Abu Dhabi Global Market judgments (Court of First Instance)

In the name of
His Highness Sheikh Mohamed bin Zayed Al Nahyan
President of the United Arab Emirates/ Ruler of the Emirate of Abu Dhabi

 

COURT OF FIRST INSTANCE
REAL PROPERTY DIVISION

BETWEEN

 

 

 

SOWWAH SQUARE INVESTMENT - SOLE PROPRIETORSHIP L.L.C.

Claimant

and

 

FOREVER ROSE RETAIL LIMITED

Defendant

 

 

 

 

JUDGMENT OF JUSTICE PAUL HEATH KC

 

Neutral Citation:	[2026] ADGMCFI 0024
Before:	Justice Paul Heath KC
Decision Date:	3 September 2026
Decision:	1.      Judgment is entered in favour of the Claimant in relation to the Late Payment Fee and Liquidated Damages claimed under the Lease. 2.      The Defendant shall pay the Claimant's costs of the Summary Judgment Application on the indemnity basis, to be summarily assessed if not agreed.
Hearing Date:	On the papers
Date of Order:	To be drafted by the Claimant.
Catchwords:	Real property. Commercial leasing practice in Abu Dhabi and ADGM. Tenant Default. Late payment fee. Liquidated damages for holding over leased commercial property. Penalties. Whether commercial clauses constitute unenforceable penalties. Application of Cavendish Square. Commercial justification. Legitimate interest. Proportionality. Burden of proof. Unchallenged evidence. Effect of absence of contradictory evidence.
Legislation Cited:	Application of English Law Regulations 2015 ADGM Court Procedure Rules
Cases Cited:	Alrakban v Webridge Properties LLC [2026] ADGMCFI 0014 Sowwah Square Investment - Sole Proprietorship LLC v Forever Rose Retail Ltd [2026] ADGMCFI 0013 Radchenko v Marshel Group Ltd [2026] ADGMCFI 0021 127 Hobson Street Ltd v Honey Bees Preschool Ltd [2020] 1 NZLR 179 (SC) Paciocco v Australia and New Zealand Banking Group Ltd (2016) 333 ALR 569 (HCA) Cavendish Square Holding BV v Makdessi [2016] AC 1172 (UKSC) Murray v Leisureplay PLC [2005] EWCA Civ 963 Jeancharm Ltd v Barnett Football Club [2003] EWCA Civ 58 Robophone Facilities Ltd v Blank [1966] 1 WLR 1428
Case Number:	ADGMCFI-2025-262
Parties and representation:	Claimant Mr Roman Khodykin, Bryan Cave Leighton Paisner LLP Defendant Self-Represented Litigant

 

JUDGMENT

Introduction

1.             Sowwah Square Investment - Sole Proprietorship LLC ("Sowwah") is a real estate company registered in the Abu Dhabi Global Market ("ADGM"). Sowwah holds an interest in the Galleria Luxury Collection area of the Galleria Mall (the "Mall"), pursuant to a usufruct dated 11 July 2013. That interest enures for 50 years from that date. Sowwah manages that part of the Mall, which is situated on Al Maryah Island.

2.             Aldar Retail Management LLC - SPC ("Aldar") is responsible for managing and providing leasing services for the Mall, for and on behalf of Sowwah. Mr Mark Saunders, the Associate Director (Legal) at Aldar, has been involved for many years in negotiating leases for the Mall, both before and after his employment with Aldar. As part of his functions, Mr Saunders was responsible for negotiating an agreement for lease between Al-Samadi General Trading LLC - Branch of Abu Dhabi 1 ("Al-Samadi General Trading"), and a formal lease into which the parties entered into subsequently (the "Original Lease"). The Original Lease was later novated in favour of Forever Rose Retail Ltd ("Forever Rose").

3.             The Original Lease was executed on or about 1 August 2018. Mr Saunders undertook the negotiation with Mr Asim Hussain, who acted on behalf of Al-Samadi General Trading. Mr Hussain was, at that time, Commercial Director of Al-Samadi General Trading. Both Al-Samadi General Trading and Forever Rose were (and are) controlled and operated by Mr Ebraheem Al-Samadi.

4.             By agreement dated 24 June 2022, Al-Samadi General Trading entered into the novation of the Lease to Forever Rose (the "Lease"), which became the lessee from that date. The Lease governs the relationship between Sowwah and Forever Rose. The latter assumed (and agreed to perform) all obligations cast on the lessee by the Lease.

5.             Forever Rose fell into default under the Lease. By a claim filed on 21 August 2025, Sowwah sought judgment against Forever Rose in a total sum of AED 1,199,568.12. Forever Rose denied liability for the amounts claimed.

