the Claimant submitted the experts, and so the Court elected one of the experts recommended by the Claimant.

45. The Claimant generally agrees with the contents of the Expert Report apart from the liability of lighting reworks, while the Defendant is of the opinion that the Expert Report is biased as it did not consider any of its documents and proceeded to give its opinion on merits of the Claim which is not allowed under the RDC.

46. The Expert Report found that the Claimant is entitled to receive the amount of AED 445,327.88 in respect of the Claim while the Defendant is entitled to receive the amount of AED 11,211 in respect of the Counterclaim.

47. However, the expert also mentioned within the Expert Report that it was impossible to isolate the contributions and workmanship of the Defendant from the other contractors because the other contractors had already begun their work before the expert visited the site for evaluation.

48. As correctly identified by the Defendant, I must note that the Expert Report failed to address all the issues that were raised in the 16 May 2024 Order and only addressed 4 out of 11, which is unfortunate.

49. In any event, I shall consider the relevant items alongside the BOQ when arriving at my decision, without taking into consideration the expert’s remarks on the merits of the Claim.

Was the termination of the Agreements lawful?

50. The Fit-Out Agreement provides for termination if the contractor is “behind on schedule” or “quality of work is not as specified”, however, it does not state that this termination can be immediate. In fact, it states that the other party should be given 7 days’ notice of such termination, at that stage it would be able to hire new contractors and expense the Claimant accordingly.

51. As mentioned above, the Claimant submits that this act was unlawful as they completed 95.32% of the works while the Defendant submits that they had to do so as the project was not completed on time. The Defendant is of the view that such is lawful as the Claimant did not deliver on time and no request for an extension of time was sought within 3 days in accordance with the Fit-Out Agreement.

52. It is established above that the timeline of the project has been delayed a few times as the original completion date was 20 November 2023, but the most recent intended completion date was 31 December 2023. After this, no further extension of time request was submitted by the Claimant.

53. The extended completion date was 31 December 2023, and up to that date, the project was not 100% completed. In my view, the reason for this is due to the Defendant’s delay of payment and delay of approval design which is shown by way of exchange of emails between the parties. In any event, ideally, the Claimant should have requested for a further extension of time as it did the previous times to be on the safe side.

54. The BOQ and Fit-Out Agreement stipulates that the project timeline is conditional on timely approval and payment from the Defendant, which has not been the case here due to the Defendant’s lack of payment since 5 December 2023 up to date.

55. While it is unfortunate that the Fit-Out Agreement was terminated without giving 7 days’ notice, and although it is clearly mentioned therein that failure to make payment on time (i.e. 3 days) will result in the project timeline being extended, the fact remains that the Claimant failed to submit a further request of extension of time after 31 December 2023 which it must have done pursuant to Clauses 13 and 16(2) of the Fit-Out Agreement, read below:

“13. Extension of Time for Completion

Should there be any cause of delay for which the Second Party is neither responsible for, nor could he had reasonably foreseen, including but not limited to force majeure, then provided the Second Party issues a notice of delay to the Employer within three (3) working days from the date of the occurrence of such cause clearly setting out the basis and justification for an extension of time which the Second Party is of the opinion that he is entitled to receive in respect thereof, then the Employer shall review all the circumstances and shall grant the extension of time entitlement due to the Second Party, within three (3) working days’ time thereafter. The Contract Period shall stand extended pursuant to extension of time granted by Employer under this clause.”

“16.2 The Second Party shall give a written notice to the Employer of the cause of delay/variation within 3 working days from the delay/instruction of change first arising; failure to do so will waive the Contractor rights for any Variation/ EOT claim.”

56. Clause 10 of the general notes under the Fit-Out Agreement also provides that an EOT must be submitted in the event of the delay, even if it was not the Claimant’s fault“Any delay in approvals by client, landlord authorities and delay in approvals by Client appointed vendors will directly affect our program and an EOT will be issued accordingly.”

57. The Claimant’s stance is that the Defendant did not give them a remedy period in line with Clause 14 of the Fit-Out Agreement, nevertheless, I am of the view that Clause 14 is not applicable in this situation as it pertains to the case where termination is in the case of “default of contractor” which is not applicable here.

