Abu Dhabi Judgment: Corporate Liability in the context of Complex Construction Projects
Dispute Resolution / UAE
Richard BellPartner, Dispute Resolution
Omar SaifanSenior Associate,Dispute Resolution
Zane Anani Senior Knowledge Lawyer,Dispute Resolution
In the UAE, large scale construction contracts are often undertaken by unincorporated joint ventures (“JV”) between two or more contractors. Typically, the rights and obligations of the JV partners as between themselves will be set out in a joint venture agreement. But what happens if one of the JV partners becomes insolvent? In particular, what happens if the other (solvent) JV partner enters into an agreement with the Employer to take over the works? What rights, if any, does the insolvent JV partner have in that scenario?
These issues were recently considered by the Abu Dhabi Court of First Instance in Case No. 435 of 2024. In this article, we discuss how the Court dealt with those issues and the wider significance of this judgment in relation to the construction sector in the UAE.
The case under discussion arose out of a contract between a publicly owned company (Employer) and an unincorporated JV comprising a UAE construction company (Claimant) and the local branch of an international construction company (Foreign Contractor) for the construction of a hospital. The contract value was in excess of AED 3 billion.
Pursuant to the terms of the contract, the JV was tasked with delivering the main works package. The Contract outlined the scope of work, timelines, payment schedules, and mechanisms for dispute resolution. Over time, the project encountered a range of challenges, including delays, variations in scope and disagreements over payments. In an effort to resolve all outstanding issues, the parties agreed to appoint an independent expert to review the JV’s claims and prepare a statement of account of the sums due to the JV.
After the appointment of the expert but before the expert had completed his report, the Claimant became insolvent and was placed in administration. In light of this development, the Foreign Contractor exercised a contractual right in the JV agreement to take over the contract and complete the works. The terms of the JV Agreement permitted the Foreign Contractor to enter into any agreements necessary to enable the completion of the contract works.
In due course the independent expert completed his report and made a recommendation as to the amount that should be paid by the Employer under the contract. The Employer and the Foreign Contractor accepted the expert’s findings and entered into a settlement agreement effectively endorsing the expert’s findings. Payment was duly made under the settlement agreement and the Foreign Contractor proceeded with the work.
Some 18 months after the settlement agreement was signed, the Claimant issued proceedings in the Abu Dhabi Courts against the Employer seeking the payment of sums it alleged were due under the contract.
The judgment in Abu Dhabi Commercial Court Case No. 435-2024 provides important guidance on the law relating to joint ventures, corporate liability, and contractual enforcement in the UAE construction sector.
The Abu Dhabi Court of First Instance addressed three issues:
The legal status of unincorporated JVs;
The legal status of branches of foreign companies; and
The enforceability of the JV agreement as regards to the settlement of claims.
As to the first issue, the court emphasized that the association of two companies or legal persons in a joint venture (JV) does not result in the creation of a new juridical person. Instead, each partner in the JV retains its own separate legal personality. This means that the JV itself is not a separate legal entity distinct from its members; rather, it is a contractual arrangement between the partners. Because the JV does not have its own legal personality, each partner retains the right to litigate in its own name for rights and obligations arising from the JV contract. The court stated:
"The association of the name of two companies or two legal persons in a contract under the word 'joint venture' does not make them a single company and does not create another juridical person other than them both, and does not affect the right of every one of them to litigate in its name separately. The meaning of such word is nothing else than that both entities are partners in the interests and rights arising from the contract."
This principle ensures that even if one partner is excluded from the JV or ceases to act as the JV leader, it does not lose its right to claim its share of dues or enforce its rights under the contract for work performed prior to such exclusion.
The lack of a new juridical person means that the partners are not automatically jointly and severally liable for all obligations unless expressly provided for in the JV agreement or the main contract. Each partner’s liability and rights are determined by the terms of the JV agreement and the main contract, not by the mere existence of the JV. The exclusion of a partner from the JV (for example, due to insolvency) does not extinguish that partner’s original contractual rights. Applying that principle to the Claimant’s claim the court found that:
"The resolution of the exclusion thereof by the [Foreign Contractor] does not preclude the [Claimant] as a party to the contracting agreement to file the present case to claim the dues thereof arising from its partnership in the JV and the performance of the contracting agreement prior to the exclusion thereof."
