Addis Fortune May 11, 2015
The Cassation Bench of the Supreme Court conducted the oral litigation over the case worth 24 million Birr between May Real Estate Development Plc and its 24 homebuyers, following the appeal made by May Real Estate, which the Supreme Court had ruled against.
The dispute arose following a construction contract of luxury condominium homes agreed between the two parties at different times between 2007 and 2010. May Real Estate did not deliver the houses at the agreed time and this forced the homebuyers to take legal action.
Their application to the Court was either to order that May Real Estate deliver the houses, completing them by forced performance; to order the handing over of the houses as they are, paying seven million Birr for their finishing; or to order compensation with which they can buy similar houses, as well as eight million Birr in damages.
May Real Estate’s defence at the High Court included that there were no contracts, stating that it was only a draft because it was not registered based on the law and objected to the joint suit of the homebuyers. However, May Real Estate, at the same time mentioned the reasons as a Force Majeure (a common clause in contracts that essentially frees both parties from liability or obligation), for the delay in the delivery of the houses. It listed the change in foreign currency and inflation in the price of cement and construction materials at the time, security bans due the houses proximity to the United Nations Economic Commission for Africa, as reasons for its non-performance.
According to May, the homebuyers had no special interest in requiring forced performance based on the governing law and blamed them as a reason for its cancellation of the contract saying they had not discharged the additional payment asked by it due to increases in the cost of construction. It said the contract was a sales contract not a construction contract and hence the governing article is 2876 of the Civil Code.
Article 2876 of the Civil Code states that a contract concluded to deliver a house, a flat or another building which does not yet exist, is a contract of work and labour relating to immovable objects and not a contract of sale. Whereas article 1776, which is on forced performance, said forced performance shall not be ordered unless the party requiring it has special interest and the contract can be enforced without affecting the personal liberty of the other party.
The High Court accepted that the contract was a construction contract but rejected the allegation of the homebuyers on the grounds that the forced performance would violate the contractor’s and worker’s liberty.
The homebuyers appealed to the Supreme Court on March 19, 2013. May made a cross appeal saying that the High Court should have considered that contract’s period of limitation had lapsed, Force Majeure and the fault of the homebuyers on discharging the additional payment.
The Supreme Court rejected the cross appeal of May Real Estate. It posited that the contract is not that of sales but a construction contract and that the homebuyers have special interest to require forced performance. It overruled the High Court’s decision, noting that the Court did not prove how the forced performance will violate the contractor’s liberty. It declared that the homebuyers’ discharge of all payments and the Real Estate’s act of cancellation of the contract on the grounds of additional payment without prior negotiation to vary the contact is unreasonable.
The Supreme Court also rejected the Force Majeure defense of May Real Estate, noting that they were neither convincing nor provided for in the law.
The Supreme Court thus reversed the High Court’s decision and ordered May Real Estate to deliver the houses as they are to the homebuyers, noting that the requested amount for damage and finishing as unproven.
May Real Estate appealed to the Cassation Bench of the Supreme Court noting that the Supreme Court’s decision had made a mistake in law. Its defence was that the contract was not a construction contract and that there was no forced performance on a sale contract. It told the Court that the contract was concluded on the intention of sale contract and additional payment. The homebuyers’ lawyers had been arguing that the contract was a construction contract and forced performance could be used by analogical interpretation as long as there was no law prohibiting that.
The Court asked May Real Estate lawyers why their defence was that the contract was a sale contract of finished houses while at the same time listing reasons for the late delivery of the houses.
“The houses were accomplished. But there was underground digging for parking and the delay is for all the projects not only for the disputable houses which are part of the total project,” Solomon Gebremicheal, May Real Estate’s lawyer responded.
Conducting the oral litigations of the parties on May 7, the Supreme Court’s Cassation Bench gave an appointment for June 1, 2015 to pass a decision.
May Real Estate Development Plc was established in 2003 with a paid-up capital of 1.5 million Birr.
By LUCY KASSA
FORTUNE STAFF WRITER