58. If the Defendant is of the view that the Claimant is in breach of its contractual obligation due to not submitting an extension of time request within 3 days, then it is fair to say that there is an obligation on the Defendant to pay all invoices within 3 days and the Defendant failed to do so as well, therefore, I find that the Defendant is also in breach of its contractual obligation for failing to pay the Claimant its dues on time which resulted in delay of project.

59. Notwithstanding the above and given the Claimant’s failure to submit the extension of time request, I find that the termination of the Fit-Out Agreement was made in accordance with Clause 19(7) and is deemed lawful.

60. Despite the fact that I have decided that the termination was lawful as it was made in accordance with the provision of the Fit-Out Agreement, this does not mean that the Claimant should not be paid what they are owed as there is nothing in Clause 19 that suggests that the Defendant can withhold the Claimant’s payments. Therefore, the Claimant in any event is eligible to be paid for the works it completed in favour of the Defendant as it is the Defendant’s obligation to settle any invoice within 3 days of issuance.

61. As such, I am of the view that the termination was lawful, and the Defendant is ordered to pay the Claimant for the works it completed as there is nothing in writing precluding this entitlement and this should have been settled back in December 2023.

62. Accordingly, I hereby order the Defendant to pay the Claimant the amount of AED 486,952.77.

63. Even if I determined that the termination was lawful due to the Claimant’s failure to obtain a further request of extension of time, it is also important to see whether the works were up to standard as per the Fit-Out Agreement and the BOQ.

64. The other factor contributing to the termination of the Fit-Out Agreement pertains to the “quality of work”, and the only time the Defendant mentioned the poor workmanship of the Claimant was at the termination stage, i.e. in the Termination Letter. There is no evidence before me of any correspondence between the parties with regards to the standard and quality of work. I appreciate the Defendant’s argument that it was hard to detect the quality of work before the project is in near completion stage as it cannot be shown.

65. The Inspection Report mentioned above in paragraph 35 of this Judgment details the areas where the Defendant argues these has been poor quality of work.

66. As to the Counterclaim in respect of the items mentioned in the Inspection Report, the Claimant submits that the items mentioned therein are not justified as works were already concluded by them. These include certificates in relation to the fire alarm supply, warranty, installation, programming & interfacing certificate, firefighting supply, warranty, installation certificate, emergency light supply, warranty, installation certificate, HVAC testing & commissioning certificates, electrical - live test report, fire suppression certificates, LPG certificates, which were not handed over to the Claimant deliberately as the payments were outstanding in line with Clause 14 of the general notes of the Fit-Out Agreement which reads“All supplied items remain the property of Nyoka until 100% payment is realized.”

67. Further to the above, and due to the missing certificates, the Defendant submitted quotations of different contractors it had to appoint to issue the required certificates and proceed with opening the restaurant, however, I must agree with the Claimant in this instance and find that they had the right to withhold producing these certificates for failure to receive all of the payment due in accordance with Clause 14 of the general notes of the Fit-Out Agreement.

68. Although the Defendant did incur costs as a result of this and the Fit-Out Agreement does give the Defendant the right to ask the Claimant to re-imburse it for third contractors. However, in this instance, I find that payment is not justified as the Claimant completed the groundwork (apart from providing certificate only) and has confirmed the same to the Defendant by way of the progress reports and withheld the production of those certificates in line with the right given to it under the Fit-Out Agreement. Therefore, I reject the Defendant’s Counterclaim in respect of the items mentioned above.

69. Having reviewed the Inspection Report, the Expert Report and the close out program submitted by the Claimant, I have arrived at the conclusion that even if the works were up to standard, the Defendant had the right to hire third party contractors following termination and charge the Claimant accordingly.

70. The Claimant rejects the Counterclaim for payment of third-party contractor works and adds that the Defendant did not provide any proof of payment to the respective third parties which it believes to be a misrepresentation of fact. Furthermore, the Claimant asserts that the invoices vary from December 2023 to March 2024 with no clear indication of which project they are for, therefore, it cannot be concluded if these are for the project in dispute.

71. With respect to other items such as flooring work, civil work, partition work, wall finish, ceiling finish and joinery works, I have reviewed the Claimant’s weekly reports and find that the progression was in line with the terms of the BOQ. These reports include photos of the items that they are currently working on and shows the risk factors of the projects which includes the deadline and other items to be completed.

72. I must note that the deadline and delay in payment were marked as high risk throughout almost all of the reports and the Claimant did keep a well-maintained record of its progress in accordance with the BOQ.

