Claim No. SCT 180/2023
THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS
In the name of His Highness Sheikh Mohammed Bin Rashid Al Maktoum, Ruler of Dubai
IN THE SMALL CLAIMS LEASING TRIBUNAL OF THE DIFC COURTS
BEFORE H.E. JUSTICE NASSIR AL NASSER
BETWEEN
MEKET
Claimant
and
MLAT
Defendant
| Hearing : | 8 June 2023 |
|---|---|
| Judgment : | 6 July 2023 |
JUDGMENT OF H.E. JUSTICE NASSIR AL NASSER
UPON this claim having been called for a hearing with the Claimant and the Defendant’s representative attending the hearing
AND UPON reading the submissions and evidence filed and recorded on the Court file
IT IS HEREBY ORDERED THAT:
1. The Claimant’s claim shall be dismissed.
2. Each party shall bear its own costs.
Issued by:
Hayley Norton
SCT Judge and Assistant Registrar
Date of issue: 6 July 2023
At: 12pm
THE REASONS
The Parties
1. The Claimant is Meket (the “Claimant”), a private company incorporated in the DIFC, Dubai, UAE and the tenant of the Unit 00, DIFC, Dubai, UAE (the “Unit”).
2. The Defendant is Milat (the “Defendant”), a private company registered and located in the DIFC. The Defendant is the Landlord of the Unit.
Background and the Preceding History
3. The underlying dispute is with regards to immediate termination of the lease agreement dated 27 December 2020 and subsequently followed by a variation agreement dated 4 May 2021 (the “Agreement”). The Agreement was to expire on 9 April 2024.
4. On 9 May 2023, the Claimant filed a claim in the DIFC Courts’ Small Claims Tribunal (the “SCT”) seeking compensation for loss of revenue from 23 January 2023 to 30 April 2023 and the storage facility charges in the sum of AED 191,468.54.
5. On 17 May 2023, the Defendant filed an acknowledgement of service with the intention to defend all of the claim.
6. On 25 May 2023, a consultation was held before SCT Judge Delvin Sumo at which the parties failed to reach an amicable solution.
7. In line with the processes and procedures of the SCT this matter was referred to me for determination pursuant to a hearing scheduled before me on 8 June 2023 (the “Hearing”).
The Claim
8. The Claimant submits that the Defendant terminated the lease and forcefully closed the Unit and packed the inventory overnight without the presence of the Claimant. The Claimant adds that the Defendant’s actions caused reputational damage and monetary loss.
9. The Claimant submits that a meeting was held between the Claimant and the Defendant on 20 January 2023, during which the Claimant was informed that the Agreement would be terminated effective on 30 April 2023 as the zone where the Unit is located is sold to Miwat Investment LLC. On 21 January 2023, the Claimant requested for relocation.
10. On 23 January 2023, the Claimant received an email from DIFC Finance of Termination Notice, instructing the Claimant to vacate the Unit by 4pm on the same day for security to lock the premises.
11. On 24 January 2023, the Claimant became aware that the Defendant have removed the Claimant’s inventory from the Unit. On the same day, the Claimant settled the sum of AED 17,053.44 an amount which was for Turnover Rent (“TOR”) from 10 April 2021 to 9 July 2021.
12. The Claimant submits that the Defendant terminated the Agreement and evicted the Claimant on the basis that the TOR for the period from 10 April 2021 to 9 July 2021 was not paid by the Claimant.
13. The Claimant adds that on 19 October 2022, the Claimant requested that it be allowed to settle the TOR by early next year. However, no response was received from the Defendant.
14. The Claimant submits that pursuant to clause 3.13 of the Agreement, the Security deposit held by the Defendant was AED 19,025. The total amount including the interest charged for non-payment of TOR is AED 17,053.44. Furthermore, the Defendant cashed the cheque dated 20 December 2022 for the quarterly rent payment period from (10 January 2023 to 9 April 2023), as the cheques were not replaced after the variation Agreement.
15. The Claimant submits that it was evicted on 23 January 2023 for an outstanding amount of AED 17,053.44, while the Defendant was holding AED 43,550.67 which was returned (after deducting additional TOR for April – July 2021 and pro-rata rentals and pro-rata DEWA dues) by the finance team on 9 March 2023.
