THERON ENTERTAINMENT v MAG FINANCIAL SERVICES [2020] DIFC CFI 021 — Assessing wasted costs following Court of Appeal remission (02 June 2020)

What specific wasted costs did Theron Entertainment claim against MAG Financial Services in CFI 021/2015?

The dispute arose from a failed hospitality project involving the restaurant brand “Asia de Cuba.” Theron Entertainment LLC (“Theron”) entered into a tenancy agreement with MAG Financial Services LLC (“MAG”) for premises in the Emirates Financial Towers. The project collapsed because MAG failed to obtain the necessary DIFC authorization to change the premises' use from office to restaurant in a timely manner. Following a Court of Appeal ruling that set aside an earlier loss-of-profit award, Theron sought to recover wasted expenditure totaling AED 1,648,375.50.

The claim focused on three specific categories of expenditure: employee payroll payments, staff insurance, and visa costs incurred between 2014 and 2015. Theron argued that these costs were rendered useless because the staff could not perform their duties while the premises remained unauthorized for restaurant use. As noted in the judgment:

The Claimant (“Theron”) was a licensee of the restaurant brand “Asia de Cuba”.

The litigation sought to rectify the financial losses Theron suffered while waiting for MAG to fulfill its contractual obligation to secure the required regulatory permits.

Which judge presided over the assessment of damages in the Court of First Instance on 02 June 2020?

Justice Roger Giles presided over this matter in the DIFC Court of First Instance. The order was re-issued on 02 June 2020, following an initial issuance on 21 May 2020, to finalize the assessment of wasted costs after the Court of Appeal remitted the issue for further determination.

What were the respective positions of Theron Entertainment and MAG Financial Services regarding the recoverability of staff costs?

Theron argued that the retention of staff was a reasonable commercial decision made in anticipation of the restaurant’s “soft opening,” which had been scheduled for October 2014. They contended that because MAG’s breach—the delay in obtaining the authorization—prevented the restaurant from opening, the salaries paid to these employees during the period of delay were entirely wasted. Theron provided documentation to substantiate these payroll expenses, asserting that they had no choice but to retain the staff while awaiting the landlord's compliance.

MAG, conversely, challenged the quantum and the necessity of these costs. They argued that the expenses were not directly caused by the delay or were otherwise unreasonable. However, Justice Giles noted that MAG failed to provide sufficient evidence to rebut the reasonableness of Theron’s staffing decisions. The court observed:

It did not attempt to discharge the burden, in relation to insurance or in relation to the employee costs, and I am not satisfied that Theron unreasonably retained the staff.

What was the precise legal question regarding the temporal scope of wasted costs that Justice Roger Giles had to resolve?

The court had to determine the exact period for which wasted employee costs were recoverable. The central doctrinal issue was whether all payroll expenses incurred up to the termination of the tenancy in May 2015 were recoverable, or if the recovery period should be capped at the date the authorization was actually obtained. The court had to decide if the breach of contract—the failure to obtain the authorization—continued to cause "wasted" costs after the authorization was secured on 05 February 2015 and communicated to Theron on 09 February 2015.

How did Justice Roger Giles apply the test for wasted costs to the payroll evidence provided by Theron?

Justice Giles applied a causation-based test to determine the recoverability of the payroll expenses. He reasoned that once the authorization was obtained on 09 February 2015, the impediment to the restaurant's fit-out and operation was removed. Therefore, any employee costs incurred after that date could not be attributed to the landlord's breach, as Theron was then free to proceed with the project.

The judge found that the retention of staff was reasonable up until the date the authorization was received, as it was necessary to keep the team ready for the anticipated opening. He stated:

I am satisfied that the employee costs to 9 February 2015 are recoverable as wasted costs. Taking one quarter of the amount in COA-3 for February 2015, the amount is AED 789,643.5.

This reasoning effectively limited the defendant's liability to the period during which the breach actively prevented the claimant from utilizing the premises.

Which specific statutes and RDC rules were relevant to the court’s assessment of the wasted costs claim?

The court’s assessment was guided by the principles of contractual damages under DIFC law and the procedural framework of the Rules of the DIFC Courts (RDC). Specifically, the court relied on the inherent power of the court to assess damages following a remission from the Court of Appeal. The judgment referenced the previous findings in the CFI judgment (CFI 021/2015) regarding the breach of contract and the subsequent CA judgment (CA 001/2018) which provided the mandate for this assessment. RDC 1.8 and RDC 4.16(3) provided the procedural basis for the court to manage the application on the basis of written submissions and documentary evidence without an oral hearing.

How did the court utilize the precedents established in the earlier stages of the Theron v MAG litigation?

The court relied heavily on the findings of the Court of Appeal, which had previously established that the tenancy was lawfully terminated and that MAG was in breach of contract. The Court of Appeal had specifically identified the need to assess the wasted costs because the initial judgment had erroneously focused on loss of profit. As the judgment noted:

The Judge said that, having awarded loss of profit damages, there was no need to deal with wasted costs damages.

Justice Giles used the Court of Appeal’s instruction to treat the wasted costs as a distinct head of damage, separate from the abandoned loss-of-profit claim, and utilized the schedule of 33 items provided by the parties to isolate the recoverable payroll expenses.

What was the final disposition and the specific monetary relief awarded to Theron Entertainment?

The court allowed the claim in part. Justice Giles rejected the claims for insurance and visa costs, finding they were not sufficiently linked to the breach, but awarded the payroll costs incurred up to 09 February 2015. The final order mandated:

The Defendant to pay the Claimant AED 789,643.5, plus interest at EIBOR plus 2% per annum from 9 February 2015.

No order was made as to costs, granting liberty to apply within seven days of the original order.

What are the practical implications of this ruling for DIFC practitioners handling wasted costs claims?

This case clarifies that in project-delay scenarios, the recovery of "wasted costs" is strictly limited to the duration of the breach. Practitioners must ensure that claims for wasted expenditure are precisely mapped to the timeline of the defendant's non-performance. Once the impediment caused by the breach is removed—in this case, the receipt of regulatory authorization—the claimant’s ability to recover ongoing operational costs as "wasted" ceases, regardless of whether the project ultimately succeeds. Litigants must be prepared to provide granular evidence linking specific expenditures to the period of the breach, as the court will not award damages for costs incurred after the defendant has cured the underlying contractual failure.

Where can I read the full judgment in Theron Entertainment LLC v MAG Financial Services LLC [2020] DIFC CFI 021?

The full judgment can be accessed via the DIFC Courts website: https://www.difccourts.ae/rules-decisions/judgments-orders/court-first-instance/cfi-0212015-theron-entertainment-llc-v-mag-financial-services-llc-13

Cases referred to in this judgment:

Legislation referenced:

• Rules of the DIFC Courts (RDC) 1.8
• Rules of the DIFC Courts (RDC) 4.16 (3)