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NEWS January 16 2020

Bona Fide Principle Prevails

By Ahmed Abdelanbi, Associate, Litigation

 

Introduction

The Dubai Court of Cassation issued a recent decision which upheld the decision of both the Court of Appeal and the Court of First Instance. It ruled in the dispute between two Dubai developers, a major Dubai developer, represented by Horizons & Co, (the “Plaintiff”) against a Dubai-based master developer (the “Defendant”), in which the Plaintiff was seeking the rescission of 18 Sale and Purchase Agreements (the “SPAs”) worth over AED 823m. The Plaintiff also claimed a compensation amount of over AED 450m for the actual losses incurred, in addition to the loss of profit.

 

BACKGROUND

The dispute was initiated by the Plaintiff. They had paid the Defendant 50% of the total value of the purchased plots in three installments, which were due before the actual hand over of the plots. The remaining 50% was to be paid in two installments that shall were not due until an actual hand over occurred. Accordingly, the paid amount by the Plaintiff, representing 50% of the purchase price, is a total of AED 411.9m.

The Defendant submitted a counterclaim seeking the implementation of the SPAs; requesting the Plaintiff to be obliged in settling the remaining purchase price, in addition to delay payment penalty payments, totaling more than AED 717.9m, plus legal interest.

In response, the Court appointed a panel of experts to review both parties’ pleadings and submit a detailed report, and gave the panel the following assignments:

  • to correspond with the Dubai Land Department (the “DLD”), to enquire about the Defendant having all the necessary permits and approvals to develop the project;

  • to determine whether there was an actual hand over of the plots to the Plaintiff or not;

  • to determine whether both parties have fulfilled their contractual obligations or not;

  • to state the default committed by either party (if any);

  •  to determine whether the infrastructure works have been performed by the Defendant in a way that enables the Plaintiff to develop the plots or not;

  • to determine whether the Plaintiff has ceased to perform its contractual obligations (making payments), the date of such, the reason of which, and to compare the payments made against the completion percentage of the infrastructure at the time the contractual obligation date was suspended; and

  •  to determine whether the SPAs have been registered in the DLD’s interim registry or not, and if yes, state the date of registration of each plot.

  • The Panel of Experts, upon examining the parties’ pleadings, evidence and upon conducting several expert meetings with their legal representatives, determined the following:

  • all the plots were owned by the Defendant at 17 July 2008;

  • no actual hand over was conducted to any of the land plots, and all plots were still in the Defendant’s possession;

  • the Plaintiff’s contractual obligation was to pay the purchase price of AED 823.8m in the pre-stipulated dates of the installments, and to develop the plots.

  • the Plaintiff settled 50% of the purchase price on the pre-stipulated dates of the installments and ceased to perform its remaining contractual obligations due to the Defendant’s failure to hand over the plots;

  • the Defendant’s contractual obligation was to hand over the plots on the pre-stipulated date, and to perform the infrastructure works within a reasonable timeframe to enable the Plaintiff to develop the plots;

  • the Plaintiff did commence the development process but its developing permit was rejected due to the Defendant’s failure to acquire the necessary permits and approvals;

  • the Defendant, till the date of the report, remains in default of not performing the infrastructure works; and

  • in conclusion, the Defendant is the defaulting party due to its non-performance of the infrastructure works and its failure to acquire the necessary approvals and permits for the development of the plots.   

The Court then decided to re-appoint the experts panel to examine the parties’ comments on the expert report and address it accordingly. Once done, the panel adhered to its previous findings. Additionally, they also determined a compensation amount of more than AED 61m, payable to the Plaintiff in consideration of the actual losses incurred and the loss of profit.

 

DECISION

Once the Experts had submitted two extensive reports stating their findings and determinations, the Court of First Instance made its ruling. Pursuant to Article 246 of the UAE Federal Law No. 5 of 1985 issuing the Civil Transactions Law (the “Civil Code”), they ruled that a contract must be implemented, according to the provisions contained therein and in a manner consistent with the requirements of good faith. Moreover, the mentioned article also stipulates that a contract is not restricted to what is contained therein, but shall extent to its essentials in accordance with the law, custom and the nature if the transaction.

Accordingly, the Defendant’s plea stating that it had no obligation to perform the infrastructure works within a certain timeframe is rejected. The completion of the infrastructure works was considered by the court, and it was seen as an essential particle of the contract that must be fulfilled even if it was not explicitly mentioned in the contract.

Therefore, the Court’s decision is as follows:

  • to declare the rescission of the SPAs;

  • to oblige the Defendant to pay to the Plaintiff an amount of over AED 411.9m, which represents 50% of the purchase price plus a legal interest of 9% p.a. This is calculated from the date of registering the claim until the full settlement of the awarded amount; and

  •  to oblige the Defendant to pay the Plaintiff an amount of AED 61m as compensation for the actual losses incurred in addition to the loss of profit.

As a final note, it is worth mentioning that this ruling by the Court of First Instance was upheld by the Court of Appeal and the Court of Cassation based on the same grounds.

 

Ahmed is an Associate in our litigation department. Should you wish to reach out to discuss anything mentioned above, please contact Ahmed on +971 4 354 4444

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