Claim No: CFI 021/2015
THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS
IN THE COURT OF APPEAL
BETWEEN
THERON ENTERTAINMENT LLC
and
MAG FINANCIAL SERVICES LLC
ORDER OF JUSTICE ROGER GILES
UPON reviewing the Application Notice filed on 28 October 2019 by the Claimant
AND UPON reviewing the Defendant’s evidence in response filed on 29 April 2020
AND UPON reviewing all documents recorded on the Court file
IT IS HERBY ORDERED THAT:
1. The Defendant to pay the Claimant AED 614,104.75, plus interest at EIBOR plus 2% per annum from 9 February 2015.
2. Subject to order 3, no order as to costs.
3. Liberty to apply in relation to costs by filing a written submission of not more than two pages within seven days from the date of the issuance of this Order.
Issued by:
Nour Hineidi
Deputy Registrar
Date of issue: 21 May 2020
At: 12pm
REASONS
1. This is a claim for three items as wasted costs damages for breach of contract. As explained below, it is effectively a remission from the Court of Appeal. For the reasons which follow, the damages are assessed at AED 614,104.75.
Background
2. The Claimant (“Theron”) was a licensee of the restaurant brand “Asia de Cuba”. It entered into a tenancy contract dated 25 February 2014 with the Defendant (“MAG“), under which MAG agreed to lease to Theron premises in the Emirates Financial Towers (the “Premises”) for use as a restaurant and bar (“Restaurant”).
3. At the time, the Premises were permitted to be used as offices. Authorisation to change to the permitted use of a Restaurant (the “Authorisation”) had to be obtained from the DIFC. Theron maintained that MAG was obliged to obtain the Authorisation at its cost, but MAG refused to pay the fee demanded by the DIFC. In proceedings brought by Theron in late 2014, on 1 February 2015 MAG was ordered to take all action necessary to secure the Authorisation. It was obtained on 5 February 2015, and Theron was informed of it on 9 February 2015.
4. Theron had been unable to do work on the Premises and fit them out for use as a Restaurant until the Authorisation was received. The works began, but the Asia de Cuba project did not reach fruition. The Restaurant never opened, and in May 2015 Theron served a notice on MAG terminating the tenancy.
5. In June 2015, Theron issued proceedings against MAG claiming, inter alia, a declaration that the tenancy had been terminated and damages for loss of profit and wasted expenditure by reason of MAG’s breach of contract in failing to obtain the Authorisation when it should have.
6. In reasons issued on 11 May 2017 (the “CFI judgment”), H E Justice Ali Al Madhani (the “Judge”) held that the tenancy had been lawfully terminated and that MAG had been in breach of contract in not obtaining the Authorisation until February 2015 (the “Breach”). The damages awarded for the Breach included loss of profit damages as the projected net profit for the period from the anticipated “soft opening” date for the Restaurant in October 2014 until the termination of the tenancy in May 2015. The Judge said that, having awarded loss of profit damages, there was no need to deal with wasted costs damages.
The Wasted Costs Items
7. MAG appealed against the finding of lawful termination and the award of loss of profit damages. The Court of Appeal issued its judgment on 28 January 2018 (the “CA judgment”). The termination of the tenancy was upheld. But, as recorded in the Court’s reasons, in the course of the hearing Theron abandoned its claim for loss of profit damages, and elected instead for the wasted costs incurred by it by reason of the Breach.
8. The Court of Appeal assessed damages by regard to a schedule containing 33 items. Those of present relevance were items 6, 32 and 33 (the “Items”) (the amounts in AED)
| 6 | Employees | Payroll payments (August 2014 – June 2015) | 1,850,344 |
| 32 | AXA Insurance | Staff insurance | 36,554 |
| 33 | Visas | 2014 – 2015 | 104,975 |
9. As to the Items, Justice Sir Richard Field (with whom the Chief Justice and H E Justice Omar Al Muhairi agreed) said –
“36. Item 6 is a claim for employees employed in the period August 2014–2015. This item was not allowed by the Judge and it is not known whether this was because he thought the claim was alternative to the loss of profit claim or because he found it was insufficiently proved. Regrettably, there is insufficient evidence for it to be decided in this appeal what the number of employees was that were unnecessarily hired in the pleaded period by reason of [MAG’s] delay in obtaining the change of use, and at what cost.
40. As to Items 32 and 33, it is again not clear whether the Judge rejected these claims on the ground that they were alternative to the loss of profit claim or for lack of proof.
41. In fairness, having regard to Items 6 and 32–33, I think that Theron should be allowed to advance a claim in the Court of First Instance on the basis of documentary evidence and written submissions only and without an oral hearing for wasted costs incurred in respect of the employment of staff that were wasted because, once hired, they could not provide any useful service in and by reason of the period of the delay in the procuration of the change of permitted use of the Premises.”
