Claim No: CFI 021/2015
THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS
In the name of His Highness Sheikh Mohammad Bin Rashid Al Maktoum, Ruler of Dubai
IN THE COURT OF FIRST INSTANCE
BEFORE H.E. JUSTICE ALI AL MADHANI
BETWEEN
THERON ENTERTAINMENT LLC
Claimant
and
MAG FINANCIAL SERVICES LLC
Defendant
Hearing: 10-11 May 2016
Counsel: Hermann Ferre & Serena Boscia Montalbano (Curtis, Mallet-Prevost, Colt & Mosie LLP) for the Claimant
Harris Bor (Wilberforce Chambers) & Alistair Graham (Mayer Brown International LLP) for the Defendant
Submissions:22 May 2016
Judgment: 11 May 2017
JUDGMENT OF H.E. JUSTICE ALI AL MADHANI
Summary of Judgment
| Before the DIFC Court of First Instance is the Claimant, Theron Entertainment LLC (the “Claimant”), the tenant company in this case who rented a retail space located in Emirates Financial Towers, DIFC (the “Premises”) from the Defendant. The Defendant is MAG Financial Services LLC (the “Defendant”), the owner and landlord of the Premises relevant to this case. The Claimant filed a Part 7 Claim with the Court of First Instance seeking a declaration that the Tenancy Contract executed between the parties has been effectively terminated (the “Tenancy Contract”) and seeks additional damages to cover losses from the Defendant’s alleged breach of the Tenancy Contract. The Defendant subsequently filed a Counterclaim seeking damages for the Claimant’s alleged breaches.
The Claimant alleged that the Defendant’s failure to timely obtain a change of use approval from the relevant authorities, to provide the Premises in “shell and core” condition, and to timely provide technical information about the Premises amounted to breaches of the Tenancy Contract. These breaches entitled the Claimant to terminate the Tenancy Contract, or, in the alternative, the Claimant terminated the Tenancy Contract forconvenience pursuant to Article 36 of the Tenancy Contract. As a result of the Defendant’s breaches, the Claimant seeks damages. The Defendant argued that the terms of the Tenancy Contract did not require it to obtain the change of use approval or, in any event, did not require it to obtain approval on unreasonable terms. Furthermore, the Defendant argued that it was not required to provide the Premises in “shell and core” condition or to provide technical information to the Claimant. Thus, the Claimant is not entitled to damages and in any event, the damages requested by the Claimant are not properly pleaded or calculated. Additionally, the Defendant argued that these proceedings are an abuse of process by the Claimant, as the Claimant previously filed a claim for specific performance in the DIFC Courts (the “Previous Case”) and should have brought its claims for damages at that time. In Counterclaim, the Defendant argued that it was the Claimant who breached the Tenancy Contract and additional agreements made between the parties, resulting in severe harm to the Defendant. The Defendant argued that termination of the Tenancy Contract pursuant to Article 36 requires the Claimant to pay rent in penalty until the anniversary date of the Contract or, in the alternative, the Defendant requested reimbursement of the change in use fees paid to the relevant authorities. The Defendant also claimed additional damages. The Claimant responded arguing that no penalty was owed pursuant to Article 36 and that no further damages were available to the Defendant. Upon review of the parties’ oral and written submissions, the Court first found that the Tenancy Contract was terminated as of 14 July 2015 pursuant to Article 36 of the Tenancy Contract. Furthermore, the Court found the Defendant’s failure to timely obtain approval for change of use of the Premises to be a breach of the Tenancy Contract entitling the Claimant to lost profits and other damages. However, the Court also found that the Claimant must pay rent for the time it occupied the Premises and outstanding district cooling charges. The Court dismissed the Defendant’s arguments regarding abuse of process as it would prejudice the Claimant to be disallowed to bring its claims for damages for the first time. Finally, the Court awarded interest to the Claimant on the set-off amount owed to it, to run from the date the Tenancy Contract was effectively terminated. |
This summary is not part of the Judgment and should not be cited as such
ORDER
UPON hearing Counsel for the Claimant and Counsel for the Defendant on 10 and 11 May 2016
AND UPON reading the submissions and evidence filed and recorded on the Court file
IT IS HEREBY ORDERED THAT:
1.With regard to the Claimant’s claim:
(a) The Tenancy Contract is terminated with effect from 14 July 2015 pursuant to Article 36 of the Tenancy Contract.
(b) The Defendant must return all cheques dated after July 2015 to the Claimant and is only entitled to receive a partial sum of the cheque dated 10/5/2015 for rent until 14 July 2015.
(c) The Defendant shall pay the Claimant AED 6,282,933 as lost profits for the period of 16 October 2014 until 14 May 2015.
(d) The Defendant shall pay the Claimant AED 50,000 for costs incurred by the Claimant for storage of the contractor’s equipment and materials.
(e) The Defendant shall pay the Claimant AED 37,500 for the costs incurred by the Claimant for storage of furniture and fit-out materials.
(f) The Defendant shall pay the Claimant AED 485,691 for the cost of additional contracting works completed.
(g) All other claims made by the Claimant are dismissed.
2. With regard to the Defendant’s counterclaim:
(a) Following from paragraph 1(b) above, the Claimant shall, upon return of the post-dated cheques, pay the Defendant the amount of AED 2,040,780.83 as rent payments for the period from 9 May 2014 to 14 July 2015.
(b) The Claimant shall pay the Defendant the amount of AED 79,724.87 for outstanding district cooling charges.
(c) All other Counterclaims made by the Defendant are dismissed.
3. The Defendant shall pay the Claimant interest at a rate of EIBOR plus 2% per annum on the amount of AED 4,735,618.30 running from 14 July 2015, this amount being a set-off of the amounts owed by both parties.
4. The costs in the case shall be assessed and assigned after submissions from the parties, to be received no later than 21 days from the release of this Judgment.
Issued by:
Natasha Bakirci
Assistant Registrar
Date of Issue: 11 May 2017
At: 2pm
REASONING
PARTIES
1.The Claimant, Theron Entertainment LLC (hereafter “Theron” or “the Claimant”), is a company registered in the DIFC and engaged in the hospitality and restaurant industry. The Claimant developed plans to open in the DIFC a high-end restaurant concept originally from the United States called “Asia de Cuba”.
2. The Defendant, MAG Financial Services LLC (hereafter “MAG” or “the Defendant”) is a company registered in the DIFC that owns the real estate and retail spaces that are the subject of this dispute.
BACKGROUND
3. The Claimant developed plans to open in the DIFC a high-end restaurant concept from the United States called “Asia de Cuba.” After securing rights to the brand and appointing a consultant, “TGP”, as the exclusive brand restaurant manager for its Asia de Cuba restaurant in Dubai, the Claimant started to look for an appropriate space for the restaurant.
4. The Claimant ultimately chose the DIFC among various locations in Dubai, as it considered the DIFC as the premier restaurant hub in the Emirate. The search led the Claimant to the penthouse level of the South Tower of the Emirates Financial Towers as a unique space that, according to the Claimant, would best capture its Asia de Cuba Dubai vision due to its multi-level configuration, large size, spectacular views of the Burj Khalifa and surrounding buildings, and the special amenities offered by the building.
5. In November 2013, both parties entered into a tenancy contract to lease the 26th and 27th floors located in the South Tower of the Emirates Financial Towers in the DIFC (hereafter the “November Tenancy Contract”). The November Tenancy Contract was for a period of 5 years, running until 9 May 2019, and included an initial period of six months rent-free for purposes of enabling the Claimant to fit-out the space.
6. There is a dispute between the parties about the Claimant’s knowledge concerning the premises prior to entering into the November Tenancy Contract. The Claimant contends that it did not know that the space was not already fit and approved for restaurant and bar use, despite the fact that the space had been marketed specifically for that use.
7. The Defendant’s case, on the other hand, is that the Claimant accepts that soon after the November 2013 agreement was signed it became aware that an application would need to be made to the DIFC in order to change the use of the premises to a restaurant and bar.
8. After the Defendant assured the Claimant that the DIFC authorities had no objection to changing the use of the premises to “Restaurant & Bar” and that the process for changing the permitted use would be completed soon, the Tenancy Contract was amended and restated by the parties on 25 February 2014 to account for certain changes including, for example, an increase of the net square footage, a longer period of tenancy, and an increase of the power capacity (hereafter the “Tenancy Contract”). The Claimant paid a security deposit in the amount of AED 289,705.66 and the first rent installment in the amount of AED 1,448,582.30. In addition, it provided 9 post-dated cheques as required under the Tenancy Contract.