Summary Judgment Application

6.             Sowwah sought summary judgment (the "Summary Judgment Application") under rule 68 of the ADGM Court Procedure Rules 2016. Following a hearing on 5 March 2026, a written judgment was issued on 22 April 2026. [1] I described the Summary Judgment Application as follows: [2]

"3.  Sowwah seeks summary judgment ... against Forever Rose in respect of moneys that it alleges are due under the Lease. Forever Rose opposes the application. The Claim falls into two parts:

a.            claims for (what are defined as) "Tenant Payments", (the "Tenant Payments"), under the Standard Terms of the Lease (the "Standard Terms") and the costs of yielding up ("the Yield Up Costs") the Unit to Sowwah; and

b.                  claims for liquidated damages (the "Liquidated Damages") and a late payment fee ("the Late Payment Fee")."

(Footnotes omitted)

7.             I decided that summary judgment should be entered in respect of the claims for Tenant Payments and Yield Up Costs but should be denied in respect of the Late Payment Fee and Liquidated Damages. [3] I considered that the question whether the Late Payment Fee and the Liquidated Damages ought to be characterised as unenforceable penalties was sufficiently arguable to require a trial on that issue (the "Penalty Issue").

Case management

8.             Following judgment on the Summary Judgment Application, a case management conference was convened on 19 May 2026. When the conference was held, Forever Rose was represented by Mr Hussain, who had been involved in negotiating the Lease with Mr Saunders. [4] On 20 May 2026, I made directions for standard disclosure to be given, followed by witness statements of both primary fact and expert opinion. The witness statements were to be exchanged contemporaneously. Also, I directed that any request for an oral hearing was to be made by 22 July 2026, failing which the trial issue and any consequential questions of interest and costs would be determined on the papers. Forever Rose has not complied with those directions. No evidence has been filed on its behalf. Nor did it seek to be heard on the Penalty Issue. The trial has proceeded on the papers.

9.             I have had the benefit of helpful submissions from Mr Roman Khodykin, on behalf of Sowwah. They have traversed both evidence of primary fact and expert evidence. The expert evidence addresses the application of late payment fees and liquidated damages in common use in commercial leases in ADGM. [5]

Penalty Issue: legal principles

10.         The Penalty Issue turns on the application of the test articulated by the Supreme Court of the United Kingdom in Cavendish Square Holding BV v Makdessi [6] ("Cavendish Square"). Cavendish Square now represents settled English law on the question of the circumstances in which a contractual payment will be regarded as an unenforceable penalty. It is applicable in the ADGM as part of the common law of England. [7] The decision has been applied on at least two occasions in ADGM: Alrakban v Webridge Properties LLC [8] and Radchenko v Marshel Group Ltd. [9] However, in neither case was it necessary for the parameters of the penalty rule to be explored.

11.         As to applicable legal principles, I need go no further than to repeat the propositions of law that I extracted from Cavendish Square in my judgment on the Summary Judgment Application: [10]

               "32.           In [Cavendish Square], the Supreme Court held that amounts ostensibly payable on breach of a contract ought to be characterised as unenforceable penalties if the amount claimed was out of all proportion to any legitimate interest of the innocent party in enforcing its primary obligation. Until [Cavendish Square], the distinction generally applied was between a disproportionate amount payable when compared with a genuine pre-estimate of loss. The law now recognises a broader range of commercial factors that can be taken into account in determining whether an amount payable under a contract should be characterised as an unenforceable penalty. A similar approach, based on proportionality, has been adopted in both Australia and New Zealand: see Paciocco v Australia and New Zealand Banking Group Ltd and 127 Hobson Street Ltd v Honey Bees Preschool Ltd.

               33.             Since [Cavendish Square], the "penalty issue" has become more nuanced. The question is whether a secondary obligation (in this case, the Late Payment Fee and Liquidated Damages) imposing a detriment on a contract breaker (for failure to pay rent and other Lease related costs) is out of all proportion to any legitimate interest of the innocent party in the enforcement of a primary obligation. That is assessed by considering whether the secondary obligation is commercially justifiable. If not, it will be open to the Court to declare the relevant provision to be an unenforceable penalty.

                   34.         The question whether an unenforceable penalty exists is to be determined as a matter of construction of the relevant contract, having regard to the parties' knowledge at the time it was entered into and the exercise of judicial judgment."

