CFI-057-2024 SIG Middle East LLC v Perfect Building Materials LLC

The DIFC Court of First Instance issued a significant judgment that clarifies the enforceability of final settlement agreements and the application of penalty clauses in cases where payment obligations have been breached. H.E. Justice Rene Le Miere highlighted the robustness of written agreements and limited circumstances in which courts will entertain defences based on alleged oral variation or informal conduct.

Background

The dispute had arisen from a commercial agreement involving the supply of materials under an original contract dated 2011. However, unpaid amounts had accumulated over time, leading parties to enter into two subsequent settlement agreements. In April 2022, the final fixed total settlement amount was executed, including a structured plan secured by six postdated cheques, with the agreement of a daily penalty of AED 3,000 for any delay in payment.

Despite having clarity of the final settlement terms, the paying party failed to meet the agreed scheduled deadlines, leading to the initiating party seeking enforcement by bringing a claim through the DIFC Courts under Part 8 of the Rules of the DIFC Courts (‘RDC’), which is reserved for cases with no substantial factual disputes.

Key Issues and Arguments

The legal proceeding commenced when the claimant filed a Part 8 claim before the DIFC Courts on 15 August 2024, seeking to enforce the final settlement agreement and a claim for contractual penalties for late payments. The defendants responded with an Acknowledgement of service, challenging the use of the Part 8 procedure and raising alleged oral variations towards the agreement. Hearing was held on 30 December 2024, followed by further directions for evidence and a second hearing on 27 January 2025.

The defendant resisted the claim on multiple grounds:

1. Alleged Oral Variations and Informal Agreements: where the parties had orally agreed to alternative payment methods, including replacement cheques and a letter of credit, which constitute a substituted performance under DIFC Contract law Articles 100 and 103.
2. The defence further asserted that the claimant, by accepting late payments and engaging in accommodating communications, had waived its right to enforce strict deadlines and associated penalties, thereby giving rise to estoppel by representation and by convention.
3. Lastly, the defendants contended that the existence of factual disputes renders the claim inappropriate for the streamlined part 8 procedure.

In the end, despite the defendant’s attempt to submit late evidence, which the claimant challenged, the court admitted the material but ultimately found in the favour of the claimant, with the ruling that there was no valid modification or waiver, enforced the penalty cluse in full and awarding AED 2,841,000 to the claimant along with the costs. 

The Court’s Reasoning

The court rejected the arguments made by the defendants in their entirety and entered judgment for the claimant for AED 2,841,00, representing accumulated penalties for delayed payments. Several notable findings emerge from the judgment:

• Strict Enforcement of Written Terms: The Court emphasised that the final settlement agreement contained a No Oral Modification (NOM) clause. Furthermore, under Article 31 of the DIFC Contract Law, a written contract containing such a clause would not be modified orally, unless one party is precluded by conduct from relying on the NOM clause, as the Court found no such conduct existed in this case.
• WhatsApp and Conduct Evidence Insufficient to Vary Contract: Even though the defendant heavily relied on WhatsApp messages and discussions, the Court found these did not amount to mutual agreement to vary the original settlement terms, as the messages had revealed consistent attempts by the claimant to seek payment and reminders of contractual, not any concession or waiver.
• No Evidence of Substituted Performance or Accord and Satisfaction: The Defendant failed to prove that the claimant accepted alternative methods of payment as a discharge of the original obligation. Showing there was no objective evidence to suggest that the claimant had relinquished its right to the penalties agreed upon in the contract.
• Estoppel Arguments Rejected: The Court held no clear or unequivocal representation had been made by the claimant to waive the right to penalties. In addition, the defendant did not show any detrimental reliance sufficient to invoke estoppel.
• Appropriateness of Part 8 Procedure: However, the defendant claimed factual conflicts existed; the court determined that these issues lacked evidential weight because Part 8 was appropriate, given that there were no real or serious disputes necessitating a complete trial under Part 7.

Conclusion                                    

The judgment given by the Court reinforces the enforceability of written settlement agreements within the DIFC, sending a clear message that informal communications or delayed performance will not easily override express contractual terms. Businesses relying on settlement agreements would be well advised to ensure that any variations are documented in writing and formally executed, particularly where NOM clauses are in place.

The court’s treatment of WhatsApp evidence also provides valuable insights, as correspondence could reflect commercial realities and would not displace the legal certainty of a formally executed contract. Moreover, the ruling affirms the DIFC Court’s willingness to grant summary judgment under part 8 where no real factual dispute exists, enabling swift enforcement in clear-cut cases.

This case thus serves as a reminder of the importance of clear documentation, strict adherence to settlement terms, and the risk of relying on informal arrangements when navigating commercial disputes.