16. The Claimant claims the sum of AED 191,468.54 based on the following:
(a) Loss of sales from 23 January 2023 to 30 April 2023 - an average of daily sales based on the sales report submitted to DIFC Mall Management every month in the sum of AED 163,692.43.
(b) Storage facility cost from 25 January 2023 to 30 April 2023, due to eviction the Claimant had to find a storage facility in the sum of AED 6,186.02.
The Defendant’s Defence
Wrong Party
17. The Defendant submits that the Claimant lodged a claim against the wrong party.
18. The Defendant submits that the Plot upon which the Unit is situated was acquired by MiwatInvestment LLC (“MiwatI”) on 28 February 2022. Therefore, the Agreement was automatically assigned to MiwatI, as per the provisions of Article 18 of the Leasing Law, DIFC Law No.1 of 2020 (the “Leasing Law”) which states:
“The Transfer of title to a new Lessor of the reversionary interest in a Lease resulting in an assignment of Lease by the outgoing Lessor shall not affect the Lessee’s right to continued occupation of the Leased Premises in accordance with the Lease signed with the previous Lessor.”
19. Also, clause 6.10 of the Agreement provides:
“DIFCI shall be entitled to assign or transfer this Lease, the Building or the land whereon the Building is erected or any part thereof, to any third party without the approval of the Tenant, provided such transferee undertakes to perform DIFCI’s obligations under this Lease.”
20. The Defendant submits that Miwat entered into a property management and leasing agreement with the Defendant for the Defendant to act as the agent of Miwat in liaising with the tenants situated on this Plot, including the Claimant.
21. The Defendant submits that any claim for wrongful termination and compensation should therefore be lodged against Miwat as the Landlord of the premises and not the Defendant who no longer has the privity of contract with the Claimant by virtue of the Assignment.
Defence on Merits
22. The Defendant submits that the termination notice was sent to the Claimant by the Defendant on Miwat’s instructions. Miwat was entitled to request the Defendant to send the Termination Notice.
23. The Defendant adds that the Claimant had been in breach of the Lease since the 17 October 2022. Turnover Rent (as defined in the Agreement) was due for the period from the 10 April 2021 until the 9 July 2021 and an invoice dated 23 September 2022 was sent to the Claimant by the Defendant on the 25 September 2022. Paragraph 1.2 of Schedule 4 of the Agreement requires that the Claimant pay the Defendant the Turnover Rent due within fifteen (15) Working Days of receipt of an invoice from the Defendant. The Claimant was therefore required to pay the Turnover Rent pursuant to the invoice received on the 25 September 2022 by the 17 October 2022. The Defendant submits that the Claimant’s failure to pay the Turnover Rent on the 17 October 2022 amounts to a material breach of the Lease. The Unit was also lawfully repossessed by the Defendant on behalf of Miwat in terms of the Lease and the contents of the Unit were locked up and secured, as there was a lien over these goods pursuant to Clause 6.1.1 of the Agreement, given that the Claimant was in arrears. On 25 January 2023, the Defendant in accordance with its policies sent the Claimant the exit no objection certificate. On 26 January 2023 the Claimant collected all of its property.
24. The Defendant submits that clause 6.11.1 of the Agreement allows the Landlord to terminate the Agreement upon “immediate notice to the Tenant” in the event that “the Tenant is in arrears of Rent for a period of thirty (30) calendar days or more, whether or not formally demanded”. Rent is defined in the Agreement as “all amounts reserved as rent by this Agreement, including turnover rent”. The Defendant submits that it had operated its contractual right to terminate the Agreement in accordance with Clause 6.11.1. Clause 6.12 allows the Landlord to forfeit all sums paid by the tenant in the event of such termination and provides the right to enter and repossess the Unit.
25. The Defendant submits that the Claimant on 19 October 2022 sent the Defendant an email requesting to pay the TOR in early 2023, however, the Defendant submits that such request was not granted.
26. The Defendant also submits that clause 3.13.3 of the Agreement provides that the Landlord “may” deduct from the Security deposit any reasonable sum in respect of any claims that the Landlord may have against the tenant for any breach of obligations of the tenant contained in the Agreement. The Defendant adds that the word “may” clearly denotes that it is the right of the Landlord to apply security deposit to cover a breach of lease but not its obligation to do so.
