The effect of a judicial claim or proceeding on a statute of limitation
Dubai Court of Cassation Judgment 50 of 2023
Nasser YahiaSenior Counsel,Dispute Resolution
This case confirms well established principles in relation to tolling a statute of limitations (i.e., the pausing or delaying of the running of the period of time under a statute of limitation). A statute of limitation is tolled upon a judicial claim being made or by any judicial proceeding being taken by a creditor to assert his rights (Article 484 of the UAE Civil Code). However, any such action will not toll the statute of limitations against any party who was not joined in that action, with the result that any subsequent action against that party may be time-barred.
The First and Second Respondents brought an action against an investment company (the Third Respondent) and a real estate financier (the Appellant) to set aside the sale by the Third Respondent of 60 units in a tower located Dubai to the Appellant, in circumstances where the First and Second Respondents had already concluded, with the investment company, an agreement to purchase the same units for AED 240 million, payable in instalments.
The First and Second Respondents paid 48% of the purchase price, but the Third Respondent breached its contractual obligations by failing to transfer title to the property in their name. As a result, the First and Second Respondents filed an action to invalidate or terminate the sale agreement and recover part of the purchase money paid. The Court of First Instance ruled, among other things, that the agreement for sale of the subject units, concluded between the First and Second Respondents and the Third Respondent, was void, ordering that the latter pay them a sum of AED 114 million plus 9% interest per annum until paid. The first instance judgment was upheld on appeal.
Before the judgment was issued, the investment company had resold the same units to the Appellant/real estate financier. The Third Respondent fell into financial distress, encumbered by its creditors’ claims, and the only security left for the First and Second Respondents was the units sold to the Appellant.
The First and Second Respondents then filed Action No. 269-2018 [Real Estate] against the Third Respondent but excluded the Appellant in the proceedings. The action was dismissed by the Court of First Instance. The First and Third Respondents appealed, and the Court of Appeal set aside the first instance judgment and ruled anew to invalidate the sale of the units by the Third Respondent to the Appellant. This decision was appealed and the action was held to be inadmissible for failure to include/sue the Appellant.
The First and Second Respondents filed a second action, in which they sued the Appellant, seeking to invalidate the agreement for finance of the building and 60 units (the agreement between the Third Respondent and the Appellant). The Appellant pleaded that the action was time barred under Article 400(1) of the UAE Civil and that it should be dismissed for failure to satisfy the conditions for an action to invalidate a disposition.
Article 400 (1) of the UAE Civil Code provides: “No claim for a declaration that a disposition is ineffective shall be heard after the expiration of three years from the day on which the obligee learned of the cause rendering the disposition ineffective.”
However, Article 400(1) is qualified by Article 484 of the UAE Civil Code, which provides: “The prescription period shall be interrupted upon a judicial claim being made or by any judicial proceeding being taken by an obligee to enforce his right.”
The Court of First Instance ruled in favour of the Appellant, dismissing the action on the basis that the First and Second Respondent’s claim was time-barred pursuant to Article 400(1) of the UAE Civil Code. The First and Second Respondents appealed this judgment.
The Court of Appeal set aside the first instance judgment and invalidated the sale of the units by the Third Respondent to the Appellant. The Court of Appeal did not address the Appellant’s time-bar defence under Article 400.
The Appellant appealed the Court of Appeal judgment to the Court of Cassation, arguing that because it was not sued in the initial action (Action No. 296-2018 [Real Estate]) and three years had passed from the date the First and Third Respondents had knowledge of the sale of the units to the Appellant, the action should be dismissed as time barred.
The Court of Cassation (Action 855 of 2022) dismissed the Appellant’s cassation appeal and considered Action No. 296-2018 [Real Estate] to be a legal proceeding that tolled the statute of limitations, even though the Appellant had not been sued in that action.
In view of the Court of Cassation’s dismissal of the Appellant’s appeal, the Appellant submitted a retraction application pursuant to Article 190(1)(c) of Federal Law No. 42 of 2022 on Civil Procedure on the basis that the Court of Cassation’s judgment in Cassation No. 855-2022 [Real Estate] contradicted principles of the Court of Cassation case-law.
The Appellant requested the retraction on the basis that the Court of Cassation’s settled position, in line with Article 484 of the UAE Civil Code, is that a limitation period is tolled upon a judicial claim being made or by any judicial proceeding being taken by a creditor to assert his rights. The effect of a judicial claim or proceeding is extinguished upon final judgment dismissing the action, ruling the action inadmissible, declaring lack of jurisdiction to consider the action, or invalidating the judgment entered in the action for lack of adversarial proceedings. In this case, and as mentioned above, the Appellant was not party to the legal proceeding that the First and Second Defendants claimed tolled the statute of limitation.
In June 2023, the Court of Cassation panel entrusted with deciding retraction applications granted the application and held that the Court of Cassation’s judgment in Action 855 of 2022 went against the judicial principles concerning the tolling of limitation periods.
This case confirms that while a statute of limitation is tolled upon a judicial claim being made or by any judicial proceeding being taken by a creditor to assert his rights, any such action will not toll the statute of limitations against any party who was not joined in that action, with the result that any subsequent action against that party may be time-barred. The judgment of the Dubai Court of Cassation in the retraction application provides a timely reminder to parties to carefully consider the effect of limitation periods on their claims and the strategy they adopt in the pursuit of their claims.
For further information, please contact Nasser Yahia.
Contribution to the article research,Mohamed Hicham
Published in June 2023
