Nakheel has scored a victory in the Dubai World Tribunal on a ruling that a subsidiary developing the man-made World islands can ask for licensing fees from a company providing services for the project.
The Tribunal, which is overseeing claims against companies owned by Dubai World as part of the conglomerate's restructuring, last week dismissed a case brought by Penguin Marine Boat Services against The World.
Penguin had alleged that by not going forward with the project, the Nakheel subsidiary had breached a contract signed in 2008 under which Penguin was to build a port and handle delivery of construction materials and labour to projects on the islands.
Its case was a response to an earlier demand by The World for Penguin to repay Dh1.86 million (US$506,384) of advance payments plus licensing fees of Dh5m per year for two years and seven months of operations, for a total of Dh14.8m. Penguin had taken out bank guarantees and performance bonds to cover its obligations, which The World had indicated it might cash.
The Tribunal, however, agreed with The World's contention that the project had not been shelved, clearing the way for it to demand payment.
Ali bin Thalith, a Nakheel executive, said in a witness statement that "although the development of The World islands has slowed as a result of the global recession, the project is still ongoing and has not been terminated".
All the islands have been created, he added, and "we are continuing to market them". Construction was progressing on the Lebanon and Heart of Europe projects, The World's lawyers argued.
Penguin had countered that it kept 16 ships at the ready for construction "despite the lack of opportunity to operate the services resulting from the near total development inactivity that has been a feature of The World islands project to date", according to a witness statement by Capt Alex Labor, Penguin's general manager.
He told the tribunal Penguin had spent more than Dh20m to set up and run the port but was unable to recoup those costs with revenues.
Furthermore, Capt Pedro Cagalin, Penguin's chief operating officer, said that although the islands had been completed, individual islands were not protected by "sheet piling", which meant "sand is eroding from them and navigation channels between the islands are silting up, resulting in insufficient depth of water for safe navigation in some places", according to the judgment.
A ship ran aground in January last year as it was providing services to Lebanon island, and channels were not well marked with buoys and lights, Penguin argued.
Mr bin Thalith accepted that there "has been some silting" but disputed that that had restricted Penguin or any other operator, according to court documents.
If that were the case, The World would "undertake de-silting" to provide access, he said. The Tribunal found "the evidence does not establish, in our judgment, that progress has altogether stopped nor, to pursue the nautical metaphor, that the vessel is no longer afloat".
Penguin also said The World had an implicit obligation to finish the project, but the Tribunal found it did not, citing a contractual clause in which The World said it made no such guarantees for service providers.
The Tribunal dismissed the case and awarded court costs to The World. Tribunal decisions are not appealable.
The case represents one of Nakheel's biggest wins to date in the special court.
In a separate suit filed in February, The World is also asking for about Dh8.3m from Penguin in connection with the contract. In a defence and counterclaim, Penguin is arguing that the contract is no longer in force and that it is not required to pay licence fees to The World.
Neither Nakheel nor Penguin commented.
Nakheel is Dubai's biggest property developer and a subsidiary of Dubai World, a government-owned company that recently reached a deal with banks to reschedule repayment of $24.9 billion of debt after the global downturn.