73. The Defendant ideally should have raised the issue of quality of work or at least inquire as to the specification or standard and material used during the progress of the work, or even if it discovered later, then it ought to have raised this and given the Claimant the chance to rectify the alleged defects instead of taking an immediate action.

74. It is fair to say that the third-party contractors brought by the Defendant commenced works which were within the Claimant’s scope of work in accordance with the Agreements.

75. In any event, having reviewed the Inspection Report and seeing the invoices of the third-party contractors of the work that had to be carried out by the Defendant in respect of the flooring work and joinery works, I am of the view that the Defendant should be compensated for this in line with Article 19(7) of the Fit-Out Agreement.

76. I approve the following quotations in favour of the Defendant as per the BOQ:

(a) Nysa dated 16 January 2024 in respect of drawings approval and inspection from DIFC in the amount of AED 15,750;

(b) Nuala dated 25 January 2024 in the amount of AED 24,300 in respect of shelves in the sushi counter, beverage counter, waiter station and hostess desk (excluding cladding work as it is not within the Claimant’s scope of work as per the BOQ);

(c) Nuala dated 6 March 2024 in the amount of AED 5,500 in respect of connection motors;

(d) Nuala dated 7 March 2024 in the amount of AED 24,885 in respect of new curtain rail and curtain stitches;

(e) Nyimbo dated 31 January 2024 in the amount to AED 39,900 in respect of re-wiring damaged lights and electrical sockets;

(f) Novia dated 15 February 2024 in the amount of AED 24,000 in respect of painting of the ceiling and repairing floor;

(g) Noelle dated 20 March 2024 in the amount of AED 126,408 in respect of the booth seating;

(h) Noelle dated 20 March 2024 in the amount of AED 39,707 in respect of sliding door and modification to booth seating; and

(i) Normandie dated 1 March 2024 in the amount of USD 1,691 (AED 6,211) in respect of damaged lights.

77. However, as to the other items which were discussed above or in relation to cladding works or works not covered in the BOQ or invoices issued before 12 January 2024 such as from Norma have not been approved as it is not within the Claimant’s scope as per the BOQ and were done before the termination period.

Is the Claimant liable to pay the delay penalty?

78. The Defendant submits that pursuant to clause 12 of the Fit-Out Agreement the Claimant is liable to pay daily delay penalty“If the Second Party fails to complete the Contract Works(for reasons solely attributable to the Second Party)within the Contract duration agreed a delay penalty at the rate of AED 1000/- (AED One Thousand Dirhams Only) per day up to maximum of 5% of the Contract Price shall be deducted by the First Party from the Second Party's payments.”

79. The Defendant rejects this assertion and submits that no delay penalty should be levied upon them.

80. It is clear that if the delay is a result to the Claimant’s action alone, then it is liable to pay a penalty. However, it has been established that the project had to be delayed for few other factors including delayed payment, delayed approval of instructions and other contractors’ issues. As such, I do not find that it was “for reasons solely attributable to the Second Party”.

81. Therefore, I find that the Defendant’s counterclaim in respect of penalty payment in the amount of AED 58,000 shall be rejected as it is not in line with Clause 12.

Should the Defendant’s losses of profit and rent by borne by the Claimant?

82. The Defendant relies on clause 3.10.9 of the lease agreement executed with DIFC Investments dated 18 May 2023 (the “Lease Agreement”) and submits that the Claimant should pay them the total amount of AED 226,466 for delay and defects for not opening the restaurant as of 12 January 2024, as it has been incurring penalty of AED 1,952 per day:

“The Tenant acknowledges that there shall be no delay in opening for business. If the Tenant does not complete the Tenant Fit-Out and staffing and stocking of the Premises and has not opened for business (with stocked merchandise or services appropriate to the Permitted Use, staffed, illuminated and commercially operating) on the Opening Date or fails to keep the Premises open continuously for business in this way during the Business Hours throughout the Lease Term, then the Tenant will be deemed to be in default and, without prejudice to any other right, action or remedy that DIFCI might have, shall pay to DIFCI in addition to the Rent already due under this Lease, a penalty in an amount equal to one (1) day of Rent or AED 500 where the Tenant is paying Turnover Rent and not Base Rent for each day following the Opening Date and thereafter at any time during the Lease Term that the Premises are not open for business.”

