March 08, 2023 COURT OF FIRST INSTANCE - JUDGMENTS
Claim No. CFI 114/2020
THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS
IN THE COURT OF FIRST INSTANCE
INTERNATIONAL ELECTRO- MECHANICAL SERVICES CO. (LLC)
EMIRATES SPECIALITY HOSPITAL FZ-LLC
JUDGMENT OF LORD JUSTICE ANGUS GLENNIE
|Hearing :||6 March 2023|
|Counsel :||Mr. Antonios Dimitracopoulos instructed by BSA Ahmad Bin Hazeem & associates LLP for the Claimant
The Defendant was not present
|Judgment :||8 March 2023|
UPON the Claimant’s Claim having been filed on 9 December 2020
AND UPON the Defendant's Defence without Counterclaim dated 18 November 2021
AND UPON the Claimant’s Reply to the Defence dated 8 December 2021
AND UPON the Claimant’s Skeleton Argument dated 2 March 2023
AND UPON reviewing the parties’ submissions in the case file
AND UPON hearing Counsel for the Claimant at the Trial listed before me on 6 March 2023 (the “Trial”)
AND PURSUANT TO the Rules of the DIFC Courts (the “RDC”)
IT IS HEREBY ORDERED THAT:
1. The Claimant’s claim succeeds in full.
2. The Defendant shall within 14 days pay to the Claimant the sum of AED 53,188,301.66 together with interest thereon calculated at the rate of 9% per annum from the date of this Order until payment.
3. The Defendant shall pay to the Claimant its costs of this action on an indemnity basis, such costs to be assessed by the Registrar if not agreed.
Date of issue: 8 March 2023
SCHEDULE OF REASONS
1. The Claimant is a Dubai based contractor specialising in mechanical, electrical and plumbing (“MEP”) works. The Defendant owns and operates hospitals in Dubai.
2. In this action the Claimant claims the sum of AED 53,188,301.66 in respect of MEP works which it carried out for the Defendant at a building in Mirdiff, Dubai, initially designed as a shopping mall and subsequently being converted into a hospital intended to be operated by the Defendant. The Defendant denies all liability. I shall refer later to the basis for that denial.
Procedure to date
3. The Claim Form in this action was issued on 9 December 2020. In the absence of an Acknowledgment of Service, judgment in default was entered on 29 December 2020. In July 2021 that default judgment was set aside on the basis that service of the Claim Form had been irregular and the Defendant had “a realistic prospect of successfully defending the claim”. Particulars of Claim were served on 29 August 2021. In September 2021 the Defendant applied to stay these proceedings on the basis of bankruptcy proceedings brought against it in the Abu Dhabi Court of First Instance. That application was refused on 20 October 2021 by Justice Wayne Martin. The Defendant served a Defence on 18 November 2021. In February 2022 Justice Sir Jeremy Cooke refused a further application to stay the proceedings, this time brought in action CFI-085-2021 by three individuals in their capacity of “trustees in bankruptcy” of the Defendant appointed as such by the Abu Dhabi Court. Thereafter the Defendant participated in all necessary procedural steps, including agreeing directions in Case Management Orders of 8 April 2022 and 10 October 2022, in the latter of which the trial in this case was fixed to begin on 6 March 2023. Throughout this process, including when the trial date was fixed, the Defendant was represented by Habib Al Mulla & Partners (“Habib”), a member firm of Baker & McKenzie International. On 17 January 2023, however, Habib applied to the Court to come off the record as the Defendant’s legal representative in these proceedings. That application was granted on 19 January 2023. Since then the Defendant has been unrepresented. It is important to stress that the date for the trial was fixed before Habib came off the record, so the Defendant was well aware of when the trial was to take place.
4. The trial of this action took place on 6 March 2023. Despite being aware of the date for the trial, the Defendant did not appear at the trial and was not represented.
Proceedings at trial
5. Mr Dimitracopoulos, who appeared for the Claimant at trial, called two witnesses, both of whom gave evidence under reference to witness statements filed with the court in advance of the trial. They were Mr Joseph Coutinho and Dr Hassan Arab.
