March 03, 2023 TECHNOLOGY AND CONSTRUCTION DIVISION - JUDGMENTS
Claim No. TCD 009/2020
THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS
IN THE COURT OF FIRST INSTANCE
FIVE REAL ESTATE DEVELOPMENT LLC
Claimant/ Defendant to Counterclaim
REEM EMIRATES ALUMINIUM LLC
Defendant/ Claimant to Counterclaim
JUDGMENT OF JUSTICE LORD ANGUS GLENNIE
|27 June 2022 – 1 July 2022
Final Closing Submissions served on 23 August 2022
|Mr. Martin Khoshdel instructed by Al Aidarous Advocates and Legal Consultants for the Claimant
Mr. Thanos Karvelis instructed by Charles Russell Speechly LLP for the Defendant
|3 March 2023
UPON the Claimant’s Claim having been filed on 27 October 2020
AND UPON the Defendant's Defence without Counterclaim dated 21 December 2020
AND UPON the Claimant’s reply to the Defence dated 11 January 2021
AND UPON the Order of Justice Sir Richard Field dated 2 February 2021 granting the Defendant leave to file a counterclaim
AND UPON the Defendant’s Counterclaim dated 3 February 2021
AND UPON the Claimant’s Defence to the Defendant’s Counterclaim dated 23 February 2021
AND UPON the Order with Reasons of Justice Sir Richard Field dated 4 May 2021 granting the Defendant immediate judgment and dismissing all of the Claimant’s claims in case number TCD-009-2020
AND UPON the Claimant’s claim in case number TCD-003-2021 having been filed on 11 August 2021
AND UPON the Case Management Order of H.E. Justice Nassir Al Nasser dated 18 November 2021 ordering that these proceedings be consolidated with case number TCD-003-2021, using this proceeding number TCD-009-2020
AND UPON the Claimant’s skeleton argument dated 22 June 2022
AND UPON the Defendant’s skeleton argument dated 23 June 2022
AND UPON reviewing the parties’ submissions in the case file
AND UPON hearing Counsel for the Claimant and Counsel for the Defendant at the Trial listed before me on 27 June until 1 July 2022 (the “Trial”)
AND PURSUANT TO the Rules of the DIFC Courts (the “RDC”)
IT IS HEREBY ORDERED THAT:
1. The Claimant’s claims as set out in paragraphs 65 to 78 below are dismissed.
2. The Defendant’s claims as set out in paragraphs 79 to 114 below are granted.
3. Subject to paragraphs 64 and 115 below, the parties must attempt to agree a Final Account based upon the decisions made in this Judgment on the individual disputed items by no later than 28 days from the date of this Judgment.
4. If parties are unable to reach agreement, and if the outstanding matters cannot sensibly be made the subject of brief further submissions in writing, a further hearing shall be scheduled not sooner than 28 days from the date of this Judgment.
5. The Claimant shall pay the Defendant’s costs of these proceedings, to be assessed by the Registrar on the standard basis if not agreed.
Date of issue: 3 March 2023
1. The Claimant (“FIVE”) was at all material times the developer of the FIVE JVC Hotel (the “Hotel”) located in Jumeriah Village Circle Dubai (the “Building”), having been engaged to carry out that role by the owner, Unlimited 1 Limited (the “Owner”) on the terms of a Property Development Contract (“PDC”) dated 1 April 2014. The PDC required the development (the “Project”) to be completed by 30 September 2018.
2. The main contractor on the Project was China State Engineering Company (“Main Contractor”). The contract between the Main Contractor and FIVE (the “Main Contract”) was signed on 28 February 2016.
3. The Defendant (“Reem”) was engaged by FIVE to design, supply, deliver and install the aluminium and glazing works for the Building (the “Works”). A letter of intent confirming this appointment (the “Letter of Intent”) was issued by FIVE to Reem on 4 July 2015. This was followed on 19 April 2016 by a work order (the “Work Order”) issued by FIVE and executed by Reem recording an agreed price (“Contract Price”) of AED 47,000,000 for the Works and a completion date of 8 November 2017.
4. It should be noted that Reem contracted directly with FIVE – there was no contract or subcontract for the Works between the Main Contractor and Reem. There is an issue as to whether Reem should have entered into a sub-contract with the Main Contractor, but nothing turns on this for present purposes.
Relevant dates in the progress of the Works
5. Reem commenced work pursuant to the Work Order being issued on 19 April 2016. The first physical works performed by Reem was the construction off site of the display suite. This was a replica of one wing of the building and was completed on 24 April 2016. Reem commenced work on the building itself on or about 15 June 2016, when it was given access to wing B on level 9. By 5 August 2016, Reem had carried out works on levels 6–15 inclusive of the building; while the Main Contractor had completed civil works up to level 19 and was commencing work at level 20.
6. On 6 August 2016 a fire broke out on the site, possibly starting on levels 19/20 (the “Fire Incident”). Substantial damage was caused to the building, with materials which were on fire falling down onto level 5. The fire affected the mid-floors in the main, with some damage to podium levels as well. Significant damage was done to level 19; and all formwork for level 20 was entirely destroyed, as well as at levels 5 and 6. Work on levels 7 and 8 was partially damaged. Levels 9–18 were largely unaffected.
7. Following the Fire Incident, clean up works commenced in September 2016. Reem was on site to assess the damage caused to its works, materials, tools and other property on 24 September 2016. In September until late November 2016, Reem carried out all necessary works to remove the damage to works, goods, materials, tools and other property from the building.
8. On 22 November 2016, a second kick-off meeting was held with FIVE and all of the contractors engaged on the Project, including Reem. A resumption date of 1 December 2016 was agreed. The works did in fact resume on that date, albeit slowly because of the time taken by the Main Contractor to fix the damage caused by the Fire Incident.
9. In addition to the delay caused by the Fire Incident, Mr Saliem Almahdi (“SA”), Reem’s Project Manager, claims that Reem was constantly being delayed by other causes. He says that in the period from 14 December 2016 to 29 June 2019, he and his colleague (Ahmad Daraz) issued approximately 212 delay notices (as exhibited to his witness statement) relating to FIVE’s failure to provide (a) civils works clearances, (b) EIFS clearances, (c) waterproofing clearances, (d) cradle access, (e) loading platform access, (f) tiling clearances, (g) scaffolding and (h) submittal reviews; and, in addition, they reported delays due to variations to the blockwork design, incomplete works to construct the upstand and various works done by the Main Contractor which were out of tolerance.
Addendum 1 to the contract between FIVE and the Main Contractor
10. On 1 June 2017, FIVE and the Main Contractor (China State Engineering Company) entered into a contract addendum (“Addendum 1”) in terms of which the completion date for the Works was extended to 25 October 2018 and FIVE agreed to take a novation of all of the Main Contractor’s subcontracts. This did not include Reem, since Reem had not signed a subcontract agreement with the Main Contractor. The novation of the Main Contractor’s subcontracts effected a significant change in the management of the Project. It meant, in particular, that FIVE agreed to take over the project management responsibility for the whole Project.
The Subcontract Agreement between FIVE and Reem
11. In September 2017, more than a year after the fire, FIVE proposed a new form of agreement for signing by Reem. Until that time, the parties had only signed the Work Order. The process initiated by that proposal was slow but resulted in agreement in June 2018 (as set out in the next paragraph).
12. On 4 June 2018, the final version of this proposed agreement, entitled ‘Subcontract Agreement’ and, incorrectly, dated 29 May 2018, was executed by the parties (hereafter the “Subcontract Agreement” or “SCA”). It is agreed between the parties that despite the Subcontract Agreement physically attaching a copy of the document entitled “Conditions of Contract for Construction MDB Harmonised Edition 2005”, those Conditions did not form part of the Subcontract Agreement – the document was attached by mistake. The Subcontract Agreement should instead have attached the “FIDIC Conditions of Contract for Construction, for building works designed by the Employer, First Edition 1999” (the “FIDIC General Conditions”); those Conditions were specifically identified in clauses 1.1 and 4.14 of the SCA and did form part of it.
13. The Subcontract Agreement effectively revised the completion date to 25 October 2018 (from the earlier agreed completion date of 8 November 2017) – an extension of 351 days – so as to align Reem’s contractual obligation vis-à-vis FIVE under the SCA with that agreed between FIVE and the Main Contractor under Addendum 1 of 1 June 2017.