9. As of June 2014 the change of use had not been completed by the Defendant and the space was not ready for handover. The Defendant’s position is that the fee for the change of use imposed by the DIFC was too high and that the Defendant was negotiating a better fee, accounting for the delay.
10. The Claimant argues that, as of 14 June 2014, the Defendant had not only failed to change the use of the space as required under the Tenancy Contract but the Defendant had also failed to deliver the space “shell & core” and to provide as-built drawings and other technical information. In response to the Claimant’s numerous requests to do the necessary work to bring the space to a “shell & core” condition, the Defendant first claimed it was already “shell & core” and then subsequently refused to deliver the space to such standard.
11. The Claimant contends that by that time, it had no option other than to take the space in an incomplete state if it wanted to push the project forward and it instructed its contractor, AI Reyiami, to do the additional work that the Defendant should have completed. The quotation submitted by AI Reyiami for the work that should have been completed by the Defendant was in the amount of AED 821,686, which was later reduced to AED 634,191.
12. In July 2014, AI Reyiami submitted the design drawings to the DIFC. However, the Claimant also had to obtain a no objection certificate (an “NOC”) from the DIFC regarding the submitted design drawings, after which it could apply to the Dubai Technology and Media Free Zone Authority (TECOM) for a decor permit. On 21 August 2014, the Claimant wrote to the DIFC requesting the NOC in order to be permitted to commence the fit-out work in the leased space. A few days thereafter, the DIFC rejected the Claimant’s request for the NOC on the grounds that the leased space was designated for office use and not for retail use.
13. As of October 2014, the Defendant had still not changed the use of the space which led the Claimant to demobilise its contractor, AI Reyiami, as it was clear that the change of use approval was not imminent. Considering this failure and that the second rent instalment was due in November 2014, the Claimant decided to commence a case in the DIFC Courts seeking specific performance (CFI 040/2014), demanding that the Defendant comply with its obligations under the Tenancy Contract pertaining to the change of use (the “Previous Claim”).
14. By an Order dated 1 February 2015, this Court ordered the Defendant to comply with Article 6 of the Tenancy Contract and take all necessary actions to change the use of the leased property to “Restaurant & Bar”. A few days after the Order was issued, the Defendant paid the fee required by the DIFC to change the use.
15. After the change of use was approved, the Claimant remobilised its contractor, which started working on-site for approximately two months. The parties also resumed discussions which included the terms of a new lease which would take into account the delays in opening the restaurant.
16. During the negotiation process, the Claimant requested that the Defendant sign a lease registration form that needed to be signed by both the tenant and the landlord as required by the DIFC to renew the Claimant’s trade license. The Claimant’s PRO contacted a representative of the Defendant who took the position that the Defendant would not sign the application form if there was a pending dispute between the parties.
17. The Claimant then terminated the Tenancy Contract by letter dated 14 May 2015 for material breach due to the Defendant’s refusal to acknowledge the existence of the lease in order to assist in the renewal of the Claimant’s trade license and alternatively pursuant to Article 36 of the Tenancy Contract.
18. The Claimant seeks the following remedies:
(a) A declaration that the Tenancy Contract is terminated pursuant to Article 36 of the Tenancy Contract;
(b) Return of the cheques provided to the Defendant pursuant to Article 12 of the Tenancy Contract, namely the cheques dated: 10/11/2014, 10/05/2015, 10/11/2015, 10/05/2016, 10/11/2016, 10/05/2017, 10/11/2017, 10/05/2018, and 10/11/2018;
(c) Damages for loss of profits in an amount of at least AED 11,028,708, to be further quantified during the course of the proceedings;
(d) The costs incurred by the Claimant for storage of the contractor’s equipment and materials in the amount of approximately AED 50,000, to be further quantified during the course of the proceedings;
(e) The cost for the main contractor’s all-risk insurance in the amount of approximately AED 17,000, to be further quantified during the course of the proceedings;
(f) The costs incurred by the Claimant for storage of furniture and fit-out materials delivered to the Claimant for its Asia de Cuba restaurant in the amount of AED 37,500;
(g) The costs related to the additional works done by the main contractor in the amount of AED 485,691;
(h) Relocation expenses to be quantified during the course of the proceedings;
(i) Interest to be assessed on any sum due at such rate and for such periods as the Court deems appropriate;
(j) Attorney’s fees and costs of this action; and
(k) Such other and further relief as the Court deems just and proper.
19. In the alternative, the Claimant seeks relief and reimbursement as follows:
(a) A declaration that the Tenancy Contract is terminated pursuant to Article 36 of the Tenancy Contract;
(b) Return of the cheques provided to the Defendant pursuant to Article 12 of the Tenancy Contract, namely the cheques dated: 10/11/2014, 10/05/2015, 10/11/2015, 10/05/2016, 10/11/2016, 10/05/2017, 10/11/2017, 10/05/2018, and 10/11/2018;
(c) Damages in the amount of at least AED 1,424,062 (US $387,500) for the licensing and technical services fees paid and/or still owing to China Grill Management, the owner of the “Asia de Cuba” brand;
(d) Damages for amounts paid and still owing to TGP for fees and expenses relating to the project, the amount to be quantified during the course of the proceedings;
(e) Reimbursement of rent paid by the Claimant in the amount of AED 1,738,234;
(f) The costs incurred by the Claimant for storage of the contractor’s equipment and material in the amount of approximately AED 50,000, to be further quantified during the course of the proceedings;
(g) The cost for the main contractor’s all-risk insurance in the amount of approximately AED 17,000, to be further quantified during the course of the proceedings;
(h) The costs incurred by the Claimant for storage of furniture and fit-out materials delivered to the Claimant for its Asia de Cuba restaurant in the amount of AED 37,500;
(i) The costs related to the additional works done by the main contractor in the amount of AED 485,691;
(j) Salaries paid to Claimant’s employees for the period August 2014 to May 2015 in the amount of at least AED 1,600,128;
(k) Relocation expenses to be quantified during the course of the proceedings;
(l) Interest to be assessed on any sum due at such rate and for such periods as the Court deems appropriate;
(m) Attorney’s fees and costs of this action; and
(n) Such other and further relief as the Court deems just and proper.
20. The Defendant also filed a Defence and Counterclaim, both of which shall be addressed in due course.
DISCUSSION
21. The issues for trial are set out in a list of issues that has been agreed by the parties. This case thus requires the Court to determine:
(a) Whether the Claimant is entitled to seek losses from the Defendant resulting from breaches of the Tenancy Contract by allegedly failing to: (i) procure the DIFC’s approval to change the use of the premises regardless of the circumstances; and (ii) deliver the premises “shell & core”, including by failing to provide drawings of the premises to the Claimant;
(b) Whether the Claimant was entitled to terminate the Tenancy Contract on 14 May 2015;
(c) The Claimant’s damages claims; and
(d) The Defendant’s Counterclaim against the Claimant for its wrongful termination of the Tenancy Contract, and reimbursement of the amounts paid to the DIFC to obtain the change of use of the premises and for district cooling.
22. I shall address each of these agreed issues in turn.
A. CHANGE OF USE
23. The issue of the change of use application is the most fundamental dispute between the parties and, in my view, is the main issue in this case. The Claimant argued that it was not aware that the space was not originally approved for “Restaurant & Bar” use, due to the fact that the space had been marketed specifically for that use. The Claimant contends that it only became aware that the permitted use was not “Restaurant & Bar” after signing the November Tenancy Contract.
24. Article 6 of the Tenancy Contract, as amended, provides that the permitted use of the leased space is “Restaurant & Bar”. The Claimant thus argues that the Defendant solely had a contractual obligation to change the use of the space and that such obligation was not conditional on agreeing to a reasonable or discounted fee with the DIFC authorities.
25. The Claimant argues that the Defendant’s obligation to change the use of the space was confirmed by this Court in the Previous Case, CFI 040/2014, which established the Defendant’s breach of its obligation under the Tenancy Contract for failure to obtain the change of use approval. Such decision is res judicata.
26. The Defendant assured the Claimant that, although the permitted use had not yet been changed with the DIFC, the DIFC had no objection to the change, and the process for changing the permitted use would be completed soon. The Claimant provided reference to an email exchange as proof of this assurance.