This Application
10. By an Application Notice issued on 28 October 2019, Theron applied to be awarded damages by reason of [41] of the CA judgment. It claimed AED 1,648,375.50.
11. Theron filed as the evidence on which it relied a document titled “Court Order Application”, in the form of an affidavit of Ms Angelina Krayushkina referring to documents in files marked COA-1 to COA-6.
12. MAG was directed to file any evidence on which it relied. It filed a document titled “Reply in Evidence”, which contained no evidence but, largely in pleading form by reference to paragraphs in the Court Order Application, amounted to submissions in opposition to the application.
13. Theron then filed submissions responding to the Reply in Evidence.
An Abuse of Process?
14. MAG submitted that the application should be struck out as an abuse of process, because (a) the claim had been decided in the CFI; and (b) the application was made long after the CA judgment.
Prior decision
15. It is not easy to understand the submission. MAG referred to the CFI judgment at [126], where the Judge said that because he had awarded loss of profit damages “there is no need to deal with the alternative case for cost recovery…”. It said that [41] of the CA judgment was “obiter comments”, and that Theron “raised a second action on issues which have already been decided”.
16. The submission of prior decision is manifestly incorrect. It maybe accepted that the “alternative case for cost recovery” was wasted costs damages. But the Judge did not decide the claim for wasted costs: he expressly did not decide it. The claim was taken up in the Court of Appeal, as the alternative to loss of profit damages, and [41] of the CA judgment was not an idle exercise but, as part of deciding that claim, a deliberate mechanism for ruling upon the Items part of that claim. While it was not translated into a formal order for remission, neither were the rulings as to other Items and other matters in the appeal translated into formal orders for payment of a money sum. The judgment must be given effect in all respects.
Length of time
17. The application was brought 21 months after the CA judgment. MAG submitted that the delay was not explained in evidence, and that Theron had breached its duty under RDC 1.8 to help the Courts further the overriding objective of ensuring, so far as practicable, that a case is dealt with expeditiously and fairly. This Breach, it said, was a failure to comply with a Rule within the strike-out power in RDC 4.16 (3).
18. MAG did not suggest, by evidence or in submissions, any prejudice to it from the delay. It is sufficient that exercise of the strike-out power is discretionary, and I do not think the delay warrants depriving Theron of the opportunity to advance its claim to the Items.
Item 6
19. Theron did not claim the amount of item 6 in the schedule, but an amount of AED 1,565,580 for a lesser period from August 2014 to May 2015. On the evidence of Ms Krayushkina, there were three employees in August 2014 increasing to 12 by May 2015, all engaged in contemplation of the anticipated soft opening and retained from their respective employment dates until the termination of the tenancy. The employees were Restaurant staff and management/administrative staff. Ms Krayushkina said that more employees would have been necessary to run the Restaurant, and that these fewer employees were reasonably maintained in anticipation of opening it. The evidence of payment of the employees was put forward in COA-3 and COA-4, and summarised in COA-2.
20. MAG disputed the period for which the amount was claimed, saying at one point that the Judge had held that the calculation of lost profit should run from the anticipated soft opening in October 2014, and later that Theron had not explained why the period from August 2014 to June 2015 (sic) was “relevant to the claim”. It made no submission as to why that period was not appropriate.
21. The first submission failed to appreciate that the Items were claimed as wasted costs, not as lost profit. The period for lost profit has nothing to do with the claim.
22. As stated in [41] of the CA judgment, the claim is for costs incurred in employment of staff that were wasted because, once hired, they could not provide any useful service in and because of the period of delay in obtaining the Authorisation (the “Employee Costs”). The Court made clear, in relation to other Items in the schedule, that the recoverable costs did not include costs wasted because the Asia de Cuba project was abandoned upon the termination of the tenancy: thus, for example, the rent recoverable as wasted costs was for the period from 25 February 2014 to 9 February 2015 (see at [30] of the CA judgment). Similarly, the period for recovery of the employee costs is from the employment of the employees until 9 February 2015, because it was for that period that the delay in obtaining the Authorisation meant that they could not provide useful services. It does not extend to May 2015.
23. In so stating, I note Theron’s submission that the employee costs were wasted until May 2015 because, following the Authorisation, “administrative arrangements” were necessary in order to give effect to the change of use. It was said that three months was reasonably required to obtain approval for the fit-out works and mobilise the contractor.
24. I do not accept the submission. The approval and the works following the Authorisation would have been required even if the Authorisation had been obtained without delay, and no evidence supported the suggested three months. The employee costs after 9 February 2015 were wasted because the tenancy was terminated and the Asia de Cuba project was abandoned.