14. The Building was not completed by 25 October 2018.
15. The Hotel was opened on 2 September 2019.
The Project and Reem’s involvement
16. The Project is described in detail by SA in his first witness statement in this action. He was the main project manager for the Defendant (“Reem”) and, except for a period from mid-March 2017 through to mid-March 2018, had day-to-day responsibility for managing and overseeing Reem’s work on the project. He therefore had a detailed knowledge of how the building was constructed and how Reem’s work was integrated with work being performed by the Main Contractor and other contractors on the Project. Although his evidence was challenged on a number of points, his description of the Project and the interface between Reem’s work and other work being carried out was not significantly in dispute. I accept this part of his evidence and summarise it in the following paragraphs.
17. The Project consisted of a building that was made up of a basement, four car parking levels (levels 1-4) and, on top of the car parking levels, 55 circular floors and a roof top (with mechanical and BMU facilities), creating a tall cylinder shaped building.
18. Level 5, just above the top car park level, was atypical. It was designed for the restaurant and other facilities. Prior to the Fire Incident on 6 August 2016, level 5 was used for storage of materials, scaffolding and contractors’ tools. Levels 6–59 were largely identical, except that four of those floors were mechanical floors (reserved for air-conditioning and other plant) where Reem’s work was limited to the installation of balustrade glass. The design of each standard floor was like a pizza that had been cut into three slices (wings A, B and C). Each wing was largely identical in design to the other two wings and was made up of apartment space (including balconies) and open space. The open space in each wing was referred to as a “roof garden”. The circular floors were partially rotated on each level, creating a spiral design. Accordingly, while each wing was substantially the same, the rotation of each floor meant that each wing was out of alignment with the wing on the floors above and below it.
19. At this stage, I should outline Reem’s work in relation to the Project and explain how it tied in with the work done by others. This too was dealt with by SA in his first witness statement; again, his evidence on these matters was not seriously challenged and I accept it. I summarise it below.
20. Reem’s work could essentially be broken down into four main types of activity, viz. the installation of (a) balcony balustrades, (b) roof garden balustrades, (c) stick curtain walls, including the installation of sliding doors and (d) “CW4” master bathroom curtain walls (which was a curtain wall that protruded from the building). The scope of Reem’s work also included some minor works such as the fitting of aluminium hinge doors, louvres, and two revolving doors.
21. The process to install the roof garden and balcony balustrades was basically the same, and was as follows:
(a) The Main Contractor would construct the civil works for the relevant floor. When the concrete was properly set and the Main Contractor had cleared the site for access by subcontractors, Reem would be permitted to commence works in that part of the building;
(b) Reem would first send a surveyor who would survey the civil works to confirm the correct tolerances and set the position for installation of the “U channel”;
(c) Reem would then install the “U channel”;
(d) The Main Contractor would then grout around the “U channel”;
(e) The waterproofing contractor would then apply waterproofing to the area;
(f) Reem would then return to install the glass balustrade (this was a change from the originally agreed sequence, in terms of which Reem were to have fitted the glass balustrade later in the process);
(g) Then (one before the other or at the same time);
(i) the exterior insulation and finish system (“EIFS”) would be installed by the EIFS contractor to the external side of the balustrade; and
(ii) the tiling contractor would do the finishes to the internal side of the balustrade;
(h) Reem would then return to this part of the site to:
(iii) on the internal side (the tiles side), apply the profile cover; and
(iv) on the external side (the EIFS side), apply the cover over the EIFS and add the final sealant between the EIFS and the cover.
22. The only difference in the process of installing the roof garden balustrade and the balcony balustrade was that for the roof garden balustrade Reem did not apply a cover over the EIFS or tiles, but just added sealant on the EIFS side.
23. Cradle access was required to be supplied by FIVE to complete these works, as it was necessary (i) for the EIFS contractor to install the EIFS and (ii) for Reem to install the final cover and sealant, such works being carried out on the exterior of the building.
24. The process of installing the curtain walls was as follows:
(a) the initial steps described in paragraph 21(a) above would be the same;
(b) Reem would survey the civil works to ensure the tolerance was correct and properly position the aluminium curtain wall frame and, for balconies, the position of the sliding door;
(c) Reem would install the aluminium frame, and, where relevant, the sliding doors;
(d) The waterproofing contractor would then install a layer of waterproofing protection;
(e) The Main Contractor would then return to apply the screed;
(f) Reem would then return to install the EPDM membrane (an initial waterproofing membrane required to be installed by Reem to the works area);
(g) The waterproofing contractor would then install a further layer of waterproofing protection;
(h) Reem would then return to install the glass panels;
(i) The EIFS contractor would then attend to install the EIFS; and
(j) Reem would then apply the covers and final sealant between the covers and the EIFS.
25. The process to install the CW4 Master bathroom curtain wall was the same as the process for the curtain wall as noted above, except:
(a) FIVE was required to have scaffolding set up for the contractors before they could commence such works; and
(b) Cradle access was required to be provided by FIVE for the glass to be installed, for the EIFS to be installed and for Reem to apply the covers and final sealant on the exterior of the building.
26. SA made the following observations on certain practical aspects of the process which, again, I accept as accurate:
(a) Between each step noted above, each contractor would have their works cleared by FIVE’s resident engineer, permitting the next contractor to carry out the next step of the process;
(b) Clearance was given primarily by means of a Working Space Handover Form or Notice (“WSHN”) issued by FIVE’s resident engineers (though on some occasions clearance was given by a WhatsApp message);
(c) Each section of the works required a significant amount of integration between multiple parties; and
(d) The procedure described above meant that (i) any delay by any contractor engaged in the process would delay the subsequent contractors involved in the process, with Reem being the first and last party involved after the civils work (the reinforced concrete structure) had been constructed and cleared; and (ii) it was impossible for Reem to finish any portion of such works until the EIFS were installed, because it had to apply the covers (where relevant) and the final sealant between the EIFS and Reem’s works.
The Engineer’s Determination
27. WS Atkins & Partners Overseas (“the Engineer”) was instructed by FIVE to carry out a determination pursuant to clause 3.5 of the FIDIC General Conditions.
28. The Engineer issued his determination (the “Determination”) on 5 March 2020. He concluded that a total sum of AED 41,334,961.90 was payable to Reem for the Works. That sum was made up as follows:
(1) Contract Price: AED 47,000,000;
(2) ADD: Positive variations of AED 1,329,350.60 (agreed) and AED 35,726.16;
(3) ADD: Fire incident compensation of AED 750,000 (on account of damage suffered by Reem as a result of the Fire Incident);
From the resulting figure the Engineer determined that FIVE were entitled to withhold or set-off:
(4) AED 3,162,901.82 on account of disputed variations;
(5) AED 4,516,644.88 on account of liquidated damages for delay; and
(6) AED 64,842.00 on account of certain contra charges.
The Engineer calculated that that resulted in the sum of AED 41,334,961.90 being payable to Reem according to the Engineer’s Determination. My own figure (AED 41,370,688.10) is slightly different, but it is unnecessary to resolve the reasons for that difference at this stage.
29. In addition, the Engineer also determined that no money was payable by FIVE to Reem on account of prolongation costs.
30. During the course of the Works, FIVE paid Reem a total of AED 39,572,130.68. After the commencement of this action, FIVE paid a further amount of AED 1,811,837.07 (plus VAT of AED 90,591.85) into court pursuant to a consent order dated 25 October 2021.
Relevant terms of the Subcontract Agreement
31. The Sub-Contract Agreement was executed on 4 June 2018. FIVE is named as the Employer and Reem as the Sub-Contractor. The Contract Price is AED 47 million. The completion date (“Contract Duration”), fixed by reference to the Addendum 1 to the Main Contract between FIVE and the Main Contractor, was 25 October 2018.
32. For the purposes of the present dispute, the most relevant provisions of the Sub-Contract Agreement are to be found in Clause 4, “General Obligations of the Sub-Contractor”, and clause 8 (“Delay Damages and Engineer’s Damages for Delay”). I set out those provisions below:
“4. General Obligations of the Sub-Contractor
4.5 The Sub-Contractor shall follow the revised program of works […]. The Employer shall manage and supervise the Sub-Contractor to ensure timely completion of works [...]. As at the date of this Sub-contract Agreement, the Sub-Contractor has to be paid all the payments due under the Sub-Contract for the works done until end of March 2017, from the Main Contractor […]. The Main Contractor has accepted the liability towards Claims raised by the Subcontractor on the Fire incident of 6th August 2016 [...]. However, not limiting the claim to the CAR policy the Main Contractor should additionally pay all reasonable costs of Prolongation claim made by the Subcontractor, substantiated and approved by the Engineer and the Employer, which shall be settled within a reasonable period before closing the Subcontractor’s account. In the event of the Main contractor is in breach of this obligation then the Employer shall deduct such reasonable and approved amount from the Main Contractor and pay to the Subcontractor.
