📋 Investment Contract Dispute: Compensation for Constructions vs. Lost Goodwill

This case involves two joined appeals before the Abu Dhabi Court of Cassation concerning the termination of an investment contract and the subsequent claims for compensation.

🔍 Case Background

The appellants (tenants) entered into an investment contract with the first respondent (landlord) to develop an empty plot of land. The tenants constructed buildings and operated a business on the premises. The contract was later terminated by court order due to the tenants' failure to pay rent, leading to their eviction.

The tenants filed a lawsuit (Case No. 839/2025) demanding compensation for the value of the constructions they erected on the land, as well as for loss of profit and goodwill. The Court of First Instance, based on an expert report, ordered the landlord to pay the tenants AED 925,700.00 for the value of the constructions. This judgment was upheld by the Court of Appeal.

⚖️ The Cassation Appeals

Both parties appealed to the Court of Cassation.

First Appeal (No. 1406/2025 by the Landlord)

Arguments:

• Jurisdiction: The landlord argued that the dispute was a rental matter and should have been handled by the Rental Disputes Committee, not the Commercial Court.

• Right to Compensation: The landlord claimed the tenants were not entitled to compensation as the improvements were for their personal benefit, citing Article 768 of the Civil Transactions Law.

Court's Findings:

The Court of Cassation rejected the landlord's appeal, reasoning that:

• The agreement was an investment contract, not a simple lease, because it involved constructing buildings on a vacant plot. Therefore, the Commercial Court had proper jurisdiction.

• Under Articles 784 and 785 of the Civil Transactions Law, if a tenant makes constructions with the landlord's permission and the contract ends, the landlord must either demand their removal or take ownership of them at their value (as scrap if removal is detrimental to the property). Since the tenants were evicted, they were entitled to compensation for the value of the permanent structures they built, which enriched the landlord. The court found the expert valuation of AED 925,700.00 to be sound.

Second Appeal (No. 33/2026 by the Tenants)

Arguments:

• Insufficient Compensation: The tenants argued the awarded amount was insufficient. They sought further compensation for loss of investment value, goodwill, and lost profits, claiming the contract termination was due to a force majeure event (the COVID-19 pandemic).

• Expert Report: They contested the court-appointed expert's findings and requested a new expert.

Court's Findings:

The Court also rejected the tenants' appeal, stating that:

• The tenants were evicted due to their own breach of contract (failure to pay rent), not force majeure. Therefore, they are not entitled to compensation for consequential damages like lost profits or goodwill.

• The compensation awarded rightly covers the tangible assets (constructions) that the landlord retained, preventing unjust enrichment.

• Claims for goodwill and contractor fees were benefits the tenants enjoyed while operating their business and are not recoverable from the landlord upon eviction for breach.

• The appointment of an expert is at the discretion of the court. The court found the existing expert report sufficient to form its judgment and was not obligated to appoint a new one.

⚡ Final Judgment

The Court of Cassation rendered the following judgment:

1. Dismissed both appeals (No. 1406/2025 and No. 33/2026).

2. Upheld the appealed judgment from the Court of Appeal.

3. Ordered each appellant to bear their own legal costs and fees.

4. Ordered the confiscation of the security deposits for both appeals.