6. Mr Coutinho was at the material times the Executive Director of the Claimant and as such was responsible for tendering, negotiating contracts, signing and execution of contracts and dealing with all technical and commercial matters, including the appointment of commercial and legal consultants to deal with contractual issues. He could also speak to the general administration of the Claimant, for which he was also responsible, deciding on matters relating to estimation and tendering and project execution. As such he had direct, first hand, knowledge of the events which are the subject of dispute in these proceedings.
7. Dr Hassan Arab was called as an expert witness on issues of Dubai and UAE law. He is a Partner and Regional Head of Dispute Resolution at Al Tamimi & Company, a Dubai law firm with offices in 10 countries across the Middle East and North Africa. He holds a number of law degrees, has been licensed as an advocate before the courts of the UAE since 1998, and now has full rights of audience before courts at federal and Emirate level. He is the author of numerous articles and books on litigation and arbitration in the UAE and a lecturer on international arbitration at the University of St Joseph in Dubai.
8. Both struck me as careful and truthful witnesses. I accept their evidence.
9. On 31 July 2019, the Claimant and Defendant entered into a contract (“the Contract”) for the supply, installation, commissioning and testing of MEP Works for the proposed Emirates Specialty Hospital at Mirdiff, Dubai.
10. The Contract was signed on behalf of the Defendant by Mr Alaeddin Atari, its Managing Director and Chief Executive Officer (stated to be “Duly authorised to sign this Contract on behalf of the Employer, Emirates Specialty Hospital”), and on behalf of the Claimant by Joseph Coutinho, its Executive Director.
11. The agreed price for the MEP Works was AED 88,883,707.50 exclusive of VAT.
12. The Contract was stated to be governed by the laws of the United Arab Emirates and of Dubai, with the DIFC Courts having exclusive jurisdiction.
13. Clause 5.1 of the Commercial Terms and Conditions, which form part of the Contract, provided that:
"all payments shall be made by the Employer direct to the MEP Contractor upon certification by the Engineer."
The “Employer” is the Defendant. The Engineer was named in the Contract as Ian Banham & Associates, Consulting Engineers, Dubai (“Banham”). However, I was told by Mr Coutinho, and I accept, that Banham was never in fact appointed as Engineer. Instead the Defendant appointed Mr Royston Brank to the role of Consultant and he, in effect, acted as Engineer. It is his signature which, along with the Defendant’s stamp, appears on the Payment Certificates to which I shall refer below.
14. Clause 5.5 of the Commercial Terms and Conditions stated that payments were to be made by the Defendant to the Claimant within
"14 days from the date of Payment Certificate”.
(See also clauses 60.2, 60.8 and 60.10 to the same effect.) The term “Payment Certificate” was clearly intended as a reference to certification as provided for under clause 5.1 above.
The dispute – relevant facts
The Payment Certificates
15. The Claimant contends that between August 2019 and the end of August 2020 it completed approximately 79% of the contracted works. I accept that. The precise percentage does not matter but is indicative of the fact that the work was very substantially complete.
16. During this period eleven invoices were issued by the Claimant for the value of work done during the relevant period (monthly from August 2019 through to the end of May 2020 and, in addition, the month of August 2020). Each invoice was certified for payment by Mr Royston Brank on behalf of the Defendant. At the bottom of each “Payment Certificate”, as the document was entitled, payment was certified in the following terms:
“We hereby certify that the following amount [...] is due for payment to [the Claimant] under the terms of their Contract with you.”
In addition to bearing Mr Brank’s signature, each Payment Certificate also bore the company stamp of the Defendant.
17. The Payment Certificates certify work done to the value of AED 66,917,772.62. While the contract was still live, the Payment Certificates then allowed for deduction of 10% retention and an amount in respect of “advance payment recovery”, to reach a lower figure for the amount due on the particular Certificate, but this does not affect the overall sum certified as the value of work to date, which provides the foundation for calculating the sum ultimately due.
18. There has been no challenge to the validity of the Payment Certificates. Yet the Defendant failed to make payment of the certified amounts in accordance with the Contract terms.