                   (Footnotes omitted)

12.         Mr Khodykin reminded me that the onus of establishing that a clause such as a late payment fee or liquidated damages rests on the party seeking to have the contractual provision set aside. [11] That is an important consideration, in the context of the present case. Forever Rose has elected not to provide evidence on the Penalty Issue. In the absence of any evidence from Forever Rose or cross-examination of Mr Saunders, I accept the evidence of Mr Saunders as to the facts that he has stated in his witness statement. Similarly, I accept the expert evidence that Sowwah has adduced, [12] to which there has been no challenge.

Analysis

(a)           The contractual provisions

13.              The Late Payment Fee and the Liquidated Damages are directed to different topics and became payable at different times.

14.              Clause 4 of the Lease provides that if any Tenant Payment has not been paid in accordance with clause 3.9 of the Lease, "whether formally demanded or not", a Late Payment Fee shall be paid. The amount payable is described as "the Prescribed Rate", which is calculated by reference to the Emirates Interbank Offered Rate (EIBOR) of "three (3) months plus eight percent per annum plus VAT'' calculated on a daily basis. The amount claimed as a Late Payment Fee is AED 207,413.39, to which a daily rate of AED 232.90 has been added from the date on which the Claim was filed.

15.              Liquidated Damages are payable if a tenant fails to vacate the premises after expiry or termination of the Lease "whether with or without the consent of the Landlord". The amount payable during any occupation is calculated, by clause 17.2 of the Standard Terms of the Lease at "twice the Tenant Payments due immediately prior to the period of holding over". The amount of Liquidated Damages claimed is AED 337,743.94.

16.              The Late Payment Fee and the Liquidated Damages together total AED 545,157.33 out of a total claim of AED 1,199,568.12. That represents 45% of the claim.

(b)           The expert evidence

17.              The authorities make it clear that expert evidence as to market practice is admissible in determining whether a clause of the type dealing with late payment fees or liquidated damages should be treated as an unenforceable penalty. Nevertheless, such evidence is not determinative. The Court must still exercise its own judgment on whether the clause in issue is so out of proportion to the primary obligation that has been breached that the innocent party should not be able to recover.

18.              Sowwah has adduced expert evidence from Mr Andrew Thomson.  Mr Thomson is a qualified lawyer, having been admitted as a solicitor in Scotland in 2003. Subsequently, he has had more than 23 years of experience in the real estate sector, the substantial part of which has been spent living and working in the United Arab Emirates ("UAE"). Mr Thomson has provided a summary of his experience in the UAE. I am satisfied that he is qualified to give evidence about the use of clauses dealing with matters akin to the Late Payment Fee and Liquidated Damages, to which the Lease refers.

19.              Mr Thomson points out that the Original Lease was entered into on 1 August 2018. He then provides a summary of relevant market conditions prevailing in the Emirate of Abu Dhabi's commercial real estate market around that time. I summarise relevant parts of Mr Thomson's evidence:

a.      In March 2018, the Abu Dhabi commercial real estate market was in a period of relative stability following a correction that had occurred in the years after 2014. The correction had been driven in part by the decline in oil prices. However, vacancy rates in the Abu Dhabi office and retail sectors remained elevated, and landlords were operating in a competitive leasing environment. In such conditions, institutional landlords placed particular emphasis on the enforceability of tenant payment obligations and the inclusion of robust contractual protections against late payment and unauthorised holding over, in order to protect rental income streams and maintain the financial viability of their developments.

b.      With respect to the prevailing interest rate environment, the three-month EIBOR, in August 2018, was approximately 2.2% to 2.5% per annum. The UAE dirham is pegged to the US dollar, and UAE interbank rates broadly tracked the trajectory of the US Federal Reserve rate increases during this period. EIBOR had risen from historic lows of approximately 0.8% in mid-2015 to approximately 2.3% by 2018, reflecting the tightening monetary policy cycle.

c.      The use of a benchmark-plus-margin structure for late payment interest, such as EIBOR plus a fixed percentage margin, was a well-established and commonly adopted formula in commercial leases in Abu Dhabi, including in the ADGM. This structure is favoured by institutional landlords because it ensures that the late payment rate adjusts in line with prevailing market interest rates, thereby maintaining the commercial efficacy of the provision over the term of the lease regardless of fluctuations in the interest rate environment. An alternative approach, which is also encountered in the market, is the use of a fixed percentage rate of interest. Mr Thomson states that both approaches are, in his experience, within the range of standard market practice for commercial retail leases in Abu Dhabi and the ADGM.

d.      Mr Thomson opines that the rate and structure of the Late Payment Fee prescribed by Clause 4 of the Standard Terms were within the range of market norms for late payment interest provisions in commercial retail leases in Abu Dhabi, including specifically in the ADGM, at the time the Lease was entered into in August 2018.