27. The Claimant’s argument is that the Defendant deliberately and repeatedly failed to comply with its contractual obligations in changing the use of the space causing the Claimant over 12 months of delay. It took a full year from the execution of the Tenancy Contract, as amended, for the Defendant to change the approved use of the space. Furthermore, the Defendant did not change the use voluntarily but only did so after this Court ordered the Defendant to provide specific performance to the Claimant in the Previous Case.
28. Additionally, the Claimant argues that the Defendant’s breaches delayed the Claimant’s submissions to the relevant authorities and thus further delayed the expected opening of the restaurant. The Claimant was forced to demobilise its contractor in November 2014 when it became clear that the change of use was not imminent and then had to remobilise it, a process which took a few weeks, after the change of use was finalised.
29. Finally, the Claimant asserts that the Defendant’s behaviour has disrupted the Claimant’s business since the beginning of their contractual relationship, and therefore the Claimant is entitled to recover damages due to the Defendant’s breaches and actions.
30. On the other hand, the Defendant responds that, as a matter of legal interpretation, the Tenancy Contract contains no obligation on the Defendant to procure the change of use of the premises. Article 6, the provision relied on by the Claimant, states only that the “Permitted Business” is “restaurant and bar”. As pleaded, the purpose of such provision is to protect the landlord from any use of the premises by the tenant other than those permitted in the lease. The purpose is not to provide a warranty to the tenant, which would need to be given expressly. The Defendant says this is clear from the permitted use provision in a standard form English law lease found in the Lexis Nexis database, which provides that:
“to a greater or lesser extent the use to which the demised premises may be put is invariably subject to existing restrictions. These may be imposed by statute, by the common law or by obligations affecting the freehold or a superior leasehold interest. The landlord will, therefore, wish to include covenants that place the tenant under an obligation to him to comply with such restrictions.”
31. The Defendant’s case is that its offer of assistance to the Claimant in obtaining the DIFC’s approval to change the use of the premises does not amount to a contractual obligation arising from the Tenancy Contract, but rather was a goodwill gesture aimed at preserving the Claimant’s investment.
32. The Defendant’s second argument in this regard is that even if the Defendant’s offer to assist the Claimant was intended to be contractually binding (which is denied), such obligation would only require the Defendant to use reasonable efforts to procure the DIFC’s permission to change the use of the premises. It would not be reasonable in this context to expect the Defendant to assume the risk of any delays caused by the DIFC or to pay the DIFC whatever it demanded (especially if the demanded amount was unreasonable) without also allowing the Defendant a proper opportunity to negotiate with the DIFC.
33. Further to this second point, the Defendant argues that by entering into the amended Tenancy Agreement in February 2014, knowing that a change of use application to the DIFC needed to be made, the Claimant has implicitly acknowledged that it might take time to negotiate and procure the DIFC’s authorisation.
34. In defending against Mr Krayushkin, the Claimant’s owner and witness, and his suggestion that he considered the Defendant duty-bound to procure the change of use immediately after 25 February 2014 at its sole risk and at whatever cost, the Defendant alleges the documentary record does not show Mr Krayushkin or anyone at Theron or TGP making such an extreme assertion at the relevant time.
35. The Defendant also argues that, in the alternative, the period for damages requested should not be 25 February 2014 until 8 February 2015 as previously asserted by the Claimant, but should instead run from 14 October 2014 until 8 February 2015. The Defendant points to Mr Krayushkin’s statement confirming that, in February 2014, it was the Claimant’s intention that the “soft opening” of the restaurant would take place in October 2014. Therefore, no profits could be made before that date.
36. Finally, the Defendant argues that although the process of authorisation took longer than the parties might have expected, the evidence shows that the Defendant acted reasonably in seeking the DIFC’s approval. The Defendant made constant efforts to obtain the DIFC’s authorisation and push the process forward (even after the proceedings in the Previous Case began), but was hampered by the approach of the DIFC and proposals for payment which, in the circumstances, were wholly unreasonable. The DIFC also had a change of management during the relevant period, further contributing to the delay.
37. In further support of this argument, the Defendant referred to Mr Sabouni’s evidence and said that he accepted that he had taken the lead in obtaining the DIFC change of use license and said that, as a man of business, he had expected to pay for it within reason.
38. The issues regarding change of use as pleaded by the parties has led me to two fundamental questions. The first being whether the Defendant is contractually obliged to provide for the change of use, and the second question being whether the Defendant acted reasonably in obtaining the change of use approval.
39. In answering the above questions, it is my view is that the Defendant was under a contractual obligation to change the approved use of the Premises for the following reasons:
(a) It is common sense that a business would not obtain a space, paying significant amounts of rent, that is inappropriate for its intended use.
(b) It is an unchallenged fact that the Claimant was not aware that the space contracted for in November 2013 was not permitted for use as a retail or restaurant establishment. Realisation of this led the parties to amend the Tenancy Contract after the Claimant discovered this discrepancy and caused the parties to add a rent-free period to the terms of the contract.
(c) The rent-free fit-out grace period provided to the Claimant in the Tenancy Contract is evidence that the burden of change was on the Defendant.
(d) Article 6 of the Tenancy Contract provides that the permitted use of the leased space is “Restaurant & Bar”. In my view this means that the space or the subject of the rent is a space that the tenant can use as a “Restaurant & Bar” and there should be nothing to stop or impede the tenant from the full enjoyment of the space that he has contracted to use and has paid for. This finding follows the doctrine of ‘quiet enjoyment’ as established in the common law, which requires that the landlord must not only ensure that the tenant has the right to use and occupy the premises but also is able enjoy that use without substantial interference from the landlord or any third party.
(e) Nothing in the Tenancy Contract, as amended, or elsewhere in the documents before this Court suggests that the Claimant, the tenant in this case, is under an obligation to obtain the change of use permit. There is also nothing to suggest that the obligation to change the use has been transferred to the Claimant.
(f) The Defendant, being served with a DIFC Court Order in the Previous Case, CFI 040/2015, pursuant to the Claimant’s application to compel the Defendant to finalise the change of use, has not challenged that Order by any means. Instead, the Defendant has complied with the Order and has paid the required fees to the DIFC for the change of use application.
(g) There is no evidence provided to suggest that the Defendant informed the Claimant that the change of use process would be long, expensive, and complicated.
40. The above reasons have led me to find that the Defendant was obligated to ensure that the permitted use of the premises was consistent with that specified in the Tenancy Contract before entering into that Tenancy Contract with the Claimant. The Defendant failed to provide this in breach of its contractual obligations, in the hope of negotiating a better fee with the DIFC. The Defendant was ultimately able to obtain a discounted fee from the DIFC by delaying payment for the change in use and therefore also wrongly received a benefit from its breach. This action was not reasonable and caused significant harm to the Claimant.
B. SHELL AND CORE
41. The Claimant has also made claims against the Defendant for failing to deliver the space in a “shell & core” condition. The Claimant argues that despite its requests to the Defendant to do the necessary work to bring the space to a “shell & core” condition, the Defendant first claimed that the space was already “shell & core” and then subsequently the Defendant refused to deliver the space to such standard.
42. The Claimant further argues that the Defendant was also substantially delayed in providing the as-built drawings and other technical information, which were necessary for the Claimant to finalise its fit-out designs and make submissions to the relevant authorities for approval.
43. The Claimant submits that it had no other option but to take the space in an incomplete state if it wanted to push the project forward and it instructed its contractor, AI Reyiami, to do the additional work that the landlord should have done.
44. The Claimant also submits that, through its consultants, it made every effort to obtain the necessary drawings from the Defendant or MAG Royal Solutions, the company which, as stated by the Defendant, was subcontracted to undertake part of the building management services with respect to the drawings and other approvals.
45. The Claimant argues that after significant efforts, it submitted the design drawings to the DIFC authorities for a decor permit. However, in late August 2014 the DIFC rejected the Claimant’s request for the required NOC on the grounds that the leased space was designated for office use and not for retail use.
46. In sum, the Claimants case is also that the Defendant failed to provide the premises in a “shell & core” condition as required under Article 23 of the Tenancy Contract. Included in this breach was the Defendant’s failure to provide the necessary documentation and drawings, including “as built” drawings, pursuant to implied terms of the Tenancy Contract as the Claimant required these to make submissions with the competent authorities in a timely manner and comply with its obligations to carry out fit-out works.