27. The Defendant acknowledges the payments made by the Claimant in relation to Base Rent and Service Charges. The Agreement however require the Claimant to pay TOR. The Defendant adds that paragraph 1.2 of Part 1 of Schedule 4 of the Agreement requires that the excess sum be paid within fifteen (15) working days of receipt of the invoices.
28. The Defendant submits that the Claimant was refunded the sum of AED 43,550.67 by way of cheque dated 6 March 2023 which was given to the Claimant on 9 March 2023 with respect to the advance sums paid by the Claimant beyond the termination date being:
(a) The Security deposit in the sum of AED 19,025; and
(b) The base rent and the service charges rent for the period from 24 January 2023 to 9 April 2023 in the sum of AED 24,626.67.
29. The Defendant submits that the Courts shall dismiss the Claimant’s claim on the basis that the termination of the Agreement was lawful.
Finding
30. The relationship between the parties is governed by the Agreement along with the DIFC Leasing Law and the DIFC Contract Law No. 6 of 2004 as amended (“DIFC Contract Law”).
31. There are two key issues in this claim, the first is whether the claim made by the Claimant is against the wrong party and the second issue is whether the termination of the Agreement and the immediate eviction of the Claimant by the Defendant on behalf of Miwat is lawful.
Wrong Party
32. The Defendant submits that the Plot upon which the Unit is situated was acquired by Miwat Investment LLC (“Miwat”) on 28 February 2022. Therefore, the Agreement was automatically assigned to Miwat. However, there is privity of contract with the Defendant with which the Claimant concluded the original lease, regardless of the transfer of the freehold to Miwat. There is privity of estate with Miwat which became the landlord by assignment.
33. Therefore, I find the Defendant is a party to this claim because there remains privity of contract between it and the Claimant in relation to the Agreement and it has never been released from that obligation under the Agreement by the Claimant.
Termination of the Agreement
34. The second issue is whether the termination of the Agreement was lawful.
35. The Defendant terminated the Agreement with immediate effect on 23 January 2023, on the basis that the Claimant breached the Agreement as of 17 October 2022, as the Claimant received the invoice of the outstanding TOR on 25 September 2022 and as per Paragraph 1.2 of Schedule 4 of the Agreement, the Claimant had 15 working days from the date of receiving the invoice to settle the TOR. Therefore, by breaching the Agreement, the Defendant is entitled to terminate the Agreement with immediate notice in accordance with Clause 6.11.1 of the Agreement which states:
“6.11 the lease may be terminated by DIFCI upon immediate notice to the tenant if:
6.11.1 the Tenant is an arrears of rent for a period of 30 (thirty) calendar days or more, whether or not formally demanded”.
36. Upon reviewing the facts of the case, the Claimant by way of email requested an extension of time to early 2023 to settle the TOR. However, the Defendant did not respond to such request.
37. On 20 December 2022, the Defendant cashed the Claimant’s cheque for the base rent and service charge rent for the period from 10 January 2023 to 9 April 2023.
38. The question which arises is whether the encashment of the cheque on 20 December 2022 amounts to acceptance of the breach.
39. The rental as per the Agreement between the parties had three elements; (i) base rent; (ii) service charge rent; and (iii) TOR. The encashment of the cheque was for the two elements only, however, the third element was not yet paid. On 25 September 2022, the Defendant sent the Claimant the invoice and pursuant to Clause 1.2 of Schedule 4 of the Agreement provides that “the Tenant shall pay to DIFCI the Turnover Rents within fifteen (15) working days of receipt of an invoice from DIFCI”.
40. The Claimant is in breach of its obligations as per the Agreement, therefore, the Defendant’s termination to the Agreement pursuant to 6.11, 6.11.1 and clause 1.2 of Schedule 4 of the Agreement is lawful.
41. On 9 March 2023, the Claimant was given a cheque as a refund of the Security deposit in the sum of AED 19,025 and the base rent and the service charges rent for the period from 24 January 2023 to 9 April 2023 in the sum of AED 24,626.67.
42. Therefore, I find that the Claimant is not entitled to the remedies sought as the termination of the Agreement was lawful as the Claimant breached its obligation by failing to settle the TOR within 15 working days of receiving the invoice.
Conclusion
43. In light of the above, the Courts find that the Claimant’s claim shall be dismissed.
44. Each party shall bear its own costs.