x Abu Dhabi, UAEWednesday 26 July 2017

Nakheel bid to cash bonds blocked

Contractor involved in dispute was to have built 2,000 new homes within Jumeirah Park.

The Dubai World Tribunal has issued an order to stop Nakheel from cashing performance bonds issued by a contracting company until the two sides have resolved a dispute in the court's first major hearing. "The decision is unanimous," said Sir Anthony Evans, the chairman of the tribunal.

Bin Belaila Baytur, a joint venture between the UAE's Bin Belaila Group and the Turkish contractor Baytur, had filed an emergency application for the tribunal to prevent the cashing of tens of millions of dirhams' worth of performance bonds after a row erupted between the company and Nakheel over a Dh1.3 billion (US$353.9 million) contract for a villa project.

Bin Belaila Baytur has argued that Nakheel sought to cash in the bonds after negotiations between the two sides about outstanding payments and project delays broke down.

The order was decided by the three members of the tribunal, Sir Anthony, Sir John Chadwick, and Michael Hwang. Mr Hwang was not present yesterday.

The dispute over the contract will be decided in the Dubai International Arbitration Centre because the two sides had previously agreed to resolve issues there but the tribunal was brought in after Nakheel asked Standard Chartered to cash in the bonds.

Bin Belaila Baytur alleges the dispute arose after Nakheel stopped making payments to the contractor to build part of Jumeirah Park, one of the largest of Nakheel's villa projects that is scheduled to have some 2,000 homes on a 350 hectare site.

It emerged yesterday that Nakheel stopped making payments to Bin Belaila Baytur in July last year and negotiations over the outstanding amounts came to a head this August. When an agreement could not be reached, each side sought to cancel their contracts. Nakheel's attempts to cash in the bonds precipitated three emergency applications in the tribunal from Bin Belaila Baytur, whose lawyer argued in a previous hearing that the cashing in of the bonds was an immediate threat to the company's ability to continue as a business. The first two applications were denied because the contractor did not prove the need for emergency applications but the third was heard by the tribunal and led to yesterday's ruling.

Graham Lovett, a lawyer at the law firm Clifford Chance, which is representing Nakheel, said in a previous hearing that Nakheel had the legal right to cash in the bonds and needed to do so to restart construction on the project with a new contractor.

Performance bonds are given by contractors to developers as security that they will do the work set out in the contract. They are usually worth a fraction of the total contract value.

Nakheel, the chief property developer of Dubai World, has said it settled Dh2.5bn of the Dh4bn it owed to trade creditors such as construction companies hired to build projects.

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.

However, the company requires the consent of 95 per cent of trade creditors before it will issue the sukuk. The Dubai World Tribunal was set up in December last year to hear all cases connected with Dubai World. There are now 19 cases before the tribunal.

 

bhope@thenational.ae