e.      The inclusion of a liquidated damages provision for holding over at a rate of twice (200%) the Tenant Payments due immediately prior to the holding over period reflected usual commercial standards is a very common and well-recognised formulation in commercial retail leases in Abu Dhabi, including specifically in the ADGM, continuing to the present day. Mr Thomson states that rates of between 150% and 200% represent the standard market norm for holding-over liquidated damages in institutional commercial retail leases in Abu Dhabi and the ADGM.

f.        There are sound and well-understood commercial reasons why institutional landlords of premium retail destinations in Abu Dhabi and the ADGM include holding-over liquidated damages provisions at rates of between 150% and 200% in their commercial retail leases. The principal commercial justifications for such provisions are:

                                                  i.      where a tenant holds over after the expiry or termination of a lease without the landlord's consent, the landlord is deprived of the ability to re-let the premises to a new tenant. In the context of a premium retail destination such as a major mall, the landlord will typically have invested considerable time and resources in identifying and negotiating with prospective replacement tenants, and the unauthorised occupation of the premises by the outgoing tenant frustrates the landlord's ability to deliver vacant possession to the incoming tenant. The resulting delay may cause the landlord to lose the prospective tenant entirely, or to be required to offer concessions (such as rent-free periods or fit-out contributions) in order to retain the incoming tenant's interest. Rates of between 150% and 200% reflect the significant opportunity cost and financial loss that the landlord may suffer as a consequence of the tenant's failure to vacate:

                                                 ii.      in the context of a managed retail complex, the landlord's ability to control the tenant mix is of fundamental commercial importance. The composition of tenants within a mall directly affects foot traffic, customer experience and the commercial performance of the development as a whole. Where a tenant holds over without authorisation, the landlord's ability to implement its leasing strategy and to curate the tenant mix in accordance with its commercial objectives is compromised. The holding-over liquidated damages provision at the 200% rate serves to incentivise the timely vacation of the premises and to deter tenants from remaining in occupation beyond the term of their lease, thereby protecting the landlord's ability to manage the tenant mix effectively;

                                               iii.      the unauthorised holding over by a tenant may have adverse consequences for other tenants within the development. Where the landlord has committed to delivering premises to an incoming tenant by a specified date, the failure of the outgoing tenant to vacate may expose the landlord to claims from the incoming tenant for delay, or may result in the landlord being unable to fulfil its obligations under the incoming tenant's lease. The 200% rate reflects the potential exposure of the landlord to such third-party claims and the broader disruption to the landlord's leasing programme;

                                               iv.      the recovery of possession from a tenant who holds over without consent may require the landlord to incur significant legal and administrative costs, including the costs of enforcement proceedings. The holding-over liquidated damages provision at the 200% rate serves to compensate the landlord for such costs, and the 200% rate is regarded as a proportionate and commercially justified level of liquidated damages for this purpose; and

                                                 v.      where a tenant holds over and subsequently vacates the premises without complying with its yield-up and reinstatement obligations under the lease, the landlord may be required to carry out reinstatement works at its own cost before the premises can be re-let. The period during which such works are carried out represents a further period of lost rental income for the landlord. The 200% rate takes into account the likelihood that the landlord will suffer such additional losses in the event of unauthorised holding over.

Are the Late Payment Fee and Liquidated Damages unenforceable penalties?

20.              I propose to decide the Penalty Issue on the narrowest approach possible. I do so because I am conscious that nobody has appeared as a contradictor to Sowwah, and (whichever way my decision may go) it is inappropriate to give a stamp of approval to the Late Payment Fee and the Liquidated Damages clauses or to hold them to be unenforceable penalties without a contrary argument. Instead, I determine the Penalty Issue by reference to onus of proof. [13] In my view, the absence of any evidence of primary fact or expert opinion from Forever Rose (whether in chief or by cross-examination of Sowwah's witnesses) means that it cannot discharge the onus of establishing that the two clauses should be labelled as unenforceable penalties. I explain briefly, and in general terms, why I have formed that view.

21.              Cavendish Square has been applied in other common law jurisdictions, including by the apex courts of Australia and New Zealand: Paciocco v Australia and New Zealand Banking Group Ltd [14] and 127 Hobson Street Ltd v Honey Bees Preschool Ltd, [15] decisions of the High Court of Australia and the Supreme Court of New Zealand respectively.