“Comfort letters” from the Defendant
19. During the course of this period of non-payment against the Payment Certificates, the Defendant wrote several letters to the Claimant expressing its appreciation of the work carried out by the Claimant in spite of issues about non-payment by the Defendant, and asking for the Claimant to be patient until such time as the Defendant was in a position to honour their entire payment obligations in full. Mr Dimitracopoulos referred to these letters as “Comfort Letters”. I need quote only from the letter of 27 January 2020:
“At the outset, lets us express our deepest appreciation and gratitude from ESH Management to your esteemed organization M/s IEMS, in the professional manner in which your team has planned and progressed the execution of MEP works at site, in spite of the fact that there are issues related to honoring of payment obligations on time from our end ...
We are actively working on a revised plan for mobilizing resources for Project funding and it is expected to get it finalized and streamlined within 2 to 3 weeks' time frame now and your certified payments amounting to AED 42,318,750.62 as of date shall be paid immediately once we have mobilized our fund resources. We request you to be patient till such time and we hereby commit that we as EHG Group will honour the entire payment obligations without fail."
20. Similar comfort letters were dated 4 March 2020, 9 April 2020, 27 April 2020 and 29 April 2020. The letters of 27 January, 4 March and 9 April were each signed on behalf of the Defendant by Mr Atari (as CEO), Mr Reji Paul (Finance Director) and Mr Nithin Das (Director of Administration). Those of 27 and 29 April were signed by Mr Atari alone.
21. Those comfort letters confirm that the Defendant had no complaints about the work carried out by the Claimant and took no issue with the valuation of that work as set out in the various Payment Certificates.
22. On 30 September 2020 the parties entered into an Addendum to the Contract. Clause 4 of the Addendum recited that the MEP works carried out by the Claimant, “which are certified as complete by the Employer [the Defendant], through the issue of monthly Interim Payments and which remain outstanding at the time of entering into this Addendum”, are set out in Appendix A to the Addendum and total AED 54,263,661.25. That sum is referred to as “the Outstanding Debt”.
23. The Addendum was signed by Mr Atari as Managing Director and CEO of the Defendant and Mr Coutinho as Executive Director and CEO of the Claimant and in each case the relevant company stamp was impressed on the document under the signature.
24. Clause 5 of the Addendum stated that the parties were now desirous of agreeing in the Addendum (A) the terms of settling the Outstanding Debt; (B) the terms following settlement of the Outstanding Debt; and (C) the terms in the absence of a settlement of the Outstanding Debt.
25. The parties went on to agree in the ensuing paragraphs that until the Outstanding Debt was paid, the Contract would remain suspended and that the Outstanding Debt was to be recoverable by the Claimant “through all available legal means”. There were a number of other detailed points which it is not necessary to set out in circumstances such as the present where the Outstanding Debt has not been paid.
26. Appendix A to the Addendum then set out in column form figures for:
(i) the Original Contract Value;
(ii) less the Provisional Sum Item;
(iii) the Revised Contract Value (AED 88,673,707.50 inclusive of VAT);
(iv) the Total Value of the Work Completed at Site and duly certified by the Consultant (Mr Brank) and the Defendant’s Project Manager as at 30 September 2020 (AED 70,263,661.25 including VAT);
(v) less the amount received from the Defendant (AED 16,000,000 excluding VAT); and
(vi) the Total Amount due to the Claimant from the Defendant as at 30 September 2020 (AED 54,263,661.25 including VAT).
It is this last figure – AED 54,263,661.25 including VAT – which forms the basis of the Claimant’s claim in this action, though the Claimant recognises that it needs to give credit for a further sum of AED 1,075,359.59 paid by the Defendant in respect of VAT after the Addendum was agreed, reducing the total amount outstanding and now claimed to AED 53,188,301.66.
27. Apart from that payment of AED 1,075,359.59 in respect of VAT, the Defendant made no payments pursuant to the Addendum. On 7 December 2020 the Claimant terminated the Contract as it was entitled to under the terms of the Addendum and issued these proceedings.
