A row over a Dh1.3 billion (US$354 million) contract for construction of part of Nakheel's Jumeirah Park project has spilled into the Dubai World Tribunal. Bin Belaila Baytur, a joint venture between the Bin Belaila group of the UAE and the Turkish construction company Baytur, on Wednesday filed an emergency application for the tribunal to order Nakheel not to cash two performance bonds worth tens of millions of dirhams.
Performance bonds are issued by contractors to developers as a form of security. They guarantee the work that has been undertaken is up the value of the bond. Justice Sir Anthony Evans adjourned a hearing yesterday after Nakheel agreed not to cash the performance bonds until another hearing in the next three weeks. Musa Machooka, a lawyer for Bin Belaila Baytur, alleged before the tribunal that Nakheel had sought to cash the bonds after negotiations between the two sides about outstanding payments broke down. He said the move was an "imminent threat" to the contractor's ability to continue operating.
The Jumeirah Park development was one of the largest of Nakheel's villa projects, with some 2,000 homes slated for construction on a 350 hectare site. "The applicant is of the view that Nakheel has not conducted itself in good faith," Mr Machooka said. When negotiations between the two sides did not yield a resolution, Nakheel moved to cash the performance bonds and advance payment guarantees associated with the project, said Mr Machooka, who is a legal consultant with the law firm Accord International.
Bin Belaila Baytur has also begun preparations to file a claim in the Dubai International Arbitration Centre, the venue specified in the contract for any dispute, he said. The company alleges, among its claims, that it is owed more than Dh66m in unpaid fees. Graham Lovett, a lawyer at the law firm Clifford Chance, which is representing Nakheel, argued that Nakheel had the legal right to cash the bonds and that if the developer was not allowed to restart construction on the project with a new contractor, its business would suffer.
"As each day passes, we are exposed to additional cost," Mr Lovett said. "We are under pressure from the buyers of these properties to build their homes." He also said the outcome of the proceedings would have an impact on the other contractors with which Nakheel was negotiating about contracts. "This hearing is likely to set a very strong precedent," he said. "It is likely to have a very serious consequence for the business … if an injunction is granted."
Nakheel, the main property development arm of the conglomerate Dubai World, has said it settled Dh2.5bn of the Dh4bn it owed to trade creditors. It has also said that 85 per cent of trade creditors have agreed to a 40 per cent cash payment with the remainder to be paid in the form of a five-year Islamic bond that pays a 10 per cent annual return. The consent of 95 per cent of trade creditors is required before Nakheel can issue the sukuk.
Responding to a request for comment on Wednesday, Nakheel said in a statement: "It is expected for a business the size of Nakheel to face disputes from time to time. This is a normal part of doing business, and with all matters before the courts, we do not comment on individual cases." Bin Belaila Baytur's emergency application is the latest of three that the company has made in the past month. The tribunal rejected the previous two applications because, Justice Evans wrote, Bin Belaila Baytur did not prove that there was justification for an urgent order without allowing Nakheel a chance to be part of the proceedings or that there was an immediate threat to its business.