22.              There is a common theme running through the three decisions. Given the changes in commerce, since the penalty rule was first developed in the early 1800s, [16] Lord Neuberger and Lord Sumption, in Cavendish Square, considered that had the penalty rule not been so entrenched in the common law it was doubtful that the Court would have "invented" it in 2015, when Cavendish Square was decided. [17] That point was put more starkly in a subheading used by Keane J, in giving a separate judgment in Paciocco: "The penalty rule: A rule in search of a rationale". [18] While other Judges who gave judgments in Cavendish Square, Paciocco and 127 Hobson Street did not make the point so strikingly, it is clear that each found it difficult to adapt the penalty rule to modern circumstances.

23.              The threshold for interfering with the prima facie contractual agreement into which the parties have willingly entered is a high bar to cross. Although different words are used in the judgments given in the leading cases, the flavour of the test was captured neatly by Winkelmann CJ, giving the judgment of the Supreme Court of New Zealand in 127 Hobson Street Ltd. She said: [19]

                   "[91]      We summarise the test as follows:

                   (a)           A clause stipulating a consequence for breach of a term of the contract will be an unenforceable penalty if the consequence is out of all proportion to the legitimate interests of the innocent party in performance of the primary obligation. A consequence will be out of all proportion if the consequence can fairly be described as exorbitant when compared with the legitimate interests protected.

                   ...

                   (f)            The bargaining power of the parties will be relevant to the courts' inquiry as to the nature and extent of the innocent party's interest in performance of the primary obligation. A court will presume that commercial parties dealing with each other on equal terms are able to assess the appropriate proportion between the legitimate interest in performance of the primary obligation and the consequence contracted for on breach. The fact that a party was legally advised as to the nature and effect of the transaction will also weigh in favour of upholding the bargain. But where there is evidence of unequal bargaining power, or where one party is not legally advised, a court will scrutinise more closely the innocent party's claims as to the interests protected, and also the issue of proportionality. However, whatever the relative bargaining positions of the parties, the issue for the court remains whether the consequences for breach are out of all proportion to the innocent party's legitimate interests in performance.

                   ..."

24.              The cases are at one in starting from a presumption that commercial parties dealing with each other on equal terms are able to assess the relative proportionality between the legitimate interest of one party in performance of a primary obligation and the consequence of breach by the other. A different approach may be justified if there were evidence of unequal bargaining power or where one party is not legally advised. However, the highest this point has been put is that a Court might scrutinise more closely the innocent parties claims as to the interests protected and the proportionality of any contracted response. [20]

25.              I am satisfied, from the unchallenged evidence of Mr Saunders and Mr Thomson, that:

a.      while in relation to the Original Lease, Al-Samadi General Trading was not represented by a lawyer, there were meaningful exchanges between two people, Mr Saunders and Mr Hussain, [21] both of whom were commercially experienced;

b.      when Al-Samadi General Trading entered into the Original Lease and Forever Rose took a novation of it, both entities were part of a larger sophisticated business enterprise. Neither company requires the Court to exercise a paternalistic jurisdiction to protect its commercial interests;

c.      in the negotiations about the Original Lease, Mr Hussain raised no questions about the Late Payment Fee or the Liquidated Damages clauses. That is consistent with the expert evidence given by Mr Thomson as to the purpose of each and the reasons why such clauses were customarily inserted into leases of commercial premises around August 2018. [22] I accept that the market practices and the reasons for them, to which Mr Thomson has referred, [23] were well known to both Mr Saunders and Mr Hussain; and

d.      viewed in that way, the amounts sought by way of Late Payment Fee and Liquidated Damages cannot appropriately be characterised as "out of all proportion", "exorbitant", or "unconscionable" so as to justify invocation of the Court's jurisdiction to declare such clauses to be unenforceable penalties.

 

Conclusion

26.              In those circumstances, I find in favour of Sowwah on the Penalty Issue. I enter judgment in favour of Sowwah for the amounts claimed under both the Late Payment Fee and Liquidated Damages heads. Sowwah shall file a draft order setting out the precise orders sought. That will be referred to me for approval.

27.              Given that Forever Rose contested the Summary Judgment Application on the grounds that the Late Payment Fee and the Liquidated Damages were unenforceable penalties yet did not avail itself of the opportunity to be heard at the trial of the Penalty Issue, I hold that Sowwah is entitled to receive costs on the indemnity basis, to be fixed summarily if not agreed. If those costs are not agreed, Sowwah shall file a statement of costs pursuant to ADGM Courts Practice Direction 9 on the basis of which I can fix costs. I am happy to consider this aspect contemporaneously with approval of the draft order.

 

Issued by: Linda Fitz-Alan Registrar, ADGM Courts 3 September 2026