4.10 The Sub-Contractor shall indemnify the Employer from and against all loss, costs, damages, claims, arising out of and/or in connection with the performance, acts or defaults of the Sub-Contractor ...
8. Delay Damages and Engineer’s Delay Damages
8.1 Delay Damages of AED 40,000.00 is applicable for every calendar day of delay beyond the agreed time for completion as mentioned in the Sub-Contract.
8.2 The amount of liquidated damages and Engineer’s damages for every day of delay in the completion of the sub-Contract Works within the time for completion in accordance or such extended time as may be allowed under the sub-Contract shall be in accordance with the provision of Conditions of sub-Contract.
8.3 Maximum liquidated damages are capped at 10% of the Contract Price.“
In terms of clause 4.13, the SCA was to be governed and construed in accordance with the laws of the Emirates of Dubai and the Federal Laws of the UAE as applied in Dubai. It goes on to provide for the exclusive jurisdiction of the Dubai Courts, a term which is apt to include the Courts of the DIFC. The parties have agreed to submit this dispute to the jurisdiction of the DIFC Courts.
33. There was some dispute as to which party suggested or insisted on the inclusion of clause 4.10. In my opinion, nothing turns on this. Insofar as it is relevant to make a finding on this point, I reject the argument advanced by FIVE to the effect that the clause was included at the insistence of Reem. The exchange of correspondence leading up to the conclusion of the SCA does not support FIVE’s case on this point and I can see no basis for thinking that Reem would have regarded it as in their own interests to insist that such a clause form part of the SCA.
34. The relevant FIDIC clauses are clauses 8 and 20. They provide, so far as relevant, as follows:
“8 Commencement, Delays and Suspension
8.2 Time for Completion
The Contractor shall complete the whole of the Works, and each Section (if any), within the Time for Completion for the Works or Section (as the case may be) ...
8.4 Extension of Time for Completion
The Contractor shall be entitled subject to Sub-Clause 20.1 [Contractor’s Claims] to an extension of Time for Completion if and to the extent that completion for the purposes of Sub-Clause 10.1 [Taking Over of the Works and Sections] is or will be delayed by any of the following causes:
(a) a Variation (...) or other substantial change in the quantity of an item of work included in the Contract.
(b) A cause of delay giving an entitlement to an extension of time under a Sub-Clause of these Conditions.
(e) any delay, impediment or prevention caused by or attributable to the Employer, the Employer’s Personnel, or the Employer’s other contractors on the Site.
If the Contractor considers himself to be entitled to an extension of the Time for Completion, the Contractor shall give notice to the Engineer in accordance with Sub-Clause 20.1 [Contractor’s Claims]. ...
8.7 Delay Damages
If the Contractor fails to comply with Sub-Clause 8.2 [Time for Completion], the Contractor shall subject to Sub-Clause 2.5 [Employer’s Claims] pay delay damages to the Employer for this default. ... However, the total amount due under this Sub-Clause shall not exceed the maximum amount of delay damages (if any) stated in the Appendix to Tender.
These delay damages shall be the only damages due from the Contractor for such default, other than in the event of termination under Sub-Clause 15.2 [Termination by Employer] prior to completion of the Works. ...
20 Claim, Disputes and Arbitration
20.1 Contractor’s Claims
If the Contractor considers himself to be entitled to any extension of the Time for Completion and/or any additional payment under any Clause of these Conditions or otherwise in connection with the Contract, the Contractor shall give notice to the Engineer, describing the event or circumstance giving rise to the claim. The notice shall be given as soon as practicable, and not later than 28 days after the Contractor became aware, or should have become aware, of the event or circumstance.
If the Contractor fails to give notice of a claim within such period of 28 days, the time for Completion shall not be extended, the Contractor shall not be entitled to additional payment, and the Employer shall be discharged from all liability in connection with the claim. ...
The arbitrator(s) shall have full power to open up, review, and revise any certificate, determination, instruction, opinion or valuation of the Engineer, and any decision of the DAB, relevant to the dispute. Nothing shall disqualify the Engineer from being called as a witness and giving evidence before the arbitrator(s) on any matter whatsoever relevant to the dispute.
Neither Party shall be limited in the proceedings before the arbitrator(s) to the evidence or arguments previously put before the DAB to obtain its decision…”
I have set out the relevant part of sub-clause 20.6 because it shows that in any legal proceedings relating to the Engineer’s Determination – and this must apply whether the legal challenge is before the DAB, an arbitrator or, as here, the Court – it is open to all parties to adduce fresh evidence and to present further arguments not previously raised.
35. This case has an unusual procedural history which has shaped the way in which the action comes before the court for a decision. FIVE commenced proceedings in action TCD-009-2020 in October 2020. After initially challenging jurisdiction, Reem entered an appearance in the action and filed a counterclaim. In May 2021, on the application by Reem, the Court granted immediate judgment dismissing all of FIVE’s claims in the action. In August 2021, FIVE commenced a new action (TCD-003-2021) advancing different claims arising out of the same contracts and factual circumstances. At a Case Management Conference on 17 November 2021, it was (very sensibly) agreed that the two actions should be consolidated into a single proceeding using the action number TCD-009-2020. Accordingly, despite FIVE’s original claim in action TCD-009-2020 having been dismissed, the case proceeds on the basis that FIVE remains the claimant in the action (albeit now advancing claims originally put forward in action TCD-003-2021) and Reem remains as defendant and counterclaimant in the original action.
Evidence and Submissions
36. So far as fact evidence is concerned, I heard evidence from Nabil Akiki (“NA”), the Chief Executive Officer of FIVE, Harish Nair (“HN”), Reem’s Project Engineer, and Saliem Almahdi (“SA”), Reem’s Project Manager. Each had lodged witness statements and each was cross-examined at some length. When I refer to their evidence, I shall generally use their initials and, where relevant, the number of their witness statement and the relevant paragraph. Thus NA2 para 16 refers to paragraph 16 of Mr Akiki’s second witness statement. Curiously, given that issue was taken with the Engineer’s Determination in a number of respects, FIVE did not call the Engineer to give evidence, nor did they provide any explanation for his absence – even if the individual directly involved in the project was no longer employed by the Engineer, someone from the firm could presumably have been made available to speak to the various decisions under attack and explain the basis on which the determination was made. In the absence of any explanation by the Engineer, I have to proceed solely on the basis of the evidence adduced by each party without any clear understanding of his thinking, beyond that which appears on the face of the determination.
37. I also heard expert evidence to which I shall refer as necessary. Each party called expert evidence on the question of delay, Mr Jimmy LOH Yew Hone (“JL”) for FIVE and Mr Lee Sporle (“LS”) for Reem. Reem also called Mr Paul Craig (“PC”) to give evidence on quantum associated with the delay claims. Both parties also called expert evidence on issues of forensic accounting, Mr Stephen Millington (“SM”) for FIVE and Ms Clare Lavin (“CL”) for Reem.
38. In advance of the trial, parties had agreed various facts and a chronology. I was also provided by each party with detailed Skeleton Arguments/ Opening Submissions. After the conclusion of the evidence parties made their closing submissions in detail in written form.
39. Before addressing the individual claims and counterclaims I should say something about how the Works progressed. It is necessary to focus particularly on the question of delay, that question lying at the heart of the dispute between the parties.
40. The original date for completion was 8 November 2017. This was extended to 25 October 2018 after the Fire Incident. The hotel opened on 2 September 2019. The total period of delay therefore amounted to 663 days (8 November 2017 to 2 September 2019). In his expert report, LS helpfully broke this down into three periods of delay and parties were content to adopt this approach. The three periods of delay were:
(1) Period One – 351 days from 8 November 2017 to 25 October 2018;
(2) Period Two – 141 days from 25 October 2018 to 15 March 2019; and
(3) Period Three – 171 days from 15 March 2019 to 2 September 2019.
