This judgment clarifies the interplay between contractual termination rights and the obligation to compensate for completed works, reinforcing the efficacy of limitation of liability clauses in DIFC construction disputes.
How did the DIFC Small Claims Tribunal determine the quantum of liability in the dispute between Nyoka and Nunzio regarding the restaurant fit-out agreement?
The dispute centers on a series of agreements—a Letter of Intent, a Bill of Quantities (BOQ), and a Fit-Out and Joinery Works Agreement—governing the interior fit-out of the Defendant’s restaurant located within the DIFC. The Claimant, Nyoka, sought payment for works performed, asserting that it had achieved 95.23% completion before the Defendant, Nunzio, terminated the relationship. Nyoka argued that Nunzio’s failure to settle progress invoices constituted a material breach of the payment terms, which required settlement within three days of issuance.
Nunzio contested the claim, alleging that Nyoka had failed to meet project timelines and that the quality of work necessitated the engagement of third-party contractors to rectify errors. The Defendant sought to offset the outstanding invoice amounts against claims for delay penalties, rent, and loss of profit. The Tribunal ultimately navigated these competing financial claims by relying on an independent expert report to verify the value of completed works versus the costs of remedial works. As noted in the judgment:
The Defendant shall pay the Claimant the amount of AED 486,952.77 in respect of works carried out as of 12 January 2024.
The final award was reached by balancing these verified figures, resulting in a net payment obligation after accounting for the costs of third-party rectification.
Which judge presided over the SCT proceedings in Nyoka v Nunzio [2024] DIFC SCT 098?
The matter was heard before SCT Judge Maitha AlShehhi in the Small Claims Tribunal of the DIFC Courts. The proceedings involved a hearing on 9 May 2024, followed by the submission of an expert report on 19 June 2024, with the final judgment issued on 29 July 2024.
What specific legal arguments did Nyoka and Nunzio advance regarding the termination of the Fit-Out Agreement?
Nyoka argued that its cessation of work on 12 January 2024 was a justified response to Nunzio’s persistent failure to settle progress invoices, specifically the invoice dated 5 December 2023. The Claimant maintained that it had provided consistent progress updates and that any project delays were attributable to the Defendant’s own failures regarding material approvals and payment schedules. Nyoka contended that it was entitled to full payment for the work completed up to the date of suspension.
Conversely, Nunzio argued that the termination was a lawful exercise of its rights under Clause 19(7) of the Fit-Out Agreement. The Defendant asserted that Nyoka’s failure to meet the handover deadline entitled the Defendant to claim significant damages, including delay penalties and loss of anticipated profit. Nunzio further argued that it incurred substantial costs to rectify the Claimant’s alleged "errors and omissions," which it sought to deduct from the outstanding balance. As stated in the Defendant's submission:
Consequently, the Defendant is demanding payment of AED 427,770 from the Claimant in respect of the works carried out third party contractors to rectify the errors and omissions caused by the Claimant.
Did the lawful termination of the Fit-Out Agreement under Clause 19(7) extinguish the Claimant’s right to payment for work performed?
The primary doctrinal issue before the Court was whether the lawful termination of a construction contract automatically precludes a contractor from recovering payment for works completed prior to that termination. The Court had to determine if the Defendant’s right to terminate for delay or performance issues superseded the Claimant’s right to be compensated for the value of the works already incorporated into the project.
The Tribunal addressed whether the contractual framework—specifically the BOQ and the Fit-Out Agreement—created an independent obligation to pay for progress milestones regardless of the ultimate termination of the contract. The Court examined whether the Defendant could use the termination as a shield to avoid paying for the 95.23% of the work that the Claimant had successfully executed, or if the Claimant’s right to payment remained a distinct, enforceable obligation under the payment terms.
How did Judge Maitha AlShehhi apply the limitation of liability doctrine to the Defendant’s counterclaims for loss of profit?
Judge AlShehhi utilized a strict interpretation of the Fit-Out Agreement’s limitation of liability provisions to filter the Defendant’s counterclaims. While the Court acknowledged the Defendant’s right to recover costs for third-party remedial works, it drew a firm line regarding consequential damages. The Court held that the contract explicitly excluded liability for indirect economic losses, such as loss of anticipated profit or rent penalties.