47. The Defendant, on the other hand, takes the view that the Claimant’s claim that the Defendant breached the Tenancy Contract by failing to deliver the premises in a “shell & core” condition is incomplete and therefore untenable because the Claimant has not explained the extent of the Defendant’s alleged obligation, precisely how that alleged obligation has been breached, and the effect of such a breach including what specific steps would have been required to remedy.
48. The Defendant accepts that Article 23 requires it to deliver the premises as “shell and core without ceiling and flooring and/or as its [sic] condition and the Tenant shall carry out his own interior fit-out works as applicable and required upon obtaining the necessary approvals from all concerned parties and authorities”. As a matter of contractual construction, however, it is not clear when the Defendant is required to deliver the premises as “shell & core” and when it is required to deliver the premises “as is”.
49. Regardless of its contractual obligations, the Defendant contends that it delivered the premises in “shell & core” condition, and that this was confirmed by an email from Ashraf Gomaa of MAG Royal Solutions LLC and further confirmed by Mr Krayushkin in a meeting at the premises with Al Reyiami, apart from some minor works. These minor works were subsequently carried out under an agreement between the Defendant and Mr Krayushkin at no additional cost to the Claimant. Consequently, the Defendant denies that it has breached any of its obligations regarding “shell & core” condition.
50. The Defendant further denies that as part of its “shell & core” obligations, it was somehow required to provide the Claimant with as-built structural drawings and argued that there is nothing in Article 23 of the Tenancy Contract to suggest such an obligation.
51. Moreover, the Defendant maintains that it did not hold the drawings for the premises, but they were instead held by the building management company, MAG Royal Solutions LLC. However, the Defendant still assisted the Claimant in obtaining the drawings and Al Reyaimi was able to submit the design drawings to the DIFC in July 2014. The Defendant argues that the Claimant now appears to acknowledge this at paragraph 14 of its Skeleton Argument.
52. The Defendant opposed the claim that it was somehow responsible for the actions of Strata Global LLC, a property management service provider that had been retained by MAG Royal Solutions LLC. The Claimant liaised directly with Strata Global LLC and with Emirates Financial Towers LLC regarding the drawings and other approvals and thus any delay was caused by these entities, not the Defendant.
53. There is no dispute that the Defendant has taken on a duty as per Article 23 of the Tenancy Contract, however, it remains the Claimant’s duty to prove that the site was not in such condition in light of the Defendant’s denial.
54. It is important to note that the matter of “shell and core” is indeed connected with the change of use and licensing issues that have been addressed above. It is evident that regardless of whether the site was in “shell and core” condition or not, the Claimant and the contractor would not be able to start fit-out work without approval of the DIFC authorities, which could not be obtained as long as the change of use permission was not granted.
55. The letter of the Director of Property Development in the DIFC dated 25 August 2014 put things in context when rejecting the Claimant’s application to begin the fit-out work, giving the reason that the site is not approved for retail use:
“With reference to the above subject matter and further to M/s Theron Entertainment letter [sic] dated 21st August 2014 (copy attached), kindly be informed that upon reviewing the submitted drawings, we regret to inform you that your request for fit out work NOC is rejected, level 26 & 27 floors are designated/approved for office space and not for retail use.”
56. This letter leads me to find that there is no need to examine the evidence of both parties as regards the “shell and core” issue when the behaviour of the Defendant, by not obtaining the change of use approval, prevented the Claimant from starting any kind of work.
57. The same conclusion is required regarding the issues surrounding the drawings and whether the Defendant caused delay in providing them. As the change of use approval was not granted at the time, the Claimant was not able to perform any work in the premises as noted in the letter above. Therefore, despite all efforts made by the Claimant to proceed with development of its restaurant concept, the failure of the Defendant to obtain change of use approval prevented the Claimant from progressing on all fronts.
C. TERMINATION OF THE AGREEMENT
58. It is important to note that the Claimant is not relying on the change of use or “shell and core” issues as support for its termination of the Tenancy Contract. Rather, the Claimant provides other reasons for termination, as addressed below.
59. As to the question of whether the Claimant was entitled to terminate the Tenancy Agreement on 14 May 2015, the Claimant has alleged that in early May 2015, it attempted to renew its trade license with the DIFC, which was set to expire on 14 May 2015, but was informed that a lease registration form signed by both the tenant and the landlord was required by the DIFC in order to process the renewal.
60. The Claimant, through its PRO, contacted a representative of the Defendant and sent them the registration form for processing. The Defendant took the position that it would not sign the application form as long as there was a pending dispute between the parties. The Claimant states that it was subsequently able to renew its trade license though the efforts of its PRO and the help of the competent DIFC offices.
61. The Claimant argues that it can operate a restaurant in the DIFC only with a valid trade license and that the Defendant’s behaviour was aimed to put pressure on the Claimant, considering that the Claimant had informed the Defendant that it had suffered substantial damages and that it had the intention of pursuing its rights in Court.
62. In addition, the Claimant argues that the Defendant’s refusal to cooperate in the renewal of the trade license halted the negotiations to redraft the amended Tenancy Contract, as it was evident to the Claimant at that time that the business relationship between the parties was damaged beyond repair as a consequence of the unreasonable conduct of the Defendant.
63. The Claimant terminated the Tenancy Contract by letter dated 14 May 2015 citing material breach due to the Defendant’s refusal to acknowledge the existence of the lease for the purpose of renewing the Claimant’s trade license and alternatively pursuant to Article 36 of the Tenancy Contract, as amended.
64. The Claimant maintains that under the terms of the Tenancy Contract, specifically Article 36, the tenant has the right to terminate the Tenancy Contract at any time by giving two-months’ written notice and the landlord must return the rent paid in advance, prorated to the date of termination. The termination pursuant to Article 36 was therefore effective on 14 July 2015 and the Defendant is not entitled to any rent beyond that date.
65. The Claimant further maintains that under the Tenancy Contract, Article 19, the tenant also has the right to terminate the Contract each year on the anniversary date of the Contract by giving two-months’ notice. The Defendant has the right to keep the rent until the anniversary date and in the event of early termination prior to the anniversary date, the Defendant was entitled to keep the rent up until the termination notice plus two months. Therefore, Article 36 of the Tenancy Contract provided an additional protection to the tenant in order to give the tenant the right to terminate the Tenancy Contract prior to the anniversary date. Considering that Article 36 requires return of all payments after the two-months’ notice period, i.e. from 14 July 2015, the Defendant is not entitled to full payment of the 10 November 2015 cheque.
66. The Defendant, on the other hand, rejects both of the Claimant’s given reasons for terminating the Tenancy Contract, either for alleged breaches by the Defendant or for “convenience” pursuant to Article 36 of the Tenancy Contract.
67. The Defendant takes the view that there is no prospect of the Claimant succeeding in establishing any failure or indeed any other alleged breach which would qualify as a fundamental breach of the Tenancy Contract and therefore justify the Claimant’s termination for breach of the contract.
68. With respect to the trade license, the Defendant argues that there is nothing in the Tenancy Contract imposing an obligation on it to sign the Claimant’s registration form for a trade license and that it was not informed that the signing of the trade license form was urgent.
69. The Defendant insists that it was only requested to sign the trade license registration form on 7 May 2015 and was only reminded to do so on 12 May 2015. Notice of the purported termination was given just two days later, on 14 May 2016, but may have been prepared earlier. The Defendant also argues that a signature from MAG was not needed in order to renew the trade license as confirmed by the Claimant in its submission.
70. The Defendant’s view is that the issue with respect to the trade license renewal was nothing more than an excuse and referred to the Claimant’s Skeleton Argument to show that it admits at paragraph 45 that it actually sought to terminate the Tenancy Contract for its “convenience”.
71. The Defendant further argues that the Claimant is not assisted by Article 36 of the Tenancy Contract, on which it seeks to rely in the alternative. Article 36 is a general provision which must be read together with Article 7 (dealing with the period of the tenancy), Article 11 (dealing with the term of the lease) and Article 19 (dealing expressly with termination).
72. Article 19 expressly provides that:
“[Theron] shall have the right to terminate the lease each year on the anniversary date, i.e., by giving two months’ notice.”
73. Article 11 further clarifies that “subject to the right of [Theron] to terminate the lease by giving two months[‘] notice as specified in clause 19, this Lease shall be in force for the Period of the Tenancy.”
