Abu Dhabi Court of Cassation examines authority of CEOs and other executives in public joint-stock companies to sign arbitration agreements
Dispute Resolution / UAE
Mohamed Al MarzouqiPartner, Co-Head of Dispute Resolution
Ahmad Ghoneim Partner,Dispute Resolution
Shaikha AlzubaidiTrainee Lawyer,Dispute Resolution
In December 2024, the Abu Dhabi Court of Cassation (Judgment 902 of 2024) delivered a landmark judgment that has significant implications for the validity of arbitration agreements in the UAE, particularly concerning the authority of CEOs and other executives in public joint-stock companies. This ruling underscores the necessity of proper authorization and adherence to statutory requirements for arbitration agreements. Al Tamimi and Company (“ATCO”) successfully represented the claimant, leading to the annulment of an arbitration award due to the invalidity of the arbitration agreement. This agreement was deemed unauthorized by the legal representative of the claimant, who sought its annulment. This article considers the legal reasoning underpinning the court's judgment, focusing on the principles of arbitration agreement validity, the requirements for such agreements, and the implications of unauthorized agreements.
The case in question involved a dispute between a public joint-stock company and another party, where the arbitration agreement was signed by the company's executive manager without proper authorization from the board of directors. ATCO represented the claimant, who sought to annul the arbitration award on the grounds that the agreement was invalid due to the lack of proper authorization. The Court of Appeal initially dismissed the nullification request, but the Court of Cassation later overturned this decision, emphasizing the importance of proper authorization in arbitration agreements.
ATCO's argument hinged on the fact that the claimant is a public joint-stock company. According to Article 155 of the UAE Commercial Companies Law and the claimant’s Articles of Association (“AoA”), the chairman of the board of directors is the legal representative of the company, possessing the authority to enter into arbitration agreements.
However, the arbitration agreement was signed by the executive manager without delegation or authorization from the chairman. Furthermore, the board of directors was unaware of the arbitration agreement and proceedings, as the executive manager, who signed the agreement, also appointed the lawyers to represent the claimant, despite the AoA stipulating that the board has the right to appoint legal representatives.
The Court of Appeal dismissed the nullification request, citing Article 25 of the UAE Arbitration Law Number 6 of 2018 (“UAE Arbitration Law”), which states that if a party continues with arbitration proceedings without objecting to a known violation within seven days, it is considered a waiver of the right to object. The court found that the claimant participated in the arbitration process without timely raising objections, thus waiving their right to contest the arbitration agreement's validity. Additionally, Article 20 of the UAE Arbitration Law requires objections to the jurisdiction of the arbitration tribunal, including defenses related to the invalidity or non-existence of the arbitration agreement, to be raised no later than the submission of the defense by the respondent. The claimant's failure to object within this timeframe resulted in a waiver of their right to contest the agreement's validity. The Court of Appeal concluded that the claimant ratified the executive manager’s actions by continuing to participate in the proceedings without raising objections regarding the manager’s authority. Consequently, the court upheld the arbitration award.
ATCO escalated the dispute to the Court of Cassation, arguing that the Court of Appeal misapplied the law by relying on implied ratification and failing to recognize the absence of evidence confirming that the claimant’s board knew about the arbitration agreement or proceedings. However, the Court of Cassation rejected ATCO’s appeal, reiterating the Court of Appeal’s rationale and upholding its judgment.
Following the Court of Cassation judgment, ATCO filed a Reversal Request (“Request”), citing Article 190 of the Civil Procedures Code, which permits a judgment to be reversed if it was based on a procedural error or contradicts established legal principles. The Reversal Committee (“RC”) noted that the Court of Cassation judgment conflicted with judicial principles established by the Abu Dhabi Cassation Court regarding the authority to enter into arbitration agreements on behalf of public joint-stock companies. ATCO emphasized that the executive manager entered into the arbitration agreement without the board's knowledge or authorization. The board and chairman were unaware of the proceedings, as the executive manager, who signed the agreement, also appointed the lawyers, despite the board's exclusive right to do so.