The claim and the defence
28. The Claimant’s claim is straightforward. It has carried out the MEP works. Payment Certificates have been signed and issued showing its entitlement to the sum sued for. Comfort letters sent by the Defendant have raised no complaint about the work and have not disputed the amount due. The Defendant has further confirmed in the Addendum its agreement as to the sum due and owing to the Claimant. The Claimant asks for judgment for the sum of AED 53,188,301.66 plus post-judgment interest and costs.
29. Although the Defendant did not appear at the trial and therefore led no evidence, it is appropriate to look at the points raised in its Defence filed on 17 November 2021.
30. Much of the Defence consists of admissions and non-admissions. The Defendant acknowledges that the parties entered into the Contract. It makes no admissions as to the work alleged to have been completed by the Claimant as reflected in the Payment Certificates. Similarly, it makes no admission that the so-called comfort letters constitute an acknowledgement or acceptance on its part as to the work completed or the Outstanding Debt.
31. But on one point the Defendant does advance a positive case. It denies that the Addendum was validly entered into, and it denies that the Addendum is binding on the Defendant. In summary, its case is that Mr Atari, who signed the Addendum, had no authority to bind the Defendant to the Addendum.
32. The Defendant explains its case in this way. It alleges that prior to entering into the Contract with the Claimant – probably in 2017, but the date is not specified and does not appear from the copy of the Agreement filed in court – the Defendant entered into a Hospital Management Agreement (“HMA”) with Health First Management Consultancy (“HFMC”), a company owned by Mr Atari, in terms of which HFMC was to manage the Defendant including its day-to-day operations. Pursuant to that HMA, Mr Atari was appointed to operate and manage the Defendant and become its CEO and Managing Director. Certain other individuals who were appointed to senior positions in the Defendant, including the Director of Operations and the Director of Finance, also represented HFMC.
33. In terms of clause 2 of the HMA, the Defendant appointed the Manager [i.e. HFMC] to manage the premises and to direct, control and generally conduct the business of the hospital on the terms set out in the HMA. But clause 3.4 of the HMA provided that the Defendant’s prior written approval was required for: (b) the entry into any contract or agreement or series of related contracts or agreements with a total value of more than AED 368,000; (f) the settlement or other disposition of litigation, arbitration or mediation or claims where the amount in controversy exceeds AED 368,000 not covered by insurance; and (q) the making of any expenditure which is not set out in the budget or otherwise approved by the Defendant. The Defendant contends that the terms of the Addendum fall within the ambit of clause 3.4 of the HMA. Mr Atari was therefore bound to seek and obtain the Defendant’s prior written approval to the terms of the Addendum before signing it. He failed to do so and therefore the Addendum was made without authority and is not binding on the Defendant. The Defendant asserts that it would not have given its approval to the Addendum, many of the terms of which were prejudicial to it. Other points are made in the Defence to the same general effect, but I need not recite them all in any detail. There is clearly a live dispute between the Defendant and HFMC about these matters and nothing said in this judgment is intended to intervene in that dispute.
34. Before looking at the Defendant’s contentions in any detail, it must be remembered that the Defendant has chosen not to attend the trial of this action. It has called no evidence. Although a copy of a document said to be the HMA was appended to the Defence, the HMA has not been proved by any witness evidence at the trial and the Claimant has had no opportunity to question its authenticity or ask questions of witnesses relevant to the question of authority. The court cannot simply accept the untested say so of the Defendant on such matters.
35. But the difficulties with the Defendant’s argument goes deeper than this. The authority of an officer of a company is governed by the company’s Articles and Memorandum of Association or other equivalent internal governance regulations. It cannot be constrained by an agreement reached with another party. If Mr Atari committed the Defendant company to a course of action which was in breach of the terms of the HMA, it would be open to the Defendant to bring an action against HFMC or against Mr Atari for excess of authority, breach of contract or similar relief. But that would not deprive the acts of the Defendant of validity.
36. In the course of his evidence Mr Coutinho produced a copy of the Defendant’s Commercial License number 1040 issued by the Dubai Healthcare City Authority on 27 May 2020, showing the date of first issue as 28 May 2017 and the expiry date (absent further renewal) of 26 May 2021. That license names Mr Atari as Manager. He was Manager throughout that period.