The reasoning relied on the specific language of Clause 12 of the Fit-Out Agreement, which the Court found to be a binding barrier against the Defendant’s attempt to recover for business interruption. The judge’s approach ensured that while the Claimant was held accountable for the physical quality of the work (via the third-party rectification costs), the Defendant could not shift the burden of its commercial risks onto the contractor. As noted in the judgment:
I find that Clause 12 of the Fit-Out Agreement is also applicable here and the Claimant should not be liable to pay the Defendant for “loss of anticipated profit or pure economic loss”.
Which specific contractual clauses and expert findings were central to the Court’s determination of the final award?
The Court’s decision was heavily influenced by the BOQ payment terms, which stipulated that invoices must be settled within three days of issuance. This provision was critical in establishing the Defendant’s breach. Furthermore, Clause 19(7) was the primary authority cited for the lawfulness of the termination.
The Court also relied on the Expert Report dated 19 June 2024, which provided an objective valuation of the work performed by the Claimant and the necessary remedial works performed by the Defendant. The expert findings were instrumental in quantifying the offset amounts:
The Expert Report found that the Claimant is entitled to receive the amount of AED 445,327.88 in respect of the Claim while the Defendant is entitled to receive the amount of AED 11,211 in respect of the Counterclaim.
While the Court did not adopt the expert's figures in their entirety, the report provided the evidentiary foundation for the final orders regarding the AED 486,952.77 payment for works and the AED 306,661 offset for third-party contractors.
How did the Court distinguish between the Defendant’s claim for third-party rectification costs and the rejected claims for delay penalties?
The Court treated the third-party rectification costs as a direct, quantifiable liability arising from the Claimant’s performance, whereas it categorized the delay penalties and loss of profit as claims barred by the contract’s limitation of liability. The Court rejected the Defendant’s attempt to enforce a penalty payment of AED 58,000, noting that such a claim was inconsistent with the agreed-upon liability framework.
The Court’s reasoning was clear: while the Claimant was liable for the actual cost of fixing its errors, it was protected from the Defendant’s broader commercial losses. The Court specifically rejected the Defendant's argument for delay penalties, stating:
Therefore, I find that the Defendant’s counterclaim in respect of penalty payment in the amount of AED 58,000 shall be rejected as it is not in line with Clause 12.
What was the final disposition and the specific monetary relief ordered by the SCT?
The Court issued a judgment for both parties in part. The Defendant was ordered to pay the Claimant AED 486,952.77 for works completed. Conversely, the Claimant was ordered to pay the Defendant AED 306,661 to cover the costs of third-party contractors hired to rectify the fit-out.
The Court dismissed the Defendant’s counterclaims for daily delay penalties, rent, and loss of profit. Regarding costs, the Court ordered the Defendant to pay the Claimant’s filing fee of AED 24,347.65, while the Claimant was ordered to pay the Defendant’s filing fee of AED 15,333.05.
What are the practical implications of Nyoka v Nunzio for contractors and employers in DIFC fit-out agreements?
This judgment serves as a reminder that the DIFC Courts will strictly enforce limitation of liability clauses, even in the context of a terminated contract. Practitioners should note that lawful termination does not grant an employer a "blanket" right to withhold payment for work already performed. Instead, the Court will likely adopt a "netting off" approach, where the contractor is paid for the value of its work, subject to deductions for proven, contractually-permitted remedial costs.
Litigants must anticipate that the Court will prioritize expert evidence to resolve disputes over the quality and value of works. Furthermore, the dismissal of delay penalties and loss of profit claims underscores the necessity of clear, robust drafting in construction contracts if parties intend for such damages to be recoverable.
Where can I read the full judgment in Nyoka v Nunzio [2024] DIFC SCT 098?
The full judgment is available on the DIFC Courts website: https://www.difccourts.ae/rules-decisions/judgments-orders/small-claims-tribunal/nyoka-v-nunzio-2024-difc-sct-098
Cases referred to in this judgment
| Case | Citation | How used |
|---|---|---|
| N/A | N/A | No external case law was cited in the provided judgment text. |
Legislation referenced
- Fit-Out and Joinery Works Agreement (Clause 12, Clause 19(7))
- Bill of Quantities (BOQ) Payment Terms
- Letter of Intent (LOI) dated 23 June 2023