The court found that since the JV is not a separate legal entity, it cannot create obligations for parties who are not signatories to the JV agreement or the main contract. The effects of the contract are relative and do not extend beyond the contracting parties and their legal successors, unless there is a specific stipulation to the contrary. Accordingly, the Claimant was found to be entitled to claim its share of the sums paid to the Foreign Contractor.
As to the second issue the court addressed the question of whether a branch office of a foreign company possesses a separate legal identity from its parent. This issue arose in the context of claims against both the Foreign Contractor’s parent company based in the EU and its Abu Dhabi branch.
The court undertook a careful analysis of the contractual documents and the relevant provisions of the UAE Companies Law and held that:
“...the relationship that links the company sought to be adjoined with the Intervener Company (International JV partner) is that the first one is (the parent company) and the second one is the (subsidiary), whereas each one of them has an independent legal personality from the other one, and even more, each one of them has an independent nationality from the other one, but they are associated with economic links, as the second one is working as a branch of the first one in the UAE, and is a subsidiary company thereof, a thing which is consistent with the provisions of Articles 335, 336, 337 and 338 of the Companies Law, which require the presence of a branch or an office of the foreign company if it performs the activity thereof in the UAE, and the office or branch of the foreign company in the UAE shall be a domicile thereof as in relation to the activity thereof within the UAE and such activity shall be governed by the provisions of the laws in force of the UAE.”
The court further clarified that:“...each of the parent company sought to be adjoined and the [Branch of the Foreign Contractor] has an independent legal personality from the other one as in relation to the activities that are being undertaken in the UAE.”
Accordingly, the court found that for the purposes of UAE law and litigation, a branch office registered in the UAE is treated as a separate legal entity from its foreign parent, at least in relation to its activities within the UAE. The court rejected attempts to “pierce the corporate veil” or apply the “alter ego” doctrine in the absence of clear evidence of abuse or lack of independence. The court maintained the principle of separate legal identity for branches and parent companies, unless compelling evidence to the contrary is provided.
In relation to the third issue, the court considered the enforceability of a clause in the JV agreement that allowed the Foreign Contractor to take over the project upon the insolvency of the Claimant. The court found this clause to be valid and enforceable. The court held that the exclusion of the Claimant following its insolvency was carried out in compliance with the JV agreement, and that as a result, the Foreign Contractor was entitled to continue the project and enter into the settlement agreement with the employer. The court emphasises that such clauses are essential for the continuity of large-scale construction projects, where the insolvency of one partner could otherwise jeopardize completion and the interests of all stakeholders.
The enforceability of the settlement agreement executed between the employer and the surviving JV partner was a critical aspect of the case. The court rejected the Claimant’s argument that its consent was required in order for the settlement agreement to be binding, noting that the JV agreement specifically provided that the surviving partner had authority to sign any agreements necessary to complete the works. The court also dismissed the Claimant’s challenges to the fairness of the settlement amount, finding no technical basis to support claims of unfairness or prejudice to the excluded partner.
The judgment in Abu Dhabi Commercial Court Case No. 435-2024 provides important guidance on the law relating to joint ventures, corporate liability, and contractual enforcement in the UAE construction sector. It affirms the enforceability of clauses in JV agreements allowing for the exclusion of insolvent partners and the continuation of projects by the surviving partner, provided contractual procedures are followed. The court’s insistence on the separate legal personality of branches and parent companies reinforces the predictability and stability of corporate structures in cross-border projects.
Arguably of greater significance however was the fact that the court upheld the settlement agreement. This was an important finding which is likely to have wider significance in the construction sector in the UAE where large scale projects are often undertaken by JVs. Where one JV partner becomes insolvent and/or is placed into administration (which is not uncommon) the risk, as was the case here, is that the contract works may not be able to be completed, or at the very least will be further delayed. In upholding the Foreign Contractor’s right to take over the project, sign the settlement agreement and complete the work, the court effectively endorsed the right of contracting parties to agree to contractual remedies in the event of the insolvency of a JV partner. The judgment thus provides clarity for parties structuring joint ventures and managing risk in complex construction undertakings in the UAE.
For further information,please contact Richard Bell and Omar Saifan.
Published in June 2025