74. The Defendant argues that Article 36 in this context does nothing more than confirm the effect of Articles 11 and 19, including that the Defendant is only entitled to the rent up to the date of termination (which would be an anniversary of the agreement). The Defendant states that to give the provision the meaning intended, the words “in accordance with this Lease” should be read after the words “Tenancy Contract” in the first line of Article 36 or after the words “two calendar months’ previous notice” in the second line of Article 36.
75. It is the Defendant’s position that Article 36 does not provide any additional grounds for termination and that the Claimant’s interpretation makes a mockery of Articles 11 and 19, undermining the obvious intention of the parties.
76. The Defendant also submits that the Claimant’s Skeleton Argument makes no effort to grapple with the rules and principles of contractual construction under the relevant applicable law. If it had done so, the Defendant argues, it would have reached the conclusion set out above.
77. Finally, the Defendant argues on an alternative basis that the 14 May 2015 termination letter is also deficient as a notice of termination because it did not come from the Claimant itself, as the relevant lessee, but from Asia de Cuba instead, an independent entity. Therefore, the letter further fails to comply with Article 33 of the Tenancy Contract.
78. As to the first limb of the termination issue, whether the Defendant’s refusal to sign the trade license renewal form was cause for termination, it is my view that there is nothing in the Tenancy Contract which imposes an obligation on the Defendant to do so.
79. The failure to sign the trade license renewal form also, in my view, cannot qualify as cause to terminate considering that the Claimant never informed the Defendant that the matter was urgent, and therefore, for the Defendant to take one week is legally insignificant, particularly during an ongoing negotiation process to replace the existing Tenancy Contract.
80. Furthermore, the Claimant should have known that the Defendant’s approval was not necessary to renew the trade license and should have checked in advance with the relevant department, rather than relying upon its own PRO’s opinion. This opinion was incorrect given that the Trade License was renewed later without the Defendant signing the registration form.
81. As to the second limb of the termination issue, whether the Claimant can rely on Article 36 of the Tenancy Contract, I agree with the Claimant’s view as regards the interpretation of the relevant portions of the Tenancy Contract that govern termination.
82. In my view, according to Article 19 of the Tenancy Contract “[Theron] shall have the right to terminate the lease each year on the anniversary date, i.e., by giving two months’ notice.” The tenant therefore has the right to terminate the Contract each year on the anniversary date and the Defendant has the right to keep the rent payable until the anniversary date. The circumstances of Article 36 are different in that Article 36 states:
“If the Tenant wishes to determine this Tenancy Contract at any time during the Period of Tenancy and of such wish gives not less than two calendar months’ previous notice in writing to the Landlord then this Tenancy Contract and everything contained in this Tenancy Contract ceases and determines but without prejudice to any antecedent breach of any obligation contained in this Tenancy Contract and the Landlord shall on such determination the landlord will forfeit any part of the Annual Rent paid in advance by the Tenant in respect of any period beyond the date of such determination in accordance with this Tenancy Contract.”
83. Under Article 36 of the Tenancy Contract, in the event of early termination (“at any time”) prior to the anniversary date, the Defendant is entitled to keep the rent only up until the termination notice date plus two months. Article 36 is an additional termination option provided in order to give the tenant the right to terminate the Contract prior to the anniversary date and as such, Article 36 requires return by the Defendant of all rental payments due for the period after the notice period ends, from 14 July 2015 onwards.
84. Therefore, under the terms of the Tenancy Contract, specifically Article 36, the tenant has the right to terminate the Contract at any time by giving two-months’ written notice and the landlord must return the rent paid in advance from the date of termination. The Claimant’s termination of the Tenancy Contract was therefore effective on 14 July 2015 and the Defendant is not entitled to any rent after that date.
85. In response to the Defendant’s argument that the Claimant’s termination is deficient because it did not come directly from the Claimant but rather from Asia de Cuba, I find that the termination letter is legal and contains all necessary elements to serve as a valid termination letter considering that it was sent from the person who signed the Tenancy Contract, Mr Igor Krayushkin, and it was directed to the right person or party with the subject matter identified as “Theron/MAG lease Agreement – Termination Notice”.
86. I give no weight to the fact that the termination letter was produced on the letterhead of Asia de Cuba since it otherwise meets the legal requirements for giving notice of termination to the Defendant.
D. ABUSE OF PROCESS CLAIM
87. Before addressing the issue of damages and quantum, it is prudent to address the Defendant’s objection to the claim based on an abuse of process argument. The Defendant argues that the Court should refrain from accepting the current case for damages as this claim could easily have been brought at the same time as the Claimant’s Previous Case for specific performance.
88. The Defendant argues that the Claimant’s decision to bring this claim only in these proceedings is an abuse of process, making reference to Henderson v Henderson 3 Hare 100 at 115, which states:
“In trying this question, I believe I state the rule of the court correctly, when I say, that where a given matter becomes the subject of litigation in, and of adjudication by, a court of competent jurisdiction, the court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matters which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case . . . .”
89. The Defendant submits that the Claimant had threatened the Defendant with proceedings to claim recovery of AED 8-10 million for lost profits prior to applying for specific performance, making reference to the letter of 16 September 2014 sent by Mr Simon Wright to Mr Louai Sabouni proposing three options to resolve the matter between the parties. This shows that the Claimant was able to quantifying its claim before the action for specific performance was brought, if it genuinely believed it had a cause of action.
90. The Defendant further submits that instead of making a claim for damages when commencing its action for specific performance, the Claimant merely reserved its position, showing a conscious decision not to bring a damages claim. The Defendant argues that Theron’s attempt to keep the Damocles sword hanging over MAG’s head was illegitimate and an abuse of process.
91. Finally, the Defendant argues that just prior to and after obtaining the Court order for specific performance, Mr Wright gave the Defendant the impression that once the change of use was obtained, that would be the end of the matter.
92. The Claimant, on the other hand, asserted that the Defendant’s arguments regarding abuse of process are without merit. Firstly, according to Clark LJ in Dexter Ltd v Vlieland-Boddy [2003] EWCA Civ 14 at para 49:
“. . . It is wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive . . . The question in every case is whether, applying a broad merits based approach, [the Claimant’s] conduct is in all the circumstances an abuse of process . . . The court will rarely find that the later action is an abuse of process unless the later action involves unjust harassment or oppression of [the Defendant].”
93. The Claimant argues that this is quite clearly not a case of oppression or unjust harassment, and the Claimant’s course of action cannot be considered anything but both reasonable and practical given the circumstances. Moreover, the Claimant submits that it expressly stated in the action for specific performance that it reserved its right to bring a separate action for damages once it was able to quantify its loss.
94. The Claimant further argues that it would have been impossible to quantify such damages whilst the Defendant remained in breach and until the Defendant finally complied with the order for specific performance. The Claimant made a clear and unequivocal decision to keep open the option of making a later claim for damages in respect of its losses.
95. Finally, the Claimant contends that it is widely recognised that a finding of abuse of process will not be made by the Court if to do so would deny the Claimant an opportunity to litigate for the first time a question which has not previously been adjudicated. It is evident that during the Claimant’s Previous Case for specific performance the Claimant raised no arguments or issues related to damages, which is the subject matter of this case and instead, the Claimant reserved its right to bring a separate action for damages once it was able to quantify its loss. Thus, it is clear that the issue surrounding damages for breach of contract, as at issue in this case, was not adjudicated by this Court at any other stage.
96. In my view, to prevent the Claimant from bringing an action for damages now would constitute a denial of its right to access the Court, especially taking into account that the Defendant has failed to establish that this current action involves unjust harassment or oppression.
97. I shall give no weight to the Claimant’s email of 16 September 2014 sent by Mr Simon Wright to Mr Louai Sabouni first, because it was not a submission in the Previous Case for specific performance and second, because the Defendant remained in breach until the change of use was achieved, well after the Previous Case concluded.
98. Therefore, I dismiss the Defendant’s challenge that pursuing a damages claim in this case after having obtained specific performance constitutes an abuse of process by the Claimant.
E. DAMAGES AND QUANTUM
99. As determined above, none of the reasons provided by the Claimant give it the right to terminate the contract and therefore, the termination of the Tenancy Contract was not for cause. Instead, the termination occurred according to Article 36 of the Tenancy Contract (for convenience).
100. It is also evident that the Defendant caused the Claimant harm by delaying the change of the use and delaying action to bring the space to shell and core condition. Therefore, the damages sought by the Claimant must be measured accordingly.