ATCO cited several judgments from the Abu Dhabi Court of Cassation, establishing that agreements made without proper authorization are not binding on the company. These judgments supported the argument that the arbitration agreement was invalid, as public joint-stock companies are represented by their chairman, not the executive manager. ATCO argued that the court misinterpreted the facts by assuming the claimant ratified the agreement by not objecting during the proceedings, despite the board's unawareness and lack of authorization for the executive manager’s actions.
The judicial panel reviewed and accepted ATCO’s request, confirming that public joint-stock companies are represented by the chairman pursuant to the UAE Commercial Companies Law and the claimant’s AoA. The panel highlighted that neither the board members nor the chairman knew about the arbitration agreement or proceedings, as the executive manager signed the agreement without delegation or authorization. Consequently, the claimant could not raise the defense of invalidity as per Article 25 of the UAE Arbitration Law. The panel found that the Court of Cassation judgment contradicted other judicial principles, leading to its acceptance.
This ruling provides valuable guidance for companies and their representatives to ensure that all agreements are properly authorized and documented to avoid legal disputes and potential invalidation of contracts.
The case was referred to a new panel of the Court of Cassation, which issued a judgment confirming that if the legislator imposes a specific form for a contract, the contract is invalid unless it meets that form. This formality is a matter of public order, aiming to achieve a public interest. If the required form is not met, the contract is void and has no legal existence. This principle is crucial in ensuring that contracts, especially those involving arbitration, are entered into with proper authorization and clear intent.
The Court of Cassation ultimately ruled that the arbitration agreement was invalid because it was signed by an unauthorized person. The court found that the executive manager lacked the authority to sign the arbitration agreement, as the AoA vested this authority in the board's chairman. The court ruled that an arbitration agreement signed by an unauthorized person is void. This voidness cannot be cured by subsequent ratification or mere participation in the arbitration proceedings. According to Article 7 of the UAE Arbitration Code, an arbitration agreement must be in writing to be valid. The law specifies that the agreement can be in the form of written correspondence, electronic communication, or other written means. This requirement ensures a clear and unequivocal record of the parties' consent to arbitrate their disputes. Article 4 of the UAE Arbitration Code stipulates that an arbitration agreement can only be entered into by a person with the legal capacity to dispose of the rights in question or by a representative of a legal entity authorized to enter into such agreements.
The Court of Cassation judgment aligns with a broader legal principle that certain contractual formalities are imposed to serve public order. Public order provisions are designed to protect the integrity of legal transactions and ensure they are conducted with transparency and proper authorization. In the context of arbitration agreements, the requirement for a written agreement serves to protect the parties' rights and ensure they have clearly and unequivocally consented to arbitration. The requirement for proper authorization in entering into contracts is a fundamental principle of contract law. This principle ensures that contracts are entered into by individuals or representatives who have the authority to bind the parties to the agreement. In the context of arbitration agreements, this requirement is particularly important, as the parties are agreeing to submit their disputes to arbitration and waive their right to have their disputes resolved by the courts.
The Court of Cassation judgment underscores the importance of adhering to statutory requirements for arbitration agreements, particularly the need for proper authorization by the legal representative of a company. The judgment reinforces the principle that arbitration agreements must meet specific formalities to be valid and enforceable. This ruling serves as a reminder to companies and their representatives to ensure that all agreements are properly authorized and documented to avoid legal disputes and potential invalidation of contracts.
The judgment also highlights the importance of the principles of formality, capacity, and authority in contract law. These principles ensure that contracts are entered into with proper authorization and clear intent, which is crucial in maintaining the integrity and enforceability of contracts. The requirement for a written arbitration agreement and the need for proper authorization by the legal representative of a company are fundamental elements of the validity of arbitration agreements. These requirements cannot be waived or overlooked, and failure to meet them renders the agreement void and unenforceable.
This judgment provides valuable guidance for companies and their representatives in ensuring that their agreements are valid and enforceable, thereby avoiding legal disputes and potential invalidation of contracts.
For further information,please contact Mohamed Al Marzouqi and Ahmad Ghoneim.
Published in January 2025
