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The claimant purchased two residential units from a single shareholder LLC for approximately AED 458,000.
The project was later placed under the "Cancelled Projects Committee" and eventually sold by public auction, preventing title transfer to the buyer.
The purchaser sought:
- rescission of the sale contract,
- refund of the price plus interest, and
- joint and several damages against the LLC, its manager, and a third party.
Both the Court of First Instance and the Court of Appeal ordered the contract to be rescinded, obliged the LLC to refund the purchase price and pay AED 100,000 in damages, but rejected personal liability claims against the manager and the third party.
The buyer pursued a final appeal to the Court of Cassation, arguing that the manager should be personally liable because the contract omitted the words "single person LLC" and failed to state the company's capital.
The Dubai Court of Cassation has handed down an important judgment that will be of keen interest to developers, investors, brokers and lenders involved in UAE real estate transactions, particularly where project cancellations and refund claims are at stake
Notable Findings by the Court of Cassation
Separate Legal Personality Remains the Default
The Court reiterated that an LLC – even a single shareholder LLC – is distinct from its owners and managers. Debts arising from the company's contracts attach to the company alone unless specific statutory grounds for piercing the corporate veil are proven.
Personal Liability of Managers Requires Proof of Direct Harm
Articles 71 and 72 of the UAE Commercial Companies Law impose personal liability on an LLC manager only where:
the contract omits mandatory particulars (e.g., "single person LLC" designation and capital amount); and
the claimant demonstrates that such omission directly caused a quantifiable loss.
In the absence of evidence that the omission itself produced the buyer's loss, the manager's personal assets remain protected.
Privity of Contract Prevails
Contractual obligations bind only the contracting parties. A third-party investor who previously held the units – and the manager signing on behalf of the company – cannot be sued on the contract unless separate wrongdoing (e.g., fraud) is established.
Discretion in Assessing Damages
The Court endorsed the lower courts' discretion to award AED 100,000 in damages as fair compensation for the buyer's deprivation of funds. The Court will not disturb such findings absent a clear error in law or methodology.
Practical Takeaways for Real Estate Stakeholders
- LLC shield as a separate legal entity remains robust - Managers and shareholders continue to enjoy strong protection unless claimants can link statutory non-compliance directly to their loss.
- Statutory particulars still matter - Always include the phrases "LLC" (and, where applicable, "single person LLC") together with the registered capital in all sale, reservation and assignment agreements. This minimises arguments over personal liability and reinforces compliance.
- Evidence of causation is critical - Purchasers seeking to pursue individuals must gather clear evidence that the missing statutory information (not the project cancellation itself) triggered their loss.
- Focus on the contracting entity - When seeking refunds or damages after a project cancellation, claims should primarily target the developer entity. Parallel claims against managers or brokers will only succeed in cases of proven fraud, gross negligence or statutory breach causing direct harm.
- Expect judicial scrutiny of damage calculations - Courts will look closely at the buyer's actual financial prejudice rather than automatically awarding the full claimed amount.
- Due diligence on project status remains paramount - Prior to entering or assigning off-plan contracts, purchasers and financiers should verify any existing Committee for Cancelled Projects proceedings or other regulatory interventions.
Recommended Action Points
Developers should immediately audit their standard form agreements to ensure full statutory particulars are included throughout.
Investors and financiers may wish to include explicit contractual provisions that address project cancellation scenarios, refund mechanisms and dispute forums.
Parties contemplating litigation should evaluate whether their evidence meets the strict causation threshold needed to pierce the corporate veil.
Establish ongoing compliance and regulatory monitoring to identify potential cancellations early and manage purchaser communications.
Our Real Estate and Dispute Resolution teams are available to discuss how this decision may impact your current or future transactions, and to assist in updating your documentation and risk management protocols accordingly.
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.