37. Further, Dr Hassan Arab referred me to the Shareholders Resolution of Emirates Hospital Group establishing Emirates Surgical and Medical Speciality Hospital (which later changed its name to Emirates Speciality Hospital, i.e. the Defendant) which, in clause 5, appoints Mr Atari as manager of the Defendant with wide powers inter alia to execute, accept, undertake and perform all contracts in the Defendant’s name and to initiate, defend, commence or settle legal actions on the Defendant’s behalf.
38. On this basis I have no doubt that Mr Atari did have actual authority to agree the Addendum on behalf of the Defendant. If he did not have actual authority, it would be a clear case of implied authority or apparent or ostensible authority for the reasons set out below in relation to the position in UAE law.
39. It is difficult in any event to see how far this argument takes the Defendant. The Defendant does not dispute the validity of the Contract with the Claimant, even though on its argument that too would have required the written consent of the Defendant – nothing is said about this in the Defence. Nor does it dispute the Payment Certificates certified by Mr Brank, the Consultant, and bearing the Defendant’s stamp. It does, it is true, purport to put the Claimant to proof of the value of the work done but that misses the point, because in terms of clause 5.5 of the Contract the sums certified in the Payment Certificates become due and payable within 14 days thereafter. The liability of the Defendant for these sums is established by reference to the Payment Certificates. The Addendum adds nothing in this respect, since the sums agreed to be due are already vouched and established by reference to the Payment Certificates.
40. Accordingly, even if there were any force in the Defendant’s point about Mr Atari’s lack of authority to enter into the Addendum, that does not assist the Defendant.
UAE and Dubai Law
41. The above discussion proceeds on the basis of what might be called a common law approach to the matter. But the Contract is governed by the laws of the UAE and Dubai.
42. As already indicated, I heard expert evidence on UAE and Dubai law from Dr Hassan Arab under reference to his Expert Report filed in court. He was an impressive witness and I accept his evidence. I summarise his main conclusions below (if the case goes any further reference can be made to his Report in full).
43. First, Dr Hassan considered the status and legal effect of Payment Certificates issued by the Defendant. Dr Hassan said that under UAE law the engineer would be considered as the agent of the Employer, at least so far as concerns approving the contractor’s claims and issuing Payment Certificates, and the Employer would be bound by his actions in certifying payment. The same would apply to a Consultant such as Mr Brank while carrying out the same role. And he noted that each Payment Certificate was stamped with the Defendant’s stamp showing the Defendant’s agreement to the certification.
44. So far as concerned the status of the Payment Certificates themselves, Dr Hassan referred to the opinion of the Dubai Court of Cassation in its judgment No. 567 of 2018 Commercial and concluded that the Payment Certificate issued by the Engineer, Employer or Consultant indicated: (a) that the works had been inspected and verified in terms of quantity, quality and value; (b) that the works had been executed in accordance with the underlying contract; and (c) that the Contractor was entitled to the value of the works thus certified.
45. The Payment Certificate is regarded as an informal document (i.e. one that is issued between private parties and not by an official authority) which is proof against its issuer in relation to its contents, unless the issuer denies its handwriting or its signature, which is not the case here (subject to the question of authority): see Articles 28 and 40 of Federal Law No. 35 of 2022 (the “Evidence Law”) and the Dubai Court of Cassation Judgment No. 341 of 2021 Commercial.
46. Dr Hassan concluded this part of his evidence by stating that it is established legal principle in the Dubai Court of Cassation that a payment certificate issued by a consultant engineer on behalf of an employer constitutes robust and conclusive evidence of monies owed by an employer to a contractor, subject only to allegations of fraud or collusion on the part of the consultant engineer.
47. There are no such allegations here. It follows that in UAE law the Payment Certificates are conclusive and binding.
48. Turning to the question of Mr Atari’s authority to bind the Defendant to the Addendum, Dr Hassan first of all questioned whether the Addendum was a settlement agreement as alleged by the Defendant, since no dispute had arisen between the parties and all it did was confirm the amount of the outstanding payments already constituted by the Payment Certificates.
