Financial crisis is no excuse to stop debt repayments

Abu Dhabi's top civil court has ruled that e-mails may be used as evidence and the financial crisis does not constitute "exceptional circumstances" that would allow companies to get out of paying their debts. The decision by the Court of Cassation came in the judgment of a lawsuit by the property brokerage Better Homes against a developer that owed the brokerage a commission for selling five towers on Reem Island in 2008.

"It is a good precedent for businesses in the country because it is good to know the judiciary upholds the word of a contract," said Ryan Mahoney, the managing director of Better Homes. "It gives everyone a lot of comfort to know they can rely on the courts." Better Homes won the case in the Court of First Instance, with a judgment of tens of millions of dirhams, but the award was reduced by the Court of Appeal. The Court of Cassation in February restored the initial decision.

"It's been a long few years and it is a relief to be clear," said Mr Mahoney. The judgment has still not been paid and the residential towers at the centre of the lawsuit have not yet been built. The developer, the Abu Dhabi-based Al Odaid Real Estate, could not be contacted for comment. The dispute goes back to late 2007, when Al Odaid contracted with Better Homes to sell units in the five apartment towers on Reem. The brokerage sold the towers in January 2008 to a consortium of investors for almost Dh1.5 billion (US$408.3 million).

Under the terms of the contract, a portion of the broker's commission was due after the purchaser delivered the first 5 per cent of the sale price. The remaining amount was due after the next 5 per cent was paid. In May 2008, Al Odaid sent an e-mail to Better Homes in which it agreed to pay the commission in nine equal instalments. After a year in which the developer did not pay, Better Homes filed the lawsuit.

According to court records, Al Odaid argued that it should not be required to pay the full commission under the "exceptional circumstances doctrine", which gives the courts the discretion to intervene despite the existence of a valid contract. The developer said the global credit crunch was one of those circumstances. The court ruled that the doctrine should not be applied in cases where the debtor was already lax in making payment and subsequent circumstance made it more difficult to meet his obligation. In addition, the court found that e-mails can be treated as evidence as long as the transmission from the sender to the recipient can be proven.

"This reinforces the need for brokers and all service providers to have their paperwork in order because now they know they will be protected," Mr Mahoney said. @Email:[e-mail]