101. I shall deal with each remedy sought by the Claimant in turn.
102. As regards the Claimant request for a declaration that the Tenancy Contract is terminated pursuant to Article 36 of the Tenancy Contract, I have dealt with this requested remedy above, when discussing the termination of the Tenancy Contract. I have concluded that termination of the Tenancy Contract was achieved in accordance with Article 36 of the Contract rather than Article 19 as the Defendant asserts.
103. As regards the Claimant’s demand for the return of the cheques provided to the Defendant pursuant to Article 12 of the Tenancy Contract, namely the cheques dated 10/11/2014, 10/05/2015, 10/11/2015, 10/05/2016, 10/11/2016, 10/05/2017, 10/1112017, 10/05/2018,10/11/20 18, as I have decided above that the termination of the Contract occurred according to Article 36, the Defendant is therefore not entitled to retain the cheques beyond the termination date as required by Article 36. Article 36 states that “on such determination the landlord will forfeit any part of the Annual Rent paid in advance by the Tenant in respect of any period beyond the date of such determination.” As the termination notice was served on 14 May 2015 and became effective on 14 July 2015, accordingly, the Defendant must return all cheques dated after July 2015 and is only entitled to receive a partial sum of the cheque dated 10/5/2015 up to 14 July 2015.
104. The Claimant’s main remedy sought is for damages for loss of profits in an amount of at least AED 11,028,708, to be further quantified during the course of the proceedings. In the alternative, the Claimant claims damages in the amount of at least AED 1,424,062 (US$387,500) for the licensing and technical services fees paid and/or still owing to CGM, damages for amounts paid and still owing to TGP for fees and expenses relating to the project, the amount to be quantified during the course of the proceedings, rent paid by the Claimant in the amount of AED 1,738,234, and salaries paid to the Claimant’s employees for the period August 2014 to May 2015 in the amount of at least AED 1,600,128.
105. In relation to the claim for lost profits, the Claimant takes the view that if the Court finds for the Claimant in relation to causation of losses, and in particular finds that on the balance of probabilities, the Claimant would have run a successful restaurant during the period of delay caused by the Defendant’s breach of contract, then the Court does not need to analyse the probability of success in order to compensate the Claimant proportionately.
106. The Claimant respectfully submits that this is not a claim which involves loss of opportunity. Were it not for the Defendant’s breach, the Claimant would have established a profitable business. The Defendant’s actions made such a business impossible. The Claimant relies on a decision of the English Courts, Vasiliou v Hajigeorgiou [2010] EWCA Civ 1475, paragraphs 23-28, claiming that it shares many characteristics with this claim. In Vasiliou the court found:
“The appellant’s breach of covenant had made the operation of the restaurant a legal impossibility. As a result, it did not trade. There was therefore no doubt at all that the breach had caused the loss subject only to the quantification of that loss. The issues raised about the respondent’s competence and the restaurant’s prospects of success were not matters that went to causation at all. They were relevant at most to the assessment of how profitable (or not) the restaurant would have been had it been able to operate. If it would have been a commercial failure Mr Vasiliou could have received no more than nominal damages for the breach . . . Where the quantification of loss depends upon an assessment of events which did not happen the judge is left to assess the chances of the alternative scenario he is presented with. This has nothing to do with loss of chance as such. It is simply the judge making a realistic and reasoned assessment of a variety of circumstances in order to determine what the level of loss has been . . . The task of the judge is to decide what profit could have been made. Once he does this any further discount is inappropriate. Judge Levy decided that he was assessing the profits of a successful restaurant. The only issue was how successful.”
107. The Claimant asserts that its damages were exacerbated by the Defendant’s tactic of filing a criminal case against the Claimant’s representative. It was this tactic that caused the Claimant additional harm and ultimately destroyed the business. Were it not for the Defendant’s actions, which form the core of the Claimant’s claim in this matter, the Claimant would have found an alternative space for its restaurant and would now be running a successful restaurant business which would have already generated substantial revenues. Instead, the Claimant has lost the very valuable Asia de Cuba brand.
108. The Claimant asserts that the Defendant has committed several breaches of the express or implied terms of the Contract. First, the Defendant failed to provide the premises “shell & core” as required under Article 23 of the Tenancy Contract. Included in this breach was the Defendant’s failure to provide the necessary documentation and drawings, including “as built” drawings, pursuant to implied terms of the Tenancy Contract as the Claimant had required these to make submissions with the competent authorities in a timely manner and comply with its obligations to carry out fit-out works.
109. The Claimant argues that it has suffered damages due to the loss of over one full year of operation, i.e. starting from August 2014 (the date when the design of the build-out was completed) and continuing. Damages for lost profits amount to at least AED 11,028,708, which has been calculated by considering expected sales, costs, and depreciation (AED 43,201201 – AED 33,926,905 + AED 1,754,412).
110. The Claimant contends that its projections of profits and losses are conservatively estimated if the expected versus actual revenues of Asia de Cuba Abu Dhabi are considered. The total revenues for Asia de Cuba Abu Dhabi between the months of January 2015 to November 2015 amounted to AED 21,372,322 and appear to have exceed initial projections. The Claimant further submits that it was reasonable to expect that the Dubai restaurant would have outperformed the Abu Dhabi branch.
111. The Defendant, on the other hand, denies that it acted in breach of the Tenancy Contract on the grounds alleged or at all. The Defendant further denies that any potential breaches of the Tenancy Contract caused the Claimant the loss claimed or any loss.
112. The Defendant argues that it cannot as a matter of law be responsible for the damage (if any) arising from the Claimant’s representative’s absence from the jurisdiction, after his having presented cheques that bounced. Such damage does not arise from any purported breach of contract. As a matter of public policy, the Claimant can also not seek to profit from its own wrongful actions.
113. As regards to quantification of lost profit, the Defendant submits that on the basis of the evidence before the Court, the Claimant was not likely to have made anything more than AED 1.5 million in lost profits in the period for which it is claiming, and even this would need to be proved by expert evidence.
114. The Defendant further submits that the Claimant could have avoided the effect of any delay with respect to change of use by paying to the DIFC the fees that it was demanding to authorise the change. Mr Sabouni’s evidence was that Theron was informed of the DIFC’s demands and this seems apparent from the documents which show that there was a dispute as to which party should pay the DIFC’s fees. Theron could have pursued MAG later if it believed that MAG was obligated to pay, but at least the delay would have been avoided.
115. The Defendants refers to Mr Krayushkin evidence at trial. He stated that in February 2014 the intention was that the “soft opening” (without extensive advertising) of the restaurant would take place in October 2014, and that no profits could have been made before that date.
116. The Defendant accordingly submits that the period for damages is not 25 February 2014 to 8 February 2015, but 14 October 2014 to 8 February 2015. Therefore, on Theron’s own case and in reliance on the table of loss and profit prepared by TGP, the Claimant’s loss of profit claim would cover a 3.5 month period and be worth at most about AED 3.5 million.
117. The Defendant rejects the comparison with the Abu Dhabi branch of the restaurant Asia de Cuba. Its argues that, in reality, the Dubai restaurant was completely untested and profits would have been far less than this because, as was evident from Mr Krayushkin’s evidence, the AED 3.5 million figure was based on the (unverified) figures for the Abu Dhabi award winning restaurant in its second year of trading. The Dubai restaurant, in contrast, would not have been operating at full capacity.
118. Finally, the Defendant submits that it is probable therefore that the Dubai restaurant, during the initial period of its “soft opening”, would have made a fraction of the AED 3.5 million allegedly made by the Abu Dhabi branch in its second year of trading. The Defendant argues that AED 1.5 million would be high and this amount would only be recoverable if Theron’s arguments overcome the numerous difficulties involved in establishing liability and causation, and refuting the Defendant’s arguments regarding mitigation, which it will not be able to do. In any event, the Defendant argues, the issue of lost profit is one that cries out for expert evidence. However, none was relied upon.
119. In my judgment, the Defendant caused the Claimant’s delay by breaching its contractual obligations to provide the change of use, deliver the space, and make it available to the Claimant to start work on the two leased floors in order to ready them to be used as a restaurant.