41. Both parties accept that Period One (8 November 2017 to 25 October 2018) is excusable delay in respect of which Reem would prima facie be entitled to claim for prolongation. The issues between the parties in respect of this period, which will be dealt with in due course below, are (a) whether Reem is able to substantiate its claim and (b) whether clause 4.5 of the Subcontract Agreement, which on the face of it entitles Reem to advance a claim for prolongation resulting from the Fire Incident, was complied with.
42. Both parties also accept that Period Two (25 October 2018 to 15 March 2019) is excusable delay, but there is an issue as to whether, as FIVE contend, the delay during this period is excusable for both parties or whether, as Reem contend, that delay is only excusable for Reem – leaving it open to Reem to bring a claim for prolongation costs in respect of this period
43. Period Three (15 March 2019 to 2 September 2019) is hotly disputed and this dispute is at the heart of this litigation. In summary, FIVE contend that by 3 March 2019 all the EIFS work had been completed and Reem had been given access to the site enabling them to continue and complete their work. Allowing 12 days for this work, FIVE contend that Reem ought to have finished their work by 15 March 2019. They did not finish in fact until after the hotel opened on 2 September 2019, though FIVE do not claim for delay beyond this date. On this basis FIVE contend that Period Three is delay attributable in its entirety to Reem’s failures to progress its part of the works. FIVE’s contentions in this regard were explained by NA under reference to a simplified delay analysis which he had prepared.
44. Having heard in detail the rival explanations from the fact witnesses to whom I have referred and seen the documents to which they referred in their evidence, I am satisfied that FIVE’s analysis on this issue is flawed. I set out my reasons briefly in the following paragraphs.
45. I have already referred to the sequence of works affecting Reem as explained by SA in his first witness statement (and confirmed by him in his oral evidence): see paragraphs 12-17 above. So far as concerned the majority of the Works to be carried out by Reem and the EIFS contractor, the intended sequence was as follows: (i) Reem would install the glass balustrade; (ii) the EIFS contractor would then install the EIFS to the external side of the balustrade; (iii) using the cradle to access the exterior of the building, Reem would then complete its work at the balcony balustrade by applying the profile cover over the EIFS and add the final sealant between the covers and the EIFS (and similarly for the roof garden balustrade except that there were no covers and the sealant was applied between the EIFS and the balustrade glass). It follows from that that when the EIFS were completed (a) all of the glass balustrades would have been installed and (b) the only work remaining for Reem to do was to apply the profile cover (where applicable) and sealant. It is inconceivable that, if all the EIFS works has been completed by 3 March 2022, Reem could have taken a further six months or so to complete such a small amount of work. If there had been delay by Reem of that order of magnitude after the EIFS work was complete one would have expected FIVE or the Engineer to have issued delay or default notices or other written notifications protesting such delay, but no such notices were adduced in evidence.
46. In addition, documentary evidence referred to by the witnesses made it clear that, contrary to NA’s evidence, the EIFS work was not all completed by 3 March 2019, which is the critical date underpinning NA’s delay analysis. This material included: (i) timed and dated photographs showing some EIFS work incomplete on 19 March 2019 on at least three floors of the building despite the balustrade having been installed by Reem; (ii) a Closeout Programme dated 30 April 2019 showing that EIFS work was still incomplete and that various sub-contractors were scheduled to continue work on site well into May and June; (iii) screen shots of WhatsApp messages between 24 June and 10 July 2019 with attached photographs relating to levels 39 and 40 (which were “technical floors” but still had the balustrade glass installed) showing that those levels were still under construction during that period, and that no EIFS had been installed in those floors by then; (iv) those WhatsApp messages also showed that the Main Contractor and others (including the EIFS contractor) were still on site and carrying out works into July 2019.
47. There is also the question of the provision of access to the site to enable Reem to complete its work. SA complained about access being given late. His evidence was supported by documentary evidence in the form of WSHNs relating to the upper 18 floors (floors 41-59) which enabled Reem to commence its final works to the specified grid (on the exterior of the building) for which Reem required to use the cradle. The WSHNs show that Reem was granted access to the cradles to the top 18 floors on various dates from late April 2019, mid-May 2019 and, in the case of grid T4-T5, 9 June 2019. If, as NA said in evidence, the EIFS were all complete by 3 March 2019, it is inconceivable that access to these parts would not have been given immediately thereafter. After all, as SA said in evidence, the cradles were only used by Reem and the EIFS contractor. The likelihood is, and I accept this as a matter of probability, that the EIFS work was only completed for each grid on levels 41-59 immediately before Reem was granted cradle access to the relevant part.
48. It will be apparent from the above that I prefer the evidence of SA to that of NA. NA’s evidence on the question of delay was not supported by the documentary evidence. His delay analysis depended on assertion which, so it appeared to me, was at odds in crucial respects with the underlying documentation. SA, on the other hand, was an impressive witness. His evidence was consistent with the documentary evidence as outlined above. In addition to that, both SA and his colleague Ahmad Daraz (who took over his role while he was away from the project from March 2017 to March 2018) sent countless delay notifications to FIVE and to the Engineer in the period from 14 December 2016 to 29 June 2019, complaining of delays to Reem’s progress caused by such things as civils works clearances, EIFS clearances, waterproofing clearances, cradle access, loading platform, access, tiling clearances, scaffolding, and submittal reviews. This contrasts markedly with the lack of documentary support for NA’s complaints about Reem. Generally, where SA’s evidence conflicted with that of NA, I preferred the evidence of SA.
49. So far, I have looked to see whether the evidence provides any support for NA’s delay analysis. This analysis formed the basis – indeed the only basis – for the factual case advanced by FIVE in respect of Delay Period Three. That was clear during NA’s evidence and was repeated in para. 18 of FIVE’s Closing Submissions, where FIVE say this:
“Delay event 3 is the focus of this litigation. The Claimant’s case here is put as follows:
a. EIFS completed its works to level 59, using logic, as of 3 March 2019 (see E1102).
b. The Defendant had 12 days to complete its works following the EIFS contractor’s works.
c. The Defendant had until 15 March 2019 to complete its works.
d. The Defendant failed to complete its works.”
I have found that the evidence does not support that case. Work which had to be completed before Reem could make progress was carried out on a number of levels well beyond that date. And since the delay claim is based only on NA’s delay analysis – and FIVE’s insistence that EIFS work was completed by 3 March 2019 – it follows that FIVE’s claim that Reem was responsible for the delay during Period Three must fail.
50. But the evidence goes further than that. It is clear from the above that the EIFS works were on the critical path of the work to be carried out by Reem. Much of the EIFS work was delayed into April, May and June 2019. FIVE do not suggest that Reem was responsible for this – such an argument would run counter to FIVE’s primary argument, which I have rejected, that all the EIFS work was completed by 3 March 2019 and FIVE ran no alternative case alleging that EIFS were delayed by Reem. SA spoke of delays by EIFS and other contractors preventing Reem progressing with its work. HN complained that the EIFS work was not all finished even in September 2019. The documentary evidence referred to at the trial supported their evidence on this.
51. The delay notifications sent by SA and Ahmad Daraz, to which I referred earlier, provide corroboration of SA’s evidence about delays being caused by FIVE and other contractors. In a letter to the Engineer of 19 March 2019 Reem complained of being held up by incomplete external fascia works (i.e. EIFS) on almost every floor of the tower. I have referred already to the WSHNs granting Reem access to the cradles for the top 18 floors. As explained by SA in his evidence, it had been agreed that Reem would be given access to the floors one at a time every five or six days – finish one floor, then give access, finish another, give access, and so on. What in fact happened, as SA said, and as shown by the WSHNs, was that floors would be made available to Reem in bunches. On 23 April 2019, for example, Reem was given access to grid T6-T7 on levels 41-59, to grid T7-T8 on levels 42-59 and to grid T8-T9 on levels 41-57. Between 14 and 18 May 2019 Reem was given access to grid T9-T10 on levels 41-58, to grid T10-T11 on levels 41-59, to grid T11-T12 on levels 42-59, to grid T12-T1 on levels 41-57, to grid T1-T2 on levels 41-58 and to grid T2-T3 on levels 41-59. Such a pattern of enabling access in bunches is not only contrary to the agreed programme but inefficient and liable to delay a contractor such as Reem in progressing its work, as it did.
