Important distinction between commission, additional compensation and interest
Dispute Resolution / UAE
El Ameir NoorPartner,Dispute Resolution
Omar SaifanSenior Associate,Dispute Resolution
Zane AnaniSenior Knowledge Lawyer,Dispute Resolution
The judgment rendered by the Abu Dhabi Court of Cassation in case number 962 of 2023 provides significant insights into the principles governing commercial disputes, particularly those involving claims for commission and compensation. This article will consider the key principles highlighted by the court and the critical distinction between commission, additional compensation and interest which played a pivotal role in the court's decision.
The dispute concerned a commercial contract related to a government project where the Claimant (the broker) claimed compensation and commission for their role in facilitating a contract. The Court of First Instance initially ruled in favour of the Claimant, awarding them AED 60,000,000 and 3% annual interest from 20 January 2023, until full payment.
Both the Claimant and the Defendant appealed the decision before the Abu Dhabi Court of Appeal which rejected both appeals and upheld the Court of First Instance judgment.
As a result, the parties appealed to the Abu Dhabi Court of Cassation. The appeals were consolidated and reviewed by the Abu Dhabi Court of Cassation.
The Court of Cassation rejected the Claimant’s claims, stating that there was no evidence of the claimant's entitlement to the commission. The project was a public tender, which typically does not involve intermediaries or brokers and the court found no substantial proof of the claimant's involvement in securing the contract.
The Claimant filed a request to the Court of Cassation pursuant to Article 190(c) of the Civil Procedure Law to retract its judgment and issue a new judgment on the basis that the first judgment violated judicial principles which prohibits accepting new evidence at the Court of Cassation stage.
The Court of Cassation amended the Court of First Instance judgment by reducing the commission payable to the Claimant to AED 15 million instead of AED 60 million. The Court of Cassation reassessed the commission on the basis that there was no agreement on the rate of commission payable to the Claimant. The Court of Cassation also found that the commission rate was not sufficiently substantiated by evidence of customary practice or a specific agreement between the parties. The court took into account the significance of the respondent's role and the duration of their efforts over ten years. The court emphasized that the commission should reflect the value of the services provided rather than an arbitrary percentage.
The court further rejected the claim of additional compensation of AED 30 million claimed by the Claimant. The court considered the nature of the contract as a public tender. It was argued that brokerage activities are not typically associated with public tenders and the court noted that the appellant did not present adequate evidence to demonstrate that the respondent had performed brokerage services that directly led to the awarding of the public tender contract. The court highlighted that the evidence provided, such as meetings and communications, did not conclusively prove that the respondent's efforts were the primary reason for securing the contract. Consequently, the court found that the claim for additional commission was not substantiated, particularly given the public tender context where such commissions are not customary.
In summary, the Court of Cassation adjusted the commission from AED 60,000,000 to AED 15,000,000, ensuring it was more aligned with the actual contributions and customary practices.
A critical aspect of the judgment was the distinction between additional compensation and interest. The court rejected the claim for additional compensation for lack of evidence that the Claimant has sustained any loss. The court clarified that interest can be claimed pursuant to Articles 72,73 and 84 of the Commercial Transactions Law if the debtor delayed the payment of a specific amount of money. However, Article 87 of the Commercial Transactions Law allows a creditor to claim additional compensation if they can prove that the damage caused by the delay exceeds the interest and that the debtor acted with deceit or gross negligence. The court noted that the Claimant failed to provide evidence of exceptional damage beyond the usual delay-related damage and found no proof of deceit or gross negligence on the part of the debtor. The court reiterated that the burden of proof lies with the claimant to demonstrate both the exceptional nature of the damage and the debtor's deceit or gross negligence.
The court referenced specific articles from the Commercial Transactions Law regarding the role and compensation of brokers. Articles 254 and 256 of the Commercial Transactions Law outline the conditions under which a broker is entitled to a commission. The broker must have facilitated the conclusion of a contract, and the contract must be specific, defined, and known to the parties involved. The court upheld the findings of the Court of First Instance which found that there was sufficient evidence including experts reports to support that these conditions were met in this case, and that the Claimant played a role in securing the contract.
The court, however, reduced the compensation and noted that the Claimant's request for a 5% commission on the contract value was not substantiated by an agreement or applicable customs. The court therefore used its discretion to reassess the reasonable commission payable to the Claimant.
The nature of the obligation also varies between commission and interest. Commission is contingent upon the successful completion of a service or transaction, making it a conditional obligation. Interest, however, is an unconditional obligation that arises from the mere existence of a debt. Additional compensation is contingent in proving that the delay caused exceptional loss to the claimant and that it was as a result of bad faith or intent to cause harm to the Claimant.
It was argued that brokerage activities are not typically associated with public tenders and the court noted that the appellant did not present adequate evidence to demonstrate that the respondent had performed brokerage services that directly led to the awarding of the public tender contract.
A critical aspect of this judgment is the differentiation between potential and actual damages. The court distinguishes between these two types of damages which has implications for claimants seeking compensation.
Actual damages, also known as compensatory damages, refer to the real and concrete losses that a claimant has suffered as a direct result of the defendant's actions. These damages are quantifiable and must be proven with clear and convincing evidence. The court emphasized that compensation is only warranted for damages that are actual, proven, and directly attributable to the breach or wrongful act.
In the case at hand, the court required the Claimant to provide concrete evidence of the losses incurred due to the alleged breach by the Defendants. The court noted that actual damages must be a direct and foreseeable result of the breach, and the Claimant must substantiate these damages with appropriate documentation and evidence. Potential damages, on the other hand, refer to speculative or hypothetical losses that might occur in the future but have not yet materialized. These damages are not certain and cannot be quantified with precision. The court made it clear that compensation cannot be awarded for potential damages, as they are not guaranteed to occur and are based on conjecture rather than concrete evidence.
The court held that potential damages are not compensable unless they become actual and proven losses. The court's stance is that awarding compensation for potential damages would be speculative and unjust, as it would not be based on tangible evidence of harm.
The judgment in case number 962,992 of 2023 by the Abu Dhabi Court of Cassation underscores several key principles in commercial dispute resolution, including the burden of proof, the role of expert reports, and the assessment of commission and damages. The distinction between additional compensation and interest is particularly important as it influences the legal basis for claims, the method of calculation, and the nature of the obligation. This judgment serves as a critical reference for understanding the evidentiary requirements for successful claims in the UAE.
For further information,please contact El Ameir Noor, Omar Saifan, and Zane Anani.
Published in February 2025