120. The Defendant’s breaches above have led to the consequences that the Claimant was not able to open its restaurant in the anticipated time. It is evident from Mr Krayushkin’s evidence at trial and from the documents labelled as “Appendix A to Condition of Contract” issued by Al Reyami Interiors, the contractor, that the anticipated date for the “soft opening” was 16 October 2014. Therefore, the lost profit to be calculated, should run from the anticipated “soft opening” date of 16 October 2014 until the termination date of 14 May 2015, a total of seven months. While the Tenancy Contract was effectively terminated as of 14 July 2015, the notice period, implemented for the benefit of the Defendant, began on 14 May 2015 and the Defendant may not have wished the Claimant to continue operation after notice was served. As the Claimant would also not likely have operated the restaurant during the notice period to allow time to move out, the lost profits will cease to accrue on 14 May 2015 when the Claimant decided to terminate.
121. I accept the Claimant’s proposal for the calculation of damages for loss of profit to be based upon projections made based upon figures applicable to the Abu Dhabi branch of the Asia de Cuba restaurant because: 1) the two projections are made by the same Consultant, TGP, who managed both the Dubai and Abu Dhabi restaurants and 2) the projections were not challenged at the trial.
122. In applying the projection to the first seven months of Asia de Cuba Dubai’s potential operation, the Claimant would had made the sum of AED 6,282,933. Having been unable to operate its restaurant due to the Defendant’s breaches of the Tenancy Contract, the Claimant is entitled to recover such profit.
123. The Defendant’s argument that the Claimant would not have been able to make more than AED 1.5 million is a hypothetical argument and has not been supported with evidence. I also reject the Defendant’s argument that the issue of the Claimant’s calculation of loss of profit is one that requires expert evidence. The Defendant did not timely raise such argument or call for an expert to become involved. During the Case Management portion of the proceedings, as can be seen from the Defendant’s Case Management Information Sheet, the Defendant only raised the issue that expert evidence was required in the evaluation of the work undertaken in the premises but made no mention of expert evidence regarding profit or calculation of damages.
124. I also find that the available evidence submitted by the Claimant is straightforward and sufficient in order to support my finding.
125. As to the Defendant’s argument regarding mitigation, I reject the Defendant’s argument that delay would have been avoided if the Claimant would have paid the DIFC’s fees for change of use. The evidence shows that the Defendant assured the Claimant on several occasions that although the permitted use had not yet been changed with the DIFC, the DIFC had no objection to the change, and that the process for changing the permitted use would be completed imminently. At no time was the Claimant called upon to assist on the change of use issue and furthermore, the fees for the change of use were not the only reason for delay.
126. Since I have granted compensation to the Claimant in accordance with its primary claim for loss of profit, there is no need to deal with the alternative case for cost recovery as sought by the Claimant in the alternative.
127. As regards the remedy sought by the Claimant for the costs it incurred for storage of the contractor’s equipment and material in the amount of approximately AED 50,000, the Court grants such remedy as it was not contested or challenged by the Defendant.
128. As regards the Claimant’s remedy sought for the cost of the main contractor’s all-risk insurance in the amount of approximately AED 17,000, it is my view that since the Court has granted the Claimant its sought remedy for loss of profit based on the calculation for expected sales, cost, and depreciation, the insurance is a cost that has already been taken into account and must not be counted again.
129. The costs incurred by the Claimant for storage of furniture and fit-out materials delivered to the Claimant for its Asia de Cuba restaurant in the amount of AED 37,500 is granted by the Court as this remedy is not contested or challenged by the Defendant.
130. As regards the Claimant’s request to recover the costs related to the additional works done by the main contractor in the amount of AED 485,691, the Court grants such remedy as it is supported by the letter of Al Reyami dated 3 July 2014 (Quotation for Asia de Cuba Landlord related work) supported by the witness statement of Mr Krayushkin which has not been contested or challenged by the Defendant.
131. As regards the Claimant’s request for relocation expenses to be quantified during the course of the proceedings, this claim is unsubstantiated and therefore I dismiss it. The same can be said for the Claimant’s request for “such other and further relief as the Court deems just and proper”.
F. COUNTERCLAIM
132. In addition to its pleadings in reply to the Claimant’s Claim, the Defendant pleaded a Counterclaim, arguing that the Claimant is in breach of the express and implied terms of the Tenancy Contract, in breach of its duty to mitigate its losses, in breach of its duty to act in good faith, and/or in breach of the terms of the later agreement, and in breach of its commitment to retain the premises until February 2019.
133. The Defendant submits that by terminating the Tenancy Contract for no reason, there can be no doubt that the Defendant suffered tremendous harm caused by the Claimant’s actions, for which it is entitled to compensation.
134. The Defendant in particular refers to the following reasons why it should be compensated:
(a) The parties had entered into the November Tenancy Contract in full knowledge that the Premises were not yet fit for use as a restaurant. The Claimant agreed to bear this risk;
(b) The Defendant encountered unpredictable and unreasonable issues with the DIFC for changing the permitted business of the Premises, which rendered performance of the obligation unreasonably burdensome and expensive;
(c) The Defendant could have elected to terminate the November Tenancy Contract but instead endeavored to settle the issue with the DIFC on the basis that the Claimant wanted to retain the Premises;
(d) The Claimant took advantage of these issues to renegotiate the terms of the November Tenancy Contract with the Defendant. Furthermore, the Claimant elected to mitigate its alleged losses by renegotiating the terms of the November Tenancy Contract;
(e) The Claimant, who could have elected to terminate the November Tenancy Contract at any time, insisted on its performance and mitigated its alleged losses by (i) signing the Contract in September/October 2014, (ii) filing the Previous Case to order the Defendant to change the use of the Premises, and (iii) committing to retain the Premises until 2019 irrespective of the wording of Article 36 of the Tenancy Contract;
(f) The Defendant complied with the Court Order for specific performance, trusting that Theron would continue leasing the Premises until at least 2019. The Defendant incurred losses around AED 4.7 million as charges to change the permitted usage of the Premises; and
(g) The Claimant unduly and in bad faith elected to terminate the Tenancy Contract.
135. The Defendant Further submits that the Claimant is in breach of its payment obligations set out in the Tenancy Contract and such breach has caused the Defendant actual losses. The Defendant argues that the Claimant has failed to:
(a) settle the rent due on 10 November 2014 and 10 May 2015 amounting to AED 3,037,726.3 in breach of Article 12 of the Tenancy Contract;
(b) to settle the outstanding charges and fees for the district cooling amounting to AED 79,724,087 in breach of Article 13 of the Tenancy Contract, as evidenced in the copy of the statements appended under cover of Exhibit D-14; and
(c) to settle the contractually-agreed penalty for termination for convenience referred to in Article 36 of the Tenancy Contract amounting to AED 1,495,418.20 representing the remaining part of the annual rent for the period beyond termination.
136. For the avoidance of doubt, the Defendant asserts that it is entitled to all these amounts, i.e. AED 3,037,726.30 in addition to AED 79,724,087 and AED 1,495,418.20 as actual losses suffered as a result of the Claimant’s various breaches of the Tenancy Contract.
137. Furthermore, the Defendant argues that the Claimant is in breach of its later agreement and its undertaking to retain the Premises until February 2019 which entitles the Defendant to further compensation. More specifically, the Defendant stated that it has incurred around AED 4.7 million as charges paid to the DIFC to change the use of the Premises to “restaurant & bar” on the basis that the Claimant had agreed and even undertook, following the issuance of the Court Order in the Previous Case and following the execution of the Tenancy Contract, to retain the Premises until 2019. The Defendant believes that it should therefore be awarded these charges as actual losses suffered because of the Claimant’s further breach of the later Tenancy Contract.
138. Additionally, the Defendant added that it could have terminated the Tenancy Contract as a result of the burdensome charges imposed by the DIFC but instead, and pursuant to an agreement with the Claimant, the Defendant continued to honour the contractual relationship with the Claimant. The Defendant therefore submits that it is entitled to receive loss of profits for the rental value from the date of the termination of the Tenancy Contract until it leases the Premises in addition to the actual damages.