52. On the basis of SA’s and HN’s evidence, supported as it is by the documents referred to above, I am persuaded that the whole of the delay during Period Three was caused by FIVE or the EIFS and other contractors engaged by them and for whose failings FIVE are responsible, at least so far as concerns its relationship with Reem. I do not propose to set them all out in this judgment, but it should be taken that in this respect I accept the arguments made on behalf of Reem in Section B, Parts 3-8, paragraphs 10-53 of its Closing Submissions in relation to Delay Period Three. I have not overlooked other documents, such as the Work Inspection Request Log (“WIRL”), relied on by FIVE, but they were inconclusive and did not persuade me to a contrary view of the matter. Subject to the legal argument with which I shall deal later in this judgment, Reem would be entitled to an extension of time for the whole of this period under clause 8.4(e) of the FIDIC General Conditions.
53. There is one matter, however, which I should deal with albeit briefly. That relates to VO4 (dealt with in Section B, Part 6, paragraphs 32-38 of Reem’s Closing Submissions). The issue was spoken to by SA, primarily in SA1 at paragraphs 66-85. It concerns glass balustrades installed by Reem being broken by EIFS contractors. It will be recalled that the sequence of work was changed on the instruction of FIVE so that Reem installed the glass balustrades before the EIFS contractors carried out their work. This change was designed to accelerate the works, enabling Reem to proceed with the installation of the balustrades before the EIFS contractors (who had been appointed fairly late) were ready to complete the EIFS work. This sequence of work exposes the glass balustrades, once installed, to the risk of breakage during the work carried out subsequently by the EIFS contractors, which work is carried out on the exterior of the building adjacent to the newly installed balustrade glass. SA said, and I accept, that the EIFS contractor broke approximately 150 panels of balustrade glass from levels 6 to 59. In his witness statement, SA said that whenever Reem was responsible for glass breakage it would replace the broken panel. Reem had replacement glass ready for such occasions and could carry out the replacement almost immediately. However, when glass was broken by other contractors, such as the EIFS contractor, Reem had to report it to the Engineer in order to get the Engineer’s approval to replace it at FIVE’s expense. Despite such breakages happening over several months of the project, FIVE did not instruct Reem to replace those panels until June 2019. On 30 June 2019, the Engineer issued an instruction to Reem to replace all damaged and broken glass panels etc., which instruction was too vague to action in that it did not acknowledge that such damage had been caused by other contractors on site and amounted to a variation for which Reem was entitled to claim. After further correspondence FIVE and Reem ultimately agreed a fixed lump sum of AED 432,264.82 payable to Reem for the performance by Reem of this additional work; and on 30 July the parties executed Variation Order No.4 (“VO4”) instructing Reem to carry out this additional work. The replacement glass was delivered in September. I am persuaded on the evidence that it would not have been delivered earlier even if Reem had acted before receipt of VO4. The hotel was opened on 2 September 2019 and the replacement glass was fitted after that date while the hotel was operational. FIVE and Reem agreed on 26 September 2019 as the date for completion of all this additional work. Due to difficulties of access with the hotel being operational, the last of the replacement glass was not installed until mid-October 2019, but nothing turns on this. On this basis Reem claims an extension of time until September 2019 under clause 8.4(a) of the FIDIC General Conditions incorporated into the SCA. It also relies on this as absolving it of any contractual responsibility for the delay to the Works during this period (Period Three). The validity of Reem’s claim for an extension of time on these grounds is subject to the same legal argument as mentioned above and discussed later in this judgment.
Extension of Time
54. The question whether Reem is entitled to an extension of time is at the heart of many of the major issues between the parties. I have found as a fact that FIVE was responsible for the whole of the delay during Period Three (15 March 2019 to 2 September 2019). I consider the legal argument on this basis.
55. Clause 8.4 of the FIDIC General Conditions provides that if the Contractor considers himself to be entitled to an extension of the Time for Completion, he shall give notice to the Engineer in accordance with Sub-Clause 20.1. Clause 20.1 provides that if the Contractor fails to give notice of a claim within the prescribed period of 28 days after the Contractor became aware of the relevant circumstances, the time for Completion shall not be extended, the Contractor shall not be entitled to additional payment, and the Employer shall be discharged from all liability in connection with the claim. I have underlined parts of this to emphasise the emphatic term of the FIDIC provisions. It is FIVE’s contention that Reem failed to give a relevant notice within the period of 28 days or, indeed, until after the commencement of this litigation; and that Reem’s claim for an extension is therefore barred. This, if correct, would have serious consequences for Reem. They would, on this argument, not only fail in their claim for prolongation costs (which assumes that an extension of time has been granted) but, also, they would be liable to FIVE in damages and/or liquidated damages for the whole of Period Three. The same argument applies to Period Two (but not to Period One in respect of which an extension of time notice (“EOT” notice) is accepted to have been given.
56. FIVE did not shy away from this. They argued, under reference to Articles 124(1), 243(2) and 246(1) of the Civil Code, that UAE law recognises and adopts the maxim pacta sunt servanda and insists that parties are held to their bargain. The right to an extension of time is a conditional right, conditional upon the Contractor giving notice of his claim for an extension of time within the period set out in the contract. In this connection I was referred to Article 478 of the UAE Civil Code dealing with prescription – time starts to run when you become aware of the relevant circumstances and you then have 28 days within which to make your claim for an extension. It was not as though Reem only missed the deadline by a short time. Reem had never claimed an extension of time relating to Period Three. The only extension of time claim (EOT1) made by Reem was made on 26 October 2017, seeking an extension of time until 18 March 2019. EOT1 was made after the fire incident but before the Sub-Contract Agreement. Reem did not make any further or subsequent claim to the Engineer for an extension of time. The only other extension of time request was made in December 2020, produced to FIVE as part of standard disclosure in January 2022. The Engineer was never asked to decide upon an EOT request and his Decision does not deal with any such request. It is now too late for Reem to claim an extension of time and its claim in this respect must fail.
57. That is, potentially at least, a powerful submission. But, in my opinion, it overlooks the mass of delay notifications sent by Reem to the Engineer during the course of the Works to which I have already referred. SA gave evidence about this both in his first witness statement and in his oral evidence. Copies of the relevant delay notifications from December 2016 through to July 2019 were filed with the court. They provide detailed instances of delays caused to Reem by lack of access to specific areas, failure of FIVE or other contractors to allow clearance for installation of balustrades, balustrade brackets, revolving doors and the like, and instances where necessarily prior work carried out by others (including EIFS work) was not as it should have been.
58. EOT1, submitted in October 2017, was a lengthy document accompanied by extensive schedules and a detailed critical path analysis. But there is no requirement in the contract or in the FIDIC General Conditions that a claim for an extension of time must be in any particular form. Clause 20.1 of the FIDIC General Conditions simply requires the Contractor, within 28 days of becoming aware of the circumstances giving rise to the claim, to give notice to the engineer “describing the event or circumstances giving rise to the claim”. This is clearly important. Prompt notice allows both parties and the Engineer the opportunity to investigate what has happened. But no level of detail is specified. Nor does the notice at that stage have to quantify the amount of any extension of time claimed by the Contractor. This makes sense because the quantification of any relevant delay may take time to work out.
59. This first part of clause 20.1 is draconian: the notice must be given within 28 days, otherwise the extension of time claim will fail; the Time for Completion shall not be extended. But the remainder of the clause sets a different tone. It goes on to provide that, within 42 days after becoming aware of the circumstances giving rise to the claim, the Contractor must send to the Engineer a fully detailed (though interim) claim including full supporting particulars of the basis of the claim and of the extension of time claimed; and that, within 28 days after the end of the effects resulting from those circumstances, the Contractor shall send a final claim. The clause fixes a period within which the Engineer must give his response, and he may in addition request further particulars of the claim. The important point to note is that, unlike the initial 28 day notification provisions failure to comply with which means that the claim will fail, there is no draconian consequence attached to failure to comply with the 42 day or 28 day stipulations later on in the clause. Instead, the last paragraph within clause 20.1 simply provides that if the Contractor fails to comply with such requirements (i.e. the various requirements to submit a detailed claim for an extension) any extension of time shall take account of the extent to which that failure has prevented or prejudiced proper investigation of the claim.
60. The various delay notifications sent by Reem between December 2016 and July 2019 provide a detailed description of the circumstances causing delay to Reem in the carrying out of its work. Each of them ends with a notification of a likely delay claim in the following terms (or to a similar effect):
“In view of the above, this letter constitutes a notice of delay and substantiates the delays upon the fact that [Reem} has experienced disruptions to the planning and execution of our scope due to circumstances beyond [Reem’s] control. Hence [Reem] reserve its rights to return to the events as noted within letter to establish its full entitlement to this further extension of time for completion of the Works, together with the calculation and entitlement to all and any cost, loss and expense incurred as a consequence of such extended time to completion of the Works which costs will be submitted in due course.”