83. Further to the above, the Claimant is of the view that they are not liable to pay this on the basis that it is only a contractor for the restaurant and the Lease Agreement was between the Defendant and DIFC Investments which concludes that rent shall accrue from 1 October 2023 (which was supposed to be the opening date). However, the original completion date of the project between the Claimant and Defendant was 20 November 2023. Therefore, the Claimant submits that the Defendant knew it was late and could not open in the estimated time (i.e. 1 October 2023) and so cannot claim for payment of rent accordingly.

84. Additionally, the Claimant rejects this on the basis that it is not a party in the Lease Agreement executed between the Defendant the DIFC Investments. As such, it should not be liable for anything because of this.

85. The Defendant takes the view that the Claimant’s late handover of the project put a burden upon themselves to incur more of the penalties levied by DIFC Investments and is requesting that the Claimant repay those delay penalty amounts and rent as per the Lease Agreement.

86. Taking into consideration both parties’ arguments, I find that the Claimant cannot be held liable to pay for this for the reasons provided by the Claimant which is that it is not a party to the Lease Agreement and therefore cannot be found liable to pay for something it was never part of.

87. Moreover, there is no contractual obligation elsewhere that it must do so in favour of the Defendant. This is further evidenced in Clause 12 of the Fit-Out Agreement which stipulates that the Claimant should not be held liable to pay such amounts which is read as below:

“The Second Partyshall not be liableto the First Party or any third party for any indirect, consequential, special, exemplary, incidental punitive damages loss including but not limited to loss of goodwill,loss of business, loss of anticipated profits or savings and all other pure economic loss however caused, and whether based in contract, tort (including negligence), even if Second Party has been advised of the possibility of such damages and even if such damages are foreseeable.Notwithstanding any provision to the contrary contained in this Contract, under no circumstances the maximum aggregate liability of the Second Party in respect of, all losses, costs, damages, and expenses, whether in contract (including under any indemnity or warranty), tort (including negligence), misrepresentation, breach of statutory duty, or in respect of any breach of its contractual obligations arising under this Contract shall exceed the Contract Price received by the Second Party.”

88. As such, the Defendant’s counterclaim in respect of delay payments shall be rejected.

89. As to the delay in opening the premises, the Defendant is further claiming the amount they anticipate as of loss of profits to the amount of AED 174,000, especially since it lost hosting major events such as Christmas and New Year. The Defendant asserts that they arrived at this calculation on minimum sales-a-day basis.

90. While on the other hand the Claimant rejects this and submits they are not liable to pay anything to the Defendant.

91. I find that Clause 12 of the Fit-Out Agreement is also applicable here and the Claimant should not be liable to pay the Defendant for “loss of anticipated profit or pure economic loss”. Furthermore, there is no contractual obligation upon the Claimant to do the same.

92. Accordingly, the Defendant’s counterclaim in respect for the payment of the projected loss of profit should the premises have been open under the agreed upon time frame between the parties shall be rejected as there is no contractual obligation for the Claimant to pay the Defendant.

Conclusion

93. The Defendant shall pay the Claimant the amount of AED 486,952.77 in respect of works carried out as of 12 January 2024.

94. The Claimant shall pay the Defendant the amount of AED 306,661 in respect of third-party contractors assigned by the Defendant following the termination of the Fit-Out Agreement.

95. The Defendant’s other counterclaims in respect of daily penalty fee of the Lease Agreement and the Fit-Out Agreement, payment of rent and loss profit shall be dismissed.

96. To offset the abovementioned amounts, the Defendant shall pay the Claimant the amount of AED 180,291.77.

97. As the Claimant has been successful in its claim, it is entitled to recover the full court filing fee. As such, I find that the Defendant shall pay the Claimant the DIFC Courts’ filing fee in the amount of AED 24,347.65.

98. The Defendant is also entitled to the Court fee paid for the filing of the Counterclaim, and in taking into consideration the Defendant’s failure to succeed on all its claims, I find it appropriate that the Claimant be ordered to pay the Court fee applicable to the judgment sum of the counterclaim, to the amount of AED 15,333.05.

99. To offset the abovementioned amounts, the Defendant shall pay the Claimant the DIFC Courts’ filing fee to the amount of AED 9,014.6.

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URL: http://www.bailii.org/ae/cases/DIFC/2024/DSCT_0981.html