United Arab Emirates: The Current View Of Dubai Mainland And DIFC Courts Regarding Capacity To Sign Arbitration Agreements

Introduction

The validity of arbitration agreements in Dubai remains subject to the strict observance by the courts of the formalities set out in the law and repeated case law of cassation courts. Many litigants learnt this the hard way when awards involving hundreds of thousands, and even millions, of pounds of legal expenses were set aside due to the failure to observe such formalities. And such oversight is recurring. However, recently a diverging position was pronounced by the DIFC Courts.

The Current Position of DIFC Courts

The DIFC courts of Dubai have veered in a different that varies from direction professed by main land courts. In Ginette Pjsc v (1) Geary Middle East FZE (2) Geary Limited [2016] DIFC CA-005, Justice Roger Giles accepted the authority of an executive director of a joint stock company (the appellant) who signed a settlement agreement that contained an arbitration clause to enter into arbitration agreement on behalf of his company, despite that the said director was not explicitly authorized by the board of the company as per the requirements of the article 103 of the old UAE Commercial Company Law.

Commenting on case law of Dubai Courts submitted by the appellant in support of its attempt to set aside the award, the DIFC judge distinguished the case before him from those submitted by the appellant as evidence on how Dubai main land courts dealt with the matter to justify reaching a different decision. Furthermore, the judge shifted the onus of proof to the party seeking to set aside the arbitration clause that the executive director was not authorized to agree to arbitration to the shoulders of the appellant.

Apparently, the DIFC court diverged from the consistent interpretation of Dubai courts opining that "it would be odd, and scarcely conducive to commercial efficacy, if entry into a contract containing an arbitration clause did not carry with it agreement to arbitrate in accordance with that clause."

The following case litigated before Dubai courts reflects a different if not opposite opinion of Dubai courts to that expressed in the aforementioned DIFC judgment.

The Case

The claimant, a supplier of building materials, filed a claim before Dubai courts in 2016 seeking a judgment to commit the defendant to pay outstanding amount for delivered materials. The defendant challenged the jurisdiction of Dubai courts on the grounds that the schedule of the supply contract contains an arbitration agreement. While the position of the claimant was that the schedules were not signed and that the signatory of the supply contract does not have the capacity to enter into arbitration agreements.

The First Instance Court upheld the arbitration clause and dismissed the case for lack of jurisdiction.

The Court of Appeal, in its judgment on 28/11/2016 quashed the judgment of the first instance court and decided that the arbitration clause is not valid for two reasons.

The first ground is that arbitration clause is a special clause that requires the parties to sign the schedules and hence it is not enforceable because the schedules do not carry signature of the claimant. The court implicitly rejected the defendant's argument that the arbitration clause is valid because the schedules were mentioned in the main supply contract and that they carried the stamp of the appellant.

The second ground is that the signatory of the agreement was a manager of the claimant but not the director whose name was mentioned on the commercial license. Pursuant to the law, only the director whose name is on the commercial license is authorized to enter into arbitration agreements unless provided otherwise in the constituent documents of the claimant / company. The court affirmed that the onus to prove that the signatory of a contract was authorized to sign an arbitration clause rests with the party that invokes the arbitration clause.

The Court of Cassation of Dubai upheld the decision of the Appeal Court in April 2017.

Conclusion

Those two judgments issued by the two courts, which are only several kilometers apart, do look to be much farther apart in their legal reasoning. Whilst the DIFC Appeal Court have dealt with the decision of the Dubai Courts invoked by the appellant cautiously by distinguishing its case, to avoid being seen as opposing the decisions Dubai Courts, the difference in the reasoning and the placement on the onus of proof to prove the validity of the arbitration agreement is significant and stands obvious.

Litigants should be mindful of this difference that does not seem to be fading anytime soon, so that they can draft their dispute resolution clauses accordingly, and when such disputes arise to make the correct strategic decision on which jurisdiction to have recourse to.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.