In my opinion those delay notifications comply fully with the mandatory requirements of the first part of clause 20.1 of the FIDIC General Conditions. In so far as there was any failure by Reem, it was a failure to comply with the requirement in the second part of that clause by submitting a detailed claim, and that failure does not result in the claim being barred – it simply has to be taken account in considering whether to grant an extension of time and if so for how long.
61. FIVE argued that Reem had also failed to comply with the requirements as to notice in clause 4.5 of the SCA. That submission too fails to take into account the many delay notifications sent to the Engineer. I reject it.
62. It follows that there is no bar to the claim for an extension of time right through to the end of Delay Period Three. For the reasons set out earlier in this judgment, I hold that Reem are entitled to such an extension of time.
63. I should just mention the Engineer’s Determination on this issue. It is apparent from the Engineer’s Determination that the Engineer did consider a prolongation claim by Reem. He refers to this in para 1.2.2 of his Determination. He deals with it as part of Reem’s Fire Incident claims. He identifies it as having been submitted on 8 February 2018 (it was in fact submitted in October 2017, but nothing turns on this). The delay claim is described in para c.(ii) of the Executive Summary as being “Contractor’s claim for Prolongation Costs associated with Extension of Time for Completion with the value of AED 9,969,874.00.” Having then dealt with a related aspect of the Fire Incident claim, the Engineer notes in para.1.2.8 of his Decision: “In addition to the above, and in accordance with the Engineer’s records the Contractor has not submitted an adequate Extension of Time Claim beyond the revised Completion date of 25th October 2018.” It is not entirely clear whether or not the Engineer considered the various Delay Notifications, but he does not mention them and the probabilities point to him not having done so. If he did not take account of these Delay Notifications then, unless he had good reasons for failing to do so, I consider that he was in error. The role of the Engineer is not simply to lie supine, absorb what is submitted to him and reach a decision on that material and that material alone. He must take account of notifications sent to him during the life of the contract. If there are gaps in the material shown to him, he is entitled, I would say bound, at the very least to point out what is missing that he regards as potentially relevant and give parties an opportunity to deal with the point, if necessary by bringing further material to his attention. In the present case, in his covering letter dated 5 March 2020 the Engineer did, it is true, invite the parties to provide additional substantiation if dissatisfied with his Determination; but he went on to state that his determination was based on (all) the documents made available to him by the parties. It is not clear what, if any, attention he paid to the many delay notifications sent to him during the course of the Works, and in particular during the period after March 2019, that being the beginning of Delay Period Three. Even the most cursory attention to those notifications would have enabled him to form a view – maybe just provisional and subject to further evidence, but a view all the same – that, for example, Reem was delayed on particular dates in particular locations because of access problems, or some other problems, and to ask for further evidence. It should be made clear that the process before the Engineer in seeking a Determination is not an adversarial process similar to the process in court. It is open to the Engineer to raise questions and to seek out further material relevant to his Determination. Had he been called to give evidence, the Engineer might have clarified exactly what he did and his reasons for acting in that way. But he was not called to give evidence on this or any other matter. So we do not know what his thinking was. That ultimately does not matter, since the Court has the full power to open up, review and revise the Engineer’s Determination, without being constrained by the evidence which the Engineer took into account.
The Claims and Counterclaims
64. The claims and cross-claims were summarised at the beginning of the trial in an agreed Case Summary Memorandum and they remain the issues requiring a decision. I attempt to answer them below. Once a decision is reached on any particular point, that decision will feed into the overall Balance of Account between the parties. What I propose to do is to deal with the discrete points in issue and then give parties the opportunity of (a) identifying any points which I have failed to deal with and (b) reaching an agreement on the impact my decisions will have on the Final Account as reflected in the Engineer’s Decision. This should not involve re-arguing any points – the rationale is that parties will know better than I do how my decisions will impact upon the Final Account between them. If parties can reach agreement, then I will be happy to make an Order in appropriate terms. If not, then a date can be fixed for a short hearing to resolve any outstanding matters.
65. FIVE, as the Claimant in this action, advances three claims: Claim 1, a claim for an indemnity; Claim 2, a delay claim; and Claim 3, a defects claim. I shall deal with them in turn.
Claim 1 – FIVE’s Indemnity Claim
66. FIVE claims, pursuant to clause 4.10 of the Subcontract Agreement, an indemnity or damages in the amount of AED 11,937,729, that being the loss allegedly suffered by the Owner and passed on to FIVE, all as a consequence of the delay it alleges was caused by Reem.
67. It is necessary first to consider the meaning and effect of clause 4.10 of the SCA. The relevant wording is:
“The Sub-Contractor shall indemnify the Employer from and against all loss, costs, damages, claims, arising out of and/or in connection with the performance, acts or defaults of the Sub-Contractor ...”
FIVE submits that this clause requires Reem to indemnify it against any claims made against it by the Owner resulting from the delay. As I understood the submission, this obligation on the part of Reem to indemnify FIVE against such claims arose from the performance by Reem of the SCA, and acts performed by Reem in connection with the SCA, regardless of whether Reem was in breach or default. If this was FIVE’s submission, I have no hesitation in rejecting it.
68. On behalf of Reem it was submitted, under reference to Dubai Court of Cassation Case No. 41/2007, that an indemnity as such does not exist under UAE law; contractual liability depends on fault or breach. I accept that submission. But the same result would follow in this case based simply on the proper construction of the clause under UK law. The words “performance” and “acts” must be read ejusdem generis with the word “defaults”. They all point to the need to show some breach or default on the part of Reem; and that would be the ordinary meaning of the words in the clause without recourse to such rules. Given my findings that the delay was not attributable to Reem, there is no basis on which to find Reem liable under cause 4.10 of the SCA.
69. I should add three further points. The first point was only briefly touch on in argument. The point is simply this. Clause 8.7 of the FIDIC General Conditions deals with the question of Delay Damages and provides that damages at the stipulated daily rate up to the agreed maximum “shall be the only damages due from the Contractor for such default [i.e. for delay]”. In my view that would preclude recovery under clause 4.10 of the SCA. It might be argued by FIVE that the claim under clause 4.10 of the SCA is a claim for an indemnity, not a claim for damages, and as such can run in parallel with clause 8 of FIDIC. But this would make no sense. First, as a matter of construction of clause 4.10, the so-called indemnity only bites when the delay by Reem amounts to a breach by Reem on its obligations under the SCA; otherwise, it would be absurdly wide. Second, I accept the submission that an indemnity as such is unknown under UAE law; there must be proof of breach. It follows, in my opinion, that, at least in the circumstances of the present case, a successful claim to an indemnity under clause 4.10 necessarily involves proof of breach by Reem – in which case the claim would be excluded by clause 8.7.
70. The second point is this. FIVE’s claim, as pleaded in paras. 14 and 15 of the Particulars of Claim, is for an indemnity in respect of Owner’s claim for damages for delay. This was repeated in the agreed Case Summary Memorandum (“... due to the loss suffered by Unlimited 1 Limited (Owner)”). The letter of 10 March 2021 from the Owner to FIVE presenting the claim for an indemnity in an amount of AED 11,937,729 is predicated on the PDC between those parties. So the indemnity sought by FIVE is unmistakably an indemnity against FIVE’s liability to the Owners. However, rather than focussing on the loss suffered by the Owner, Mr Millington lumped together the potential losses suffered by a whole range of parties within what has been described as the FIVE Holdings Group, and sought to identify not the loss suffered by the Owner alone but the loss of profits to all stakeholders in the Hotel, those “stakeholders” including not only the Owner but also the developers of the Hotel (FIVE itself!), the managers of the Hotel (FIVE Hotel Jumeriah Village LLC), the owners of the FIVE Hotels brand (FIVE International Hotel Management LLC) and others. That simply does not begin to address the question of what loss has been suffered by the Owner of the Hotel.
71. The third point is a short one. The liability of FIVE to the Owner of the Hotel has not yet been established. The claim is therefore premature.
