Claim

A commercial action was filed before Dubai Court of First Instance by a construction company ("Party A") against an Employer ("Party B"). Party A requested the court to order Party B to pay the amount of AED 306,881 plus 12% interest from the due date until the receipt of full payment.

Facts of the case

Party A submitted that on 1 July 2003 it had executed a contract ("Muqawala contract") with Party B to build a villa. Party A submitted that upon completion of the works Party B refused to pay certain outstanding amounts Notwithstanding repeated requests by Party A.

Party B submitted a counterclaim wherein the Court was requested direct Party A to pay AED 500,000 as compensation against both delay to the works and structural defects, plus legal interest starting from the date the judgment became final until the receipt of full payment.

Party B agreed that it had concluded a Muqwala Agreement with Party A with respect to the construction and maintenance of a Villa. Party B argued that due to Party A's failure to comply with certain contractual obligations resulted in delay to the performance of the contract. Party B also submitted that the consultant Engineer sent repeated warning letters requesting to the works be expedited; however, Party A was negligent in this regard. The Court of First instance appointed an expert to investigate the case.

Court of First Instance

The decision of the Court of First Instance was based on the report produced by the expert. The Court of First Instance decided as follows:

  • Party A's claim: the Court ordered Party B to pay Party A the amount of AED 306,881 plus 9% interest from the due date (being 19 December 2005) until the receipt of full payment.
  • Party B's counterclaim: the Court directed Part A to pay to Party B the amount of AED 238,000 and dismissed all other claims.

Both Party A and B appealed the Court of First Instance's decision to the Court of Appeal.

Court of Appeal

The Court of Appeal referred the case back to the same expert to examine the parties' respective comments on his report. The expert submitted an additional report upon which the Court of Appeal relied to issue its decision, which was to reduce the amount owed by Party A to Party B to AED 175,000.

Party B consequently appealed to the Court of Cassation.

Court of Cassation

Party B argued that the Court of Appeal had erred in its decision to reduce the amount owing to it for the following reasons:

  • The Court of Appeal had based its decision on the expert report, which had determined that Party B was only eligible for the amount of AED 175,000 as liquidated damages after deducting 30% for delay with respect to electrical work. In this regard Party B argued that the full amount of liquidated damages ought to be paid by Party A given Party A had delivered the villa 15 months late. Party B argued that this delay had been evidenced by the repeated warning letters sent by the consultant Engineer in addition to a defects report issued from Party B. Moreover, Party B argued that in practice any delay should be calculated by reference to the date the villa is ready for occupancy, and not from the date the municipality certificate (confirming the completion of the building for the purpose of connecting utilities) is issued.
  • Party B argued that it was entitled to be paid for damages incurred due to structural defects in the structure of the villa. Party B argued that those defects had been outlined in detail in a letter sent by the Municipality on 15 December 2006. Party B noted that the expert appointed by the Court had estimated, on an arbitrary basis, all damages (including liquidated damages) at AED 175,000 without specifying the type, value and cost of repair (including the cost of the required material) of the defects.
  • Party B submitted that the defence put forward by Party's A, being that the defects were due to the non occupancy of the villa, was baseless as Party B was unable to occupy the villain any event as Party A did not deliver it in a state fit for occupancy. Party B relied in this regard on the report issued by the Municipality, which Party B contended contained a list of defects. Furthermore, Party B submitted that it had been forced to rent another villa due to Party A's failure to deliver the contract villa on time . Party B argued that it was therefore entitled to claim a rent amount of AED 90,000 in addition to the liquidated damages.

Party B argued further that Party A had failed to carry out the maintenance of the villa (as stipulated in the muqawala contract), meaning that it could not claim these fees. Party B submitted that the maintenance amount stated in the consultant Engineer's certificate (amounting to AED 99,344) was pending on the condition that Party A carried out the maintenance work and provided a guarantee check valid for one year from the date of completion.

The Court of Cassation held that the determination of:

  • Whether Party A had executed the work in accordance with the conditions and specifications agreed upon (including the time for completion);
  • Whether the delay in the completion of the works could be ascribed to Party A or was the result of an external cause beyond Party A's control (including whether fault for any delay could be ascribed to Party B) are questions of fact about which the Court was empowered appoint an expert to investigate the matter.

The Court of Cassation held further that the consultant Engineer appointed by an Employer in a muqawala contract represents the employer and supervises the work on behalf of him. The Court indicated that this meant that the certificate issued from the consultant Engineer stating that the Contractor is entitled to a specific amount of money, or certifying that the contractor did execute the work within the prescribed deadline, is within the scope of the Engineer's authority in acting on behalf of the employer. The Court held that the Employer cannot contest the certificate or exempt himself from any liability pursuant to the certificate unless the consultant committed a fraud or collusion (with the burden of proof in this regard falling upon the Employer). The Court of Cassation also held that it was a settled principle that the clause related to liquidated damages incorporated in a muqawala contract is in compliance with Article 390 of the UAE Civil Code, which stipulates as follows:

"The contracting parties may fix the amount of compensation in advance by making a provision therefore in the contract or in a subsequent agreement, subject to the provisions of the law.

The judge may in all cases, upon the application of either of the parties, vary such agreement so as to make the compensation equal to the loss, and any agreement to the contrary shall be void".

The Court of Cassation noted that the expert had confirmed, in both his original and additional reports, that he had:

  • Reviewed the contract concluded between parties on 1 July 2003;
  • Reviewed the documents submitted by both parties; and
  • Reviewed their statements and witnesses statements; and
  • Inspected the villa twice.

The expert concluded that Party A was entitled to the amount claimed in the original case being AED 306,881. Based on letter issued by the consultant Engineer on 2 May 2006, the expert further concluded that liability for maintenance fees (in the amount AED 99,344) should be distributed between the parties as follows:

  • 70% to be borne by Party A in light of both its failure to deliver the villa within the contractual time for completion in addition to its poor workmanship; and
  • 30% to be borne by Party B in recognition of Party B's failure to connect the utilities to the villa.


The expert indicated that the consultant Engineer had concluded that Party B was only eligible for payment of AED 175,000, and that this had been determined based on his personal assessment as both parties failed to furnish the bill of quantities and the list of materials that had been agreed.

In light of the above the Court of Cassation concluded that as all the above are questions of fact, they could not be pleaded for the first time before the Court of Cassation. Party B's appeal was therefore dismissed.

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