139. Finally, the Defendant submits that it has attempted to mitigate its losses and is in the process of negotiating a new lease agreement for the Premises. In sum, the Defendant seeks the following from the Court in remedy of its Counterclaim:
(a) an order for the Claimant to pay to the Defendant the value of the bounced cheques dated 10/11/2014 and 10/5/2015 amounting to AED 3,037,726.3 and all rental payments that would have been due until the next anniversary of the Tenancy Contract being 25 February 2016;
(b) an order for the Claimant to pay to the Defendant AED 1,495,418.20 pursuant to Article 36 of the Tenancy Contract and as a result of the unilateral termination of the Contract;
(c) an order for the Claimant to pay to the Defendant AED 79,724.87 for the charges outstanding for district cooling;
(d) alternatively, an order for the Claimant to reimburse the Defendant for the charges paid to the DIFC to change the usage of the Premises amounting to AED 4,676,391;
(e) an order for the Claimant to pay the Defendant damages for loss of profits as a result of the termination of the lease earlier than 2019 and in an amount to be quantified in the course of these proceedings;
(f) interest to be assessed in a sum due at such rate and for such periods as the Court deems appropriate;
(g) attorney’s fees and costs involved in this court case; and/or
(h) such other and further relief as the Court deems just and appropriate.
140. The Claimant has argued that the Defendant’s Counterclaim must fail for the reason that the Defendant is not entitled to any rental payment as the Claimant has pre-paid 6 months’ worth of rent and under the Tenancy Contract, the Claimant was entitled to 6 months’ rent-free period to build out the space. The Claimant adds that the Defendant’s delays in changing use of the space have defeated the purpose of the rent-free period. Accordingly, the Claimant contends that it is entitled to a 6-month rent-free period from the date the change of use was finalised on or about 5 February 2015 until early August 2015.
141. The Claimant’s second argument is that Claimant terminated the Tenancy Contract for convenience and pursuant to Article 36, which provides that no rent is due after the notice period, i.e. from 14 July 2015, and therefore the Defendant is not entitled to any rental payment. In addition, no rental payment until the anniversary date of the Tenancy Contract is due as the Claimant has elected to terminate the Tenancy Contract under Article 36 and not under Article 19. Therefore, there is no basis for the Defendant to claim any additional rent or any other charges.
142. The Claimant contends that the Defendant is entitled to a payment of AED 1,495,418.20 by application of Article 36 of the Tenancy Contract. Even assuming that Article 19 applies and payment of rent is due until the anniversary date, which is denied, the full amount of the cheque dated 10 November 2015 would not be due and instead the rent due would be pro rata until the anniversary date.
143. Furthermore, the Claimant contends that the Defendant is not entitled to lost profits as a result of the termination of the lease earlier than 2019. Under Article 36 of the Tenancy Contract, the Claimant had the right to terminate the lease at any time and thus, the Claimant had no obligation to remain in the premises until 2019.
144. Finally, the Claimant submits that the Defendant is not entitled to AED 4,676,391 as charges paid to the DIFC for the change of use as it was the Defendant’s obligation to change the use of the space and such obligation was not conditional on negotiating a lower fee with the DIFC. The Claimant added that the parties entered into the Tenancy Contract for the lease of a restaurant and bar and the Defendant should have paid the fee before entering into the Tenancy Contract. Instead, it unilaterally decided to delay the change and thus it accepted the risk of such delay in the attempt to obtain a discount from the DIFC.
145. As to the first remedy sought by the Defendant for payment of rent until the next anniversary of the Tenancy Contract (25 February 2016), I have already decided above in paragraphs 81 – 84 that Article 36 of the Tenancy Agreement provides the tenant with the right to terminate the Tenancy Agreement at any time by giving two months’ written notice and that the landlord must return the rent paid in advance from the date of termination. The termination notice provided on 14 May 2015 became effective on 14 July 2015 and thus the Defendant is not entitled to any rent after that date.
146. The second Tenancy Contract, as amended, was entered into on 24 February 2016 and it stated that the rent period would start from 10 November 2013 with the first six months as a rent-free period finishing on 9 May 2014. Therefore, the Defendant’s entitlement to rent from the Claimant shall only run from 10 May 2014, being the end of the rent-free period, until 14 July 2015, being the effective termination date.
147. The Claimant acknowledges that the 10 November 2014 and 10 May 2015 cheques provided to the Defendant bounced and thus the Defendant has not collected the total rent owed for the period running from 10 May 2014 to 14 July 2015. Presumably, the first six-month period running from 10 May 2014 to 10 November 2014 was covered by the first cheque received by the Defendant upon signing the Tenancy Contract and thus no further sum is owed for this time. The second six-month period from 10 November 2014 until 10 May 2015 was to be covered by the 10 November 2014 cheque which bounced and thus the Claimant should pay the Defendant the amount of AED 1,542,308.10 for this time. The period from 10 May 2015 to 14 July 2015 (two months’ time) should have been paid from the 10 May 2015 cheque and thus the Claimant should pay the Defendant AED 498,472.73 for these two months (one third of the total amount of the cheque). Such sums shall be paid by the Claimant upon return of the post-dated cheques from the Defendant.
148. As to the period from 10 November 2014 to 4 February 2015, this time was subject to the Court Order issued in the Previous Case of CFI 040/2014, in which it was ordered that the Defendant change the use of the leased property. The Previous Case also established MAG’s breach of its obligation under the Tenancy Contract, such finding being res judicata. However, the Claimant submits that the Defendant is not entitled to any rent payment from 10 November 2014 to 4 February 2015 because this period should be included within the rent-free period of six months pursuant to the Tenancy Contract. This argument is addressed in the damages section above and therefore need not be addressed here again.
149. As regards the Defendant’s second demand for payment of AED 1,495,418.20 for the cheque dated 24 November 2015, pursuant to Article 36 of the Tenancy Agreement and as a result of the unilateral termination of the Tenancy Contract, Article 36 reads as follows:
“If the Tenant wishes to determine this Tenancy Contract at any time during the Period of Tenancy and of such wish gives not less than two calendar months’ previous notice . . . on such determination the landlord will forfeit any part of the Annual Rent paid in advance by the Tenant in respect of any period beyond the date of such determination.”
150. As I have decided above that the termination of the Contract occurred according to Article 36, the Defendant is therefore not entitled to retain the cheques beyond the termination date as required by Article 36 which states that “on such determination the landlord will forfeit any part of the Annual Rent paid in advance by the Tenant in respect of any period beyond the date of such determination.” As the termination notice was served on 14 May 2015 and became effective on 14 July 2015, accordingly, the Defendant must return all cheques dated after July 2015 and is only entitled to receive a partial sum of the cheque dated 10/5/2015 up to the 14 of July 2015.
151. As regards the Defendant’s demand that the Claimant pay the Defendant AED 79,724.87 representing the charges outstanding for the district cooling relevant to the Premises, in the absence of the Claimant contesting such request or challenging the amount claimed, I find it appropriate to grant the Defendant’s claim regarding district cooling.
152. As regards the Defendant’s demand that the Claimant reimburse it for the charges paid to the DIFC to change the usage of the Premises amounting to AED 4,676,391, this was partially dealt with above in the assessment of the change of use obligation. I found that nothing in the Tenancy Contract or other evidence before this Court suggests that the Claimant, the tenant in this case, is under any obligation to change the use permitted in the Premises in any regard. There is also nothing to suggest that the obligation to change the use has been transferred to the Claimant. Accordingly, this part of the Defendant’s Counterclaim is dismissed.
153. As regards the Defendant’s request to order the Claimant to pay the Defendant damages for loss of profits as a result of the termination of the lease earlier than 2019 and in an amount to be quantified in the course of these proceedings, in my judgment the Claimant has justly relied on a legal contractual right that allows it to terminate the Contract pursuant to Article 36. The Defendant has also failed to submit further evidence as to the damages and the quantum of this portion of its claim and, as mentioned above, therefore, I find no justification for the Defendant to obtain any further compensation beyond what is required by Article 36.
INTEREST AND COSTS
154. Pursuant to Article 118 and 119 of the DIFC Law No. 6 of 2004, interest shall be awarded to the Claimant at a rate of EIBOR plus 2% per annum in accordance with Article 118(2), on the amount owed to it by the Defendant after a set-off for the amount owed to the Defendant by the Claimant. Therefore, the Claimant shall receive interest at this designated rate on the total amount of AED 4,735,618.30 (being the total amounts owed to the Claimant less the amounts owed to the Defendant) running from 14 July 2015, the time of termination of the Tenancy Contract and the time that damages accrued.
155. The costs in the case shall be assessed and assigned after submissions from the parties, to be received no later than 21 days from the release of this Judgment.
Issued by:
Natasha Bakirci
Assistant Registrar
Date of Issue: 11 May 2017
At: 2pm
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