72. In light of the above reasons, it is not necessary to go into the expert evidence in any great detail. There were a number of issues of principal debated between the experts on this topic. One issue was whether the alleged loss to the Owner should be calculated on the basis of Gross or Net Operating Profit (“GOP”/ “NOP”). Mr Millington preferred the former, Ms Lavin the latter. On this I prefer the evidence of Ms Lavin. By using GOP Mr Millington in effect aggregated the profits which would have been made by the Group as a whole, rather than looking at the profit which would have been made by the Owner. In my view the use of NOP is to be preferred, since it separates out the loss of profit sustained by the Owner from that suffered by others involved in the Hotel. During the course of his evidence, Mr Millington was unable to state clearly what loss was suffered by the Owner as opposed to other interested parties. He had not seen many of the documents underpinning his evidence, such as the Lease Agreement and the Hotel Management Agreement. Ms Lavin, for her part, pointed to the probability that the Owner, taken as an entity apart from other parties interested in the Hotel, would have suffered a small loss. All in all, I preferred the reasoning of Ms Lavin for coming to the conclusion she came to.
73. As already stated, this claim fails because Reem is entitled to an extension of time for this Third Period and did not cause the delay; but in any event I am satisfied that FIVE have not proved that they are liable to the Owner for the amount claimed or any amount.
Claim 2 – FIVE’s Delay Claim
74. FIVE further claims for the costs allegedly incurred by it under clause 6(a) of the PDC between FIVE and the Owner, arising from the delay to the Project allegedly caused by Reem. The sum claimed was originally AED 7,170,484.81. However, in his second witness statement, NA stated that the sum claimed had been miscalculated; the figure should have been AED 2,990,071.00.
75. This claim must fail for two main reasons: first, because Reem is not responsible for any part of the delay; and second, because the only remedy for FIVE, if Reem had been in breach, would be a claim for liquidated damages under clause 8 of FIDIC.
Claim 3 – FIVE’s Defects Claim
76. FIVE claims damages, estimated at AED 165,000, due to Reem allegedly failing to rectify defects in the Works.
77. The work in question was work in rectifying door handles identified in NCN 658 issued by the Engineer almost two months after the hotel opened. I refer to SA’s explanation set out below in respect of Counterclaim 4. NA deals with the matter in NA2 paras 91-93, but not in any detail. Quantum of the claim also appears to be in doubt, based only on a quotation and purchase orders which do not appear to justify the amount claimed.
78. I am not persuaded on the evidence that this claim can succeed. I reject it.
Counterclaim 1 – De-scoping Deduction
79. Reem contend that the Engineer was wrong to determine that FIVE was entitled to deduct from the Subcontract Price the amounts of AED 432,784, AED 2,195,040.22 and AED 570,803.76 on account of the de-scoping of aluminium louvres, stick curtain glass, glazing doors, balustrade and stick curtain wall panels.
80. There is no doubt that under clause 2.2 of the SCA, FIVE was entitled to remove certain work from the scope of the Works and, if this was done, the Subcontract Price would be adjusted downwards. But Reem’s argument is that these items were removed by FIVE before the SCA was concluded; and they were therefore never part of the scope of the Works to be performed under the SCA. The Contract Price stated in the SCA was a price covering the scope of the Works as then existed; and it follows that the prior de-scoping of those items should have no impact upon the Contract Price.
81. It is a short point. I consider that Reem’s analysis is compelling. I see no answer to it. This counterclaim succeeds.
Counterclaim 2 – Delay Damages Deduction
82. Reem contend that the Engineer was wrong in determining: (a) that Reem was not entitled to any extension of time beyond 25 October 2018; and (b) that FIVE was entitled to deduct a sum of AED 4,516,644.88 from the Subcontract Price, on account of liquidated delay damages, pursuant to clause 8.1 of the FIDIC General Conditions.
83. This counterclaim succeeds. Reem is entitled to an extension of time until 2 September 2019 (or later if relevant). FIVE has no valid claim for delay. FIVE have already withheld AED 4,516,644.88 on account of liquidated damages under clause 8.1 of FIDIC – that sum was wrongfully withheld and must be brought back into the final account.
Counterclaim 3 – House Keeping Deduction
84. Reem contend that the Engineer was wrong to determine that FIVE was entitled to deduct from the Subcontract Price a sum of AED 30,344.50 on account of “Housekeeping Charges”.
85. This issue refers to a complaint by the Engineer in August 2018 complaining to all sub-contractors about site safety, security and housekeeping. It is not clear what he was referring to, why this justifies a claim against Reem as opposed to other sub-contractors and on what legal basis the Engineer made such determination.
86. This counterclaim succeeds.
Counterclaim 4 – Door Handles Deduction
87. Reem contend that the Engineer was wrong to determine that FIVE was entitled to deduct from the Subcontract Price a sum of AED 34,507.50 on account of matters raised in Non-Conformance Notice (“NCN”) 658, which related to the door handles installed by Reem as part of the Works.
88. This relates to an NCN issued by the Engineer at the end of October 2019, nearly two months after the Hotel opened. Upon receipt of the NCN, SA on behalf of Reem complained that it was too general, appearing as it did to complain about something which had already been approved; and he said that if the Engineer had a problem at a specific location, he should identify it and it would be dealt with. The Engineer did not instruct a variation to deal with the problem.
89. I accept SA’s evidence on this point. There was no proper basis on which the Engineer issued NCN 658 or on which to instruct a deduction from the Subcontract Price on this account. This counterclaim succeeds.
Counterclaim 5 – Fire Incident Materials Claim
90. Reem contend that the Engineer was wrong to determine that FIVE was only obliged to pay Reem the amount of AED 750,000 rather than AED 850,000, on account of the damage caused to Reem’s tools, works and materials in the Fire Incident.
91. It is accepted by FIVE that Reem is entitled to compensation for the materials damaged as a result of the Fire Incident. The only question to be decided is whether the appropriate figure is AED 750,000 or AED 850,000. This depends on what was agreed between FIVE and Reem in a letter and email exchange in 2019.
92. The starting point is to note that, in addition to its claims for prolongation costs resulting from the Fire Incident, Reem had put forward a claim for the cost of materials damaged during the fire valued at AED 1,079,819.60: see Reem’s letter of 20 October 2016 which specifically referenced that sum to missing tools and equipment and damaged survey marking, leaving the claim for prolongation costs due to idle labourers and preliminaries to be confirmed at a later date.
93. Thereafter, there appear to have been telephone conversations between the parties relating to these and other matters. FIVE’s position as at 26 August 2019 was set out in a letter of the date. That letter referenced Reem’s “Fire claim for damaged works and materials ...” as set out in Reem’s letter of 20 October 2016 and made an offer of AED 750,000 instead of the amount proposed by Reem. The reference to the October letter, the reference to “Fire claim for damaged works and materials” and the link to the sum claimed by Reem in its October 2016 letter (as adjusted downwards by FIVE) all make it clear that the offer of AED 750,000 was an offer in respect of the claim for damaged works and materials and did not include anything in respect of Reem’s prolongation costs.
94. By letter of the following day from SA, Reem rejected this offer of AED 750,000. SA referred to a telephone conversation between himself and NA in which the valuation of the claim had been agreed at AED 850,000. On 27 August NA responded on behalf of FIVE agreeing the amount in the sum of AED 850,000. Again, FIVE’s letter referred to Reem’s “Fire claim for damaged works and materials” as set out in Reem’s October 2016 letter; in this context, the reference within the letter to the settlement being of “any claims related to the fire incident” must be read as referring to the claim for damaged works and materials. SA replied on behalf of Reem on 28 August 2019 confirming its acceptance of FIVE’s “proposed settlement for the damaged material caused due to the fire at site for the value of AED 850,000.”
95. On the plain wording of the correspondence, it is clear that parties reached agreement on the sum of AED 850,000 in respect of Reem’s claim for materials damaged in or as a result of the Fire Incident. They not only agreed on the figure of AED 850,000; but that agreement was limited to the fire damaged materials and did not involve any compromise of Reem’s prolongation claim resulting from the Fire Incident.
96. Nothing in the oral evidence causes me to doubt this interpretation of the correspondence between the parties. Indeed, I found NA’s attempt to advance a different interpretation of what had gone on baffling to say the least.
97. The Engineer determined that the correct figure was AED 750,000. It is difficult to understand how he fixed upon this figure. He has not provided any coherent explanation. In his Determination at para. 1.2.6, he refers to FIVE’s letter of 26 August 2019 offering AED 750,000 in respect of the “fire incident”. He appears not to have seen the subsequent exchange of letters agreeing the figure of AED 850,000. Further, in so far as he describes the agreed figure as being compensation for the fire incident, he appears not to have read the parts of each letter which make it plain that the agreed sum is in respect of Reem’s material damage claim only.