49. Dr Hassan explained that the Defendant is a Dubai Healthcare City (“DHC”) Freezone entity and was subject to DHC Authority’s governance laws, healthcare and commercial regulations: see Article 24 of Emirate of Dubai Law No. 9 of 2011. Under reference to various DHC Authority Governance Regulations quoted in his Report, he concluded that “it is the manager named in the trade license of the Defendant who will possess actual authority under UAE law to be the principal representative of the Defendant in a dealings with external parties and authorities.” If his powers are to be limited, this must be noted in the application for a trade license and in the document appointing him as manager. Mr Atari is the named manager on the trade license, which is sufficient to indicate that he had actual authority to conclude the Addendum on behalf of the Defendant,
50. Dr Hassan went on to consider the shareholders resolution referred to above and concluded that this too was sufficient evidence of Mr Atari having actual authority to enter into the Addendum on behalf of the Defender.
51. So far as concerns implied authority, the Dubai Court of Cassation noted, in its Judgment No. 197 of 2016, that “agency is implied if it can be understood from the circumstances”. In the present case, if there was a doubt about actual authority, then implied authority could easily be found from the fact that Mr Atari signed the Contract on behalf of the Defendant, and that the Defendant did not object to performance of the Contract or take any steps to prevent the work. His authority to conclude the Addendum flows from what had gone before.
52. Finally, Dr Hassan referred to the doctrine of apparent authority. In real estate Cassation Appeal 35 and 40 of 2010, the Dubai Court of Cassation found it to have been established in the doctrine and jurisprudence of the Dubai Courts that, where a principal’s conduct, whether by positive act or negative omission, brings about or results in circumstances from which it may be deduced that an “agent” has authority to act on its behalf, and where a third-party transacts with such “agent” in good faith (in his apparent capacity as lawful agent of the principal in that transaction), the third-party is permitted by law to rely on such apparent authority. The effect is that the principal is bound by the transaction under a theory of apparent authority. That principle has been reaffirmed in by the Dubai Court of Cassation in commercial Cassation Appeal number 370 of 2020.
53. In the present case Dr Hassan said that the court could find that Mr Atari had apparent authority for a number of reasons: the acts of Mr Atari were within the usual limits of a manager in a company conducting the same type of activity; the Defendant provided the Claimant with the Defendant’s trade license (naming Mr Atari as its manager) and the Shareholders Resolution (appointing him as its manager), from which it could be deduced that Mr Atari had authority to act on the Defendant’s behalf; the Defendant allowed Mr Atari to sign the Contract and authorise certain payments under it; and the Addendum itself identified the Defendant as a party and contained the Defendant’s stamp on each page.
54. As I have said, I accept Dr Hassan’s evidence which I have attempted to summarise briefly. I am satisfied on the basis of that evidence and on the basis of the facts which I have set out earlier that as a matter of UAE law Mr Atari had actual authority to conclude the Addendum on behalf the Defendant. If that is wrong, he certainly had implied or apparent authority to bind the Defendant.
55. However, as set out earlier, none of this matters, if, as I have found, the Payment Certificates, which are not challenged as to their authenticity, are conclusive with respect to the sums due from the Defendant.
56. For all these reasons I find that the Claimant has proved its case against the Defendant for the full amount claimed. I shall order that the Defendant shall, within 14 days of this Order, pay to the Claimant the sum of AED 53,188,301.66, together with post-judgment interest at the rate of 9% per annum from that date until payment.
57. I shall order the Defendant to pay the Claimant’s costs of this action, to be assessed by the Registrar on the indemnity basis if not agreed. I am satisfied that this is an appropriate case to order costs on the indemnity basis. The Defendant had the default judgment against it set aside on the basis, in part, that it had a realistic prospect of defending the Claimant’s claim. In fact, there was no realistic prospect of that happening, in particular because the lack of authority argument did not impact at all on the claim based on the Payment Certificates. The Defendant’s legal team came off the record in mid-January this year, but rather than concede the claim the Defendant continued to put the Claimant to the trouble and expense of coming to court. The Claimant’s case was bound to succeed and the Defendant’s tactics caused it to incur significant costs with no justification. So I award the Claimant its costs on an indemnity basis.