Abu Dhabi Court of Cassation, Commercial Appeal No. 1104 of 2021, judgment of 7 February 2022
Under Article 390 of the Civil Transactions Law parties may fix compensation in advance, but the court may, at either party's request, adjust it to equal the actual loss, and any agreement to the contrary is void. A clause in an off-plan sale stating that delay compensation is a lump sum and that the buyer has no further claim does not prevent the court from awarding more where the loss is greater. A buyer who withholds instalments because the developer has failed to deliver on time is exercising the right of retention under Article 247 and owes no agreed compensation for late payment.
In 2012 a buyer agreed to buy an off-plan villa in Abu Dhabi from a developer for about AED 14.7 million, with delivery in December 2015, later extended to June 2016. The contract provided for delay compensation of 1% plus IBOR on the amounts paid, and clause 7.3 stated that this was a lump sum and that the buyer would have no other claim against the developer for delay. The villa was handed over in May 2020. The buyer sued for about AED 5.2 million; the developer counterclaimed for agreed compensation for late instalments. An expert committee reported that the delay had lasted nearly four years and, according to real-estate engineering practice, that delay compensation should not exceed 10% of the price. The first-instance court awarded about AED 5.1 million; the Court of Appeal reduced the award to AED 1.5 million and rejected the counterclaim.
The developer's appeal was dismissed. The Court held that assessing fault, loss and the evidence, including expert reports, is for the trial court, which is the 'first expert' on damage; compensation covers loss suffered and gain missed without enriching the claimant. Under Article 390 of the Civil Transactions Law the court may, on a party's request, adjust agreed compensation so that it equals the loss, and any agreement to the contrary is void. The Court of Appeal had therefore been entitled, on the buyer's request, to raise the agreed amount to reflect a delay of about four years despite the lump-sum clause. The developer's counterclaim failed because, under Article 247, in bilateral contracts each party may withhold performance while the other fails to perform; the buyer's late payments were a lawful exercise of that right in response to the developer's late delivery.
For off-plan purchases in Abu Dhabi, a developer cannot rely on a capped or 'sole remedy' delay compensation clause to limit liability if the buyer proves greater loss, because Article 390 lets the court adjust agreed compensation to the actual damage. The decision also protects buyers who stop paying instalments once the developer is already in breach.
| Articles 247 and 390 of Federal Law No. 5 of 1985 (Civil Transactions Law) — text of articles 247, 390 Decided under this law; it has been replaced by Civil Transactions Law 2025. |
“كما يجوز للقاضي في جميع الأحوال بناءً على طلب أحد الطرفين أن يعدل في هذا الاتفاق بما يجعل التقدير مساوياً للضرر ويقع باطلاً كل اتفاق يخالف ذلك”Short quotation from the judgment as published by the court. The full judgment is on the court’s official service.
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