98. This counterclaim succeeds.
Counterclaim 6 - Prolongation Claim
99. Reem contend that the Engineer was wrong to determine that Reem was not entitled to any prolongation costs arising from the delays suffered by Reem for the period from 8 November 2017 to 2 September 2019.
100. For the reasons set out above, I am satisfied that if the Engineer determined that the agreed settlement figure (whether AED 750,000 or AED 850,000 does not matter for this purpose) settled not only Reem’s material damage claim but also its claim for prolongation costs, he was wrong so to determine. Reem is in principle entitled to pursue its claim for prolongation costs.
101. It is not clear, however, that the Engineer rejected Reem’s prolongation claim on this basis. In paras. 1.2.6 and 1.2.7 of his Determination, the Engineer refers to the low level of (Reem’s) staff in attendance during the suspension period (i.e. Delay Period One), the fact that Reem had already signed the SCA giving a new completion date of 25 October 2018 and “the absence of adequate substantiation”, all apparently factors in his decision to award Reem the sum of AED 750,000 as reasonable compensation for the fire incident and associated costs, i.e. including prolongation.
102. FIVE accepts that, in principle, Reem is entitled to recover prolongation costs for Delay Period One, i.e. the period 7 November 2017 (the original completion date) to 25 October 2018 (the revised completion date under the SCA and Addendum 1 to the Main Contract). But it advances two arguments against the claim in this case. First, it argues that Reem did not follow the procedure laid down in clause 4.5 of the SCA, which procedure is a precondition for recovery in respect of this claim. Secondly, it says that there has not been any substantiation by Reem of its prolongation costs. I deal with each in turn.
103. I have already set out the terms of clause 4.5 of the SCA. That provides, in short, that the Main Contractor should pay the Reem’s reasonable prolongation claim, substantiated and approved by the Engineer and FIVE, to be settled by the Main Contractor within a reasonable period before closing Reem’s account; and that if the Main Contractor is in breach of that payment obligation, then FIVE is to deduct the relevant sum from the Main Contractor and pay that amount to Reem. FIVE submits that an essential step, if Reem is to recover under this clause, is that Reem must present a prolongation claim (to whom is not specified) and have it substantiated and approved by the Engineer and FIVE. Reem did not present its claim in this way or have it substantiated or approved and, accordingly, is not entitled to payment from FIVE. Reem, on the other hand, submits that the clause simply makes it clear that while Reem would accept payment from the Main Contractor, if the Main Contractor did not pay then FIVE must. The main difference between the parties appears to be as to whether Reem was required to present a prolongation claim to the Main Contractor and what was to be the consequence of the claim not having been substantiated and approved by the Engineer and FIVE.
104. If it is FIVE’s contention that Reem was required under clause 4.5 to present a prolongation claim to the Main Contractor, I reject it. The Main Contractor was not a party to the SCA and even if Reem had presented a prolongation claim to the Main Contractor, the Main Contractor would have had no contractual obligation to pay any attention to it. It would not make sense for the Reem’s contractual entitlement to be dependent upon Reem having to deal with a third party in this way, even if a third party as intimately involved in the Works as the Main Contractor. Nor does clause 4.5 say in terms that the prolongation claim must be presented to the Main Contractor. It must be substantiated and approved by the Engineer and the Employer and, by inference, need be presented only to them. Of course, Reem must make a claim, but to FIVE and the Engineer – but in so far as it is argued that the absence of substantiation and approval by the Engineer and the Employer is fatal to Reem’s present claim, I reject that argument too. What if the Engineer rejects a good claim and refuses to approve it? That cannot mean that Reem is dared from challenging the Engineer’s decision because he did not “approve” the claim. The whole point of these court proceedings is to enable Reem (and FIVE if applicable) to challenge decisions made by the Employer or Contractor and the Engineer – it would make no sense if substantiation and approval by those parties was a pre-condition to a successful challenge.
105. I should add this further point, which I do not understand to be disputed. The relevant part of clause 4.5 is concerned with the damage arising out of the Fire Incident. That relates only to Delay Period One. The Main Contractor has not on any view undertaken any responsibility for future delays, which have subsequently been referred to as Delay Periods Two and Three. FIVE’s argument about the proper construction of clause 4.5 of the SCA cannot therefore have any bearing on Reem’s claim in respect of Periods Two and Three.
106. I have already held that Reem is entitled to an extension of time covering the whole of Delay Periods Two and Three. Adding in Delay Period One, this means that Reem is entitled in principle to claim prolongation costs for the whole period from 8 November 2017 to 2 September 2019.
107. The Engineer had notice of Reem’s prolongation claim at the time he made his Determination. He determined that there was insufficient evidence submitted to prove the claim. But that is not the question for this Court, which has had further evidence which it is entitled, indeed bound, to take into account.
108. Reem adduced expert evidence from Mr Paul Craig. Using the Emden formula, he calculated Reem’s prolongation claim (indirect costs and recovery of overheads) at AED 6,898,245.88. Mr Loh, who gave expert evidence for FIVE, did not provide an alternative calculation. I accept Mr Craig’s evidence on this matter.
109. I hold that Reem are entitled to recover prolongation costs for the period from 8 November 2017 to 2 September 2019 in the sum of AED 6,898,245.88.
Counterclaim 7 – Payment of AED 1,811,837.07
110. This counterclaim is straightforward. Pursuant to the Engineer’s Determination, the sum of AED 1,811,837.07 (plus VAT of AED 90,591.85) was due to Reem. FIVE paid this sum into an Escrow account pending the conclusion of this case. Reem say that it should have been paid to them on 2 September 2020, a year after the issuance of the Taking Over Certificate (“TOC”). On my findings in this judgment, that sum was clearly due to Reem. It should have been paid on 2 September 2020. It should now be released to Reem.
Counterclaim 8 - Interest and Bank charges
111. In this part of its Counterclaim, Reem claims compound interest on sums paid late by FIVE. For the details of the claim, Reem relies upon a table prepared by its expert, Mr Craig, who has concluded that all amounts paid by FIVE to Reem were paid late. The table contained in Appendix 7 of his report [REF:G1583] notes that the sum of AED 39,572,130.68 was paid, however in each instance, payments varied from being 5 to 682 days late. Not one payment was made on time.
112. Clause 14.8 of the FIDIC General Conditions provides that if Reem did not receive payments in accordance with the Contract, it was entitled to receive financing charges at a rate of 3% above the discount rate of the central bank of the United Arab Emirates, compounded monthly. That specifies the rate applicable, sufficient to satisfy Art. 76 of the Commercial Code. I did not understand there to be an issue between the parties as to the enforceability of a clause such as clause 14.8 of the FIDIC General Conditions. The only issue appeared to be as to its application in this case.
113. FIVE submits that payments due before the parties entered into the SCA are not subject to a valid claim for interest, for the simple reason that the FIDIC General Conditions on which the claim depends were not incorporated into the relationship between the parties prior to that date. I accept that submission. FIVE also submit that the Court cannot be satisfied that the Interim Payment Applications (“IPAs”) thereafter, which were not filed in process, were issued to the Main Contractor. However, the documents were spot checked by Mr Craig and I accept his evidence on this point.
114. I hold, therefore, that interest is recoverable in accordance with FIDIC clause 14.8 as calculated by Mr Craig, but limited to IPAs issued after the date of the SCA coming into force, i.e. 4 June 2018. I have not done the calculation myself and would be grateful if parties could attempt to reach agreement on this.
115. As stated in paragraph 64, I shall ask parties to attempt to work out and agree a Final Account based upon my decisions on the individual disputed items. If parties are unable to reach agreement, and if the outstanding matters cannot sensibly be made the subject of brief further submission in writing, then they should liaise with the Registry and fix a date for a further hearing before me, limited to one day maximum, at which any outstanding matters can be resolved. Similarly, if I have overlooked any issue requiring a decision, that can be raised on that occasion, if parties are unable to agree.
116. I should emphasise that this is not intended as an opportunity for parties to re-argue points on which I have given my decision.
117. As to costs, I am satisfied that Reem have been successful in this case and I order that FIVE should pay all of Reem’s expenses of the actions, to be assessed by the Registrar on the standard basis if not agreed. For the avoidance of doubt, I refuse Reem’s application for costs on an indemnity basis.