25. I turn to amount. COA-3 is an agreement between TGP Consultancy Ltd (“TPG”) and Mr Igor Krayushkin for “Operational Management Consulting for Asia de Cuba, Dubai Project”. COA-4.1, 4.2 and 4.3 are invoices for August, September and October 2014 from TPG to Mr Krayushkin for “Expenses Re-investment“ or “Salaries Re-charge“ for named persons, being some of the employees in respect of whom Theron claimed, and bank statements showing payment of the invoices from a joint account of Mr Krayushkin and another person. Ms Krayushkina’s evidence included that for the first three months “the salaries were paid through TPG”. COA 4.4, 4.5, 4.6, 4.7 and 4.8 are payroll records from November 2014 to February 2015 inclusive for the same employees and employees later engaged, cheques payable to each, and bank statements showing payment of the cheques from Theron’s account.
26. MAG submitted that Theron “fails to exhibit substantial evidence or justification” in support of the amount claimed, and that it is “unclear what the responsibilities of each employee are; why the employees were considered necessary prior to the opening of the Restaurant and why they were retained on the payroll”. It said that Theron had failed to “verify” the documents and that “none of the invoices make any reference to [Theron] or offer any reliable details”.
27. I see no reason not to accept the authenticity of the documents in COA-3 and COA-4, provided through the sworn evidence of Mr Krayushkin. They establish payment to the employees. I infer that the expenses of the Asia de Cuba project in its early stages were initially incurred by Mr Krayushkina and subsequently charged to Theron, and so were costs incurred by it; that is not uncommon. The employment capacitiesof the employees are detailed in the documents, and I consider it reasonable that they should have been engaged in anticipation of the soft opening and retained while Theron sought to have MAG obtain the Authorisation. The Asia de Cuba project was plainly one of some magnitude, requiring engagement of Restaurant and management/administrative staff in advance of the actual opening, and no reason is suggested by MAG why Theron would have incurred the expense of engaging and retaining the employees unless there was proper occasion to do so.
28. I am satisfied that the employee costs to 9 February 2015 are recoverable as wasted costs. Taking one quarter of the amount in COA-3 for February 2015, the amount is AED 614,104.75.
Items 32 and 33
29. From COA-5, Theron obtained medical insurance for the employees with an inception date of 30 April 2015, paying a premium of AED 36,553. The policy in evidence is incomplete, but it shows that the insurance was offered on 26 April 2015 and accepted on 30 April 2015. Theron claimed half the premium as wasted costs.
30. COA-6 contained residence visas for a number of persons, not entirely corresponding with the employees in COA-3 and COA-4. Ms Krayushkina said that Theron paid AED 64,520 for visas for the employees and some dependants. Theron claimed that amount
31. MAG accepted the amounts for insurance and visas as amounts expended. Its submissions were brief: that it was not clear why staff was retained when the Restaurant was not open, and that Theron “cannot be said to have mitigated its loss in this regard “.
Insurance
32. MAG’s submission as to failure to mitigate would seem to have been equally available in relation to the employee costs, although no such submission was made. It matters not. The burden of proving failure to mitigate is born by MAG. It did not attempt to discharge the burden, in relation to insurance or in relation to the employee costs, and I am not satisfied that Theron unreasonably retained the staff.
33. However, the problem for Theron is more fundamental. The insurance was taken out in April 2015. The cost to Theron was not wasted because of the delay in obtaining the Authorisation, but because the tenancy was terminated and the Asia de Cuba project was abandoned. Nothing is recoverable for this item.
Visas
34. Only eight of the residence visas were issued prior to 9 February 2015. At best, only their cost could be wasted because of the delay in obtaining the Authorisation. But the costs were one-off costs, incurred in order to have the employees for the Restaurant whenever opened. They were not periodical costs during the period of delay in obtaining the Authorisation and were not wasted because of the delay. They were wasted because the Restaurant did not open
35. Mitigation does not arise, and it is difficult to see how it could arise in relation to the one-off costs. Nothing is recoverable for this item.
Costs
36. Each of Theron and MAG has succeeded in part and failed in part. Theron was not legally represented, but even if it had been my present view is that it should not recover costs; equally, that MAG should not receive costs (particularly when its submissions scarcely contributed to its partial success). I will make no order as to costs, but with liberty to apply for a different order by filing a written submission of not more than two pages within seven days of the date of this judgment.
Orders
37. I make the following orders:
1. The Defendant to pay the Claimant AED 614,104.75, plus interest at EIBOR plus 2% per annum from 9 February 2015.
2. Subject to order 3, no order as to costs.
3. Liberty to apply in relation to costs by filing a written submission of not more than two pages within seven days from the date of the issuance of this Order.