Dubai Financial center district DIFC, United Arab Emirates. Credit: Evaldas/Adobe Stock

Wala Al-Daraji
University of Reading, Reading
w.al-daraji@pgr.reading.ac.uk

Background

A recent Dubai International Financial Centre Courts (DIFC) decision deals with three interesting areas of construction law:

• party-appointed expert evidence;

• general damages and loss of profit under the UAE Civil Code; and

• cost recovery under DIFC Rules.

In Bond v Tr88,^[1] the Technology and Construction Division of DIFC decided on a dispute involving the performance of two contracts:^[2] MEP and Fitout Works contracts at premises occupied by the defendant in Blue Water, Marsa Dubai. The law of the contract is the law of Dubai and the laws of the UAE. The parties nominated DIFC as the appropriate jurisdiction.

The parties dispute the final account, including prolongation costs, variations, liquidated damages and general damages. Within days of the commencement of each contract, the Contractor gave notice of delays as matters for which it asserted the Client is responsible. For example, it stated in the notice lack of design or design changes. The Client reciprocated the allegations of delay by the Contractor in performing the contract. This pattern of cross-allegations continued throughout the project. Ultimately, the Contractor claimed for prolongation costs and variations, while the Client counterclaimed for liquidated damages (LDs) and loss of profit.

This article aims to analyse the three aspects of the decision.

Party-appointed expert evidence

The Contractor relied on expert evidence from one of its employees, whereas the Client relied on an independent consultant. The quality of both parties’ expert evidence was criticised for five reasons. First, ‘neither party adduced any direct evidence of the detailed facts upon which their respective cases depended’.^[3] Further, the factual evidence was given at a great level of generality, and some of it was irrelevant to the issues in dispute. Second, the expert’s conclusions made no reference ‘to any knowledge or experience of the sequence or manner in which the Works were performed’^[4] and were deemed unacceptable. Third, the Contractor’s appointed expert failed to address counter-allegations. Further, he assumed all variations not refused by the Client to be valid.^[5] Fourth, the Client’s appointed expert took the position that the Contractor’s delay analysis had not been established but did not produce his own version.^[6] Fifth, the lack of as-built records became apparent in the Client’s appointed expert’s inability to answer when the rectification work was performed or what work was performed.

In summary, the decision gives guidance to experts and appointing parties on areas that may affect the admissibility, relevance, materiality and weight of their evidence:

• facts need to support the expert’s case. If the facts are disconnected from the analysis, no case is being made, rather an illogical construct;

• project planning software should not be used as a ‘black box’^[7] into which data is put and conclusions extracted that the expert cannot verify or explain. This highlights the risk of overreliance on software to achieve a certain result without taking into account the actual events of the project and its critical path;

• defending counter-allegations of delay is expected from experts on both sides;

• each party ought to produce its own analysis, and it is insufficient to argue that the opposing party’s version has not been established; and

• the importance of keeping and using as-built records to support expert’s evidence.

Liquidated damages, general damages and loss of profit

The decision dealt with liquidated damages (LDs) under the contract, and general damages and loss of profit under the UAE Civil Code. The contract provided for LDs of AE$10,000 per day in the MEP contract and AE$5,500 per day in the Fitout Works contract, up to a maximum of 10 per cent of the stated sum in the agreement. However, the contract provided that LDs are ‘subject to the failure is exclusively attributed to the Contractor’.^[8] Despite the problems highlighted in the Client’s appointed expert evidence, his evidence accepted that there was a concurrent delay for which both parties were responsible. This resulted in losing the counterclaim for LDs, as the contract required that the Contractor be the sole party responsible for the delay.

General damages may be claimed under UAE Civil Code Art 390 (2), which provides that ‘the judge may, in all cases, at the request of one of the parties, amend such an agreement, in order to make the amount assessed equal to the prejudice. Any agreement to the contrary is void’.^[9] However, as the Client failed to discharge the burden of proving that the Contractor was the sole party responsible for the delay, the court decided general damages could not be awarded. If there had been no concurrent delay, the Client may have been able to claim general damages under UAE law.

Even though there was no contractual provision for loss of profit claims having to be solely the responsibility of the Contractor, the Court took a similar position to LDs: ‘obviously TR88 could not claim for lost profits if delays for which it was responsible operated concurrently with delays for which Bond was responsible’.^[10] The Client’s appointed expert evidence assumed a profit margin of 20 per cent ‘out of the air’,^[11] which he was unable to substantiate. Thus, even if the court entertained a loss of profit claim, the percentage needed to have come from factual evidence such as previous profit and loss accounts, and not a made-up figure.

Cost recovery

Third, the English cost rule applies in DIFC Courts pursuant to DIFC Rule 38.7, which provides that:

‘If the Court decides to make an order about costs: (1) the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; but (2) the Court may make a different order.ʼ^[12]

The court excluded the Contractor’s appointed expert’s report from the cost award. It provided three reasons for this. First, the expert is not an independent consultant but rather an employee of the Contractor. Under DIFC Rule 31.4,^[13] like the English Civil Procedure Rules

(CPR) Part 35,^[14] an expert’s duty to help the court overrides any obligation to the person from whom he has received instructions or by whom he is paid. This is impossible to achieve if the expert is an employee of the party.

Similarly, the independence of a party-appointed expert is expected in arbitration proceedings as provided under IBA^[15] and International Chamber of Commerce (ICC) rules.^[16] How can an employee be unbiased when his income comes from the same party? It is unclear why the court permitted an employee’s evidence as that of an expert in the first place. DIFC Rule 31.13 provides that ‘no party may call an expert or put in evidence an expert’s report without the Court’s permissionʼ. Presumably, the Contractor was given permission, but that does not necessarily mean an employee will meet the test of independence, and his fees may not be recovered.

Second, the expert’s report was not without difficulties, as highlighted above. Third, the prolongation costs claim was abandoned, to which the expert report related. While the decision did not refer to DIFC rules, Rule 31.18 empowers the Court to limit expert fees and expenses recovery.

Conclusion

First, expert evidence must be linked to the facts presented. The use of planning software in expert reports needs to be referenced to knowledge or experience of the sequence in which the works were performed. Otherwise, the output may be of no use to the court.

Second, uncontested concurrent delays can save a contractor not only from LDs but also general damages and loss of profit. This was specifically provided for in the contract in relation to LDs, which was extended to general damages and loss of profit, and the Client failed to discharge the burden of proving otherwise.

Third, the expert’s independence and the Court’s permission of an employee to provide expert evidence are not the same thing. An employee’s expert evidence may not be a recoverable cost as he is not considered independent.