REUTERS | Steve Crisp

Dubai onshore and offshore courts confirm application of apparent authority to arbitration under UAE law

In a sequence of recent rulings starting in 2015, the Dubai courts have confirmed that the doctrine of apparent authority does, after all, apply to the formation of arbitration agreements. The former prevailing position was that apparent authority did not have a place in arbitration, which requires a special (rather than just a general) power of attorney for an attorney’s agreement to arbitrate to bind the original rights holder (see Article 58 read together with Article 203(4), UAE Civil Procedures Code, and the extensive commentary provided in G. Blanke, Commentary on the UAE Arbitration Chapter, Sweet & Maxwell, 2017, at II-017 and II-032 – II-037). In its more recent case law precedent, the Dubai Court of Cassation takes the firm view that a natural person signing an arbitration agreement on behalf of a legal person binds that person to arbitration unless proven otherwise. In this sense also, an agent has been taken to bind a principal to arbitration to some extent in the past (G. Blanke, Commentary on the UAE Arbitration Chapter, at I-108 and II-018). This development is encouraging and demonstrates yet again the often understated arbitration-friendly nature of the United Arab Emirates (UAE) and, in particular, the Dubai courts. Given their importance to the successful enforceability of arbitration agreements against original rights holders, all of the Dubai Court of Cassation judgments referred to below deserve closer scrutiny.

One of the traditional arguments raised by award debtors defending an action for enforcement by an award creditor of a domestic arbitral award within the UAE is the incapacity of the original signatory of the arbitration agreement and the resultant nullity of the arbitral award as against the legal person on whose behalf the arbitration agreement is purported to have been signed (see Article 216(1)(b), UAE Civil Procedures Code; and G. Blanke, Commentary on the UAE Arbitration Chapter, at II-140). Even though that argument had some credit under the former case law precedent, it will hardly succeed following the findings of the Dubai Court of Cassation in the more recent rulings discussed here. At least two of these rulings dealt with a request to enforce an arbitration award rendered under the auspices of the Dubai International Arbitration Centre (DIAC) against limited liability companies (LLCs), whose general managers are presumed to have the power to bind the company to arbitration under the prevailing provisions of UAE law and established case law precedent (see Article 237, UAE Commercial Companies Law; and G. Blanke, Commentary on the UAE Arbitration Chapter, at I-073 and II-021).

In the first ruling (see Palm Jebel Ali LLC v Alan Stenet Appeal No. 547/2014), Palm Jebel Ali LLC (PJA), the award debtor, sought the nullification of the award on the basis that the underlying arbitration agreement was not signed by an authorised representative of PJA’s and was therefore not enforceable against it. According to PJA, given its status as an LLC, only its manager had authority to sign, not a party authorised by the manager to do so. Further, there was no obligation on PJA to disclose the identity of the person that appeared to have signed the agreement, nor was PJA’s company stamp to be taken into consideration in determining whether the arbitration agreement had binding effect. Finally, pursuant to PJA, it was for Mr. Stenet, the award creditor, to prove that PJA’s manager authorised someone else to sign the agreement. The Dubai Court of Cassation rejected PJA’s motion for nullification: according to the court, bland allegations that the signature of a contract did not accord with that of a company’s manager (despite submission in evidence of specimen signatures) could not succeed without a formal filing for forgery; there was a presumption that the signature placed on behalf of the company was that of an authorised person or representative. In addition, in the court’s view, the apposition of the company stamp was, in itself, sufficient to confer authenticity and hence a binding effect on the underlying arbitration agreement.

In the second ruling (see Middle East for Development LLC v Safir Real Estate Investments LLC Appeal No. 293/2015), Middle East for Development LLC (MED), the award debtor, was equally rebuffed by the Dubai Court of Cassation in its endeavours to nullify on the basis of lack of capacity a DIAC award rendered in favour of Safir Real Estate Investments LLC (Safir) in relation to the late delivery of an off-plan real estate unit. MED regarded as defective and flawed in its reasoning the Dubai Court of Appeal’s ruling according to which MED had failed to prove that the person who signed the underlying arbitration agreement was not MED’s general manager or a duly authorised signatory. The Court of Appeal also relied on MED’s failure to raise the defence of incapacity before the DIAC tribunal itself. Before the Dubai Court of Cassation, MED sought to argue that its signatory (not being a general manager) had only been granted a general (as opposed to a special) power of attorney and could therefore not bind the company to arbitration.

In response, the Dubai Court of Cassation started from the premise that the burden of proof for a successful action for nullification rests upon the award debtor. It then continued to summarise the court’s acquis on the issue of capacity, stating that it was well established that Article 203(4) of the UAE Civil Procedures Code only permitted recourse to arbitration provided agreement by a person with legal capacity to dispose of the disputed right. According to the court, the legal capacity of a person was subject to verification by an arbitral tribunal before determining the dispute before them on the merits at the risk of nullification of their awards under Article 216(1)(c) of the UAE Civil Procedures Code if the legal capacity requirement was not met. Nullification was only reversed by the litigant’s subsequent approval of its representative’s unauthorised recourse to arbitration during the arbitration proceedings and before issuance of the arbitration award.

In the third ruling (see Al-Firjan LLC v JNR Development Limited Case No. 310/2015), the Dubai Court of Cassation concluded that it was well established that if the name of a certain company had been included in the preamble of a contract while another person signed at the bottom of that contract, there was a legal presumption that whoever signed the contract had done so in the name of and for the company irrespective of whether the company’s name was associated with that of the individual signatory. This also applied to the signing of the arbitration clause contained in that contract.

Most recently, the DIFC courts have also endorsed the application of the concept of apparent authority to the formation of arbitration agreements under UAE law, making express reference to the Dubai Court of Cassation’s ruling in Case No. 547/2014 (Ginette PJSC v (1) Geary Middle East FZE (2) Geary Limited, order of H.E. Justice Omar Al Muhairi, DIFC Court of First Instance, of 7 April 2016).

Taken in the round, these cases confirm the application of the concept of apparent authority to the formation of arbitration agreements. There also now appears to be a legal presumption in favour of capacity to sign where an award debtor has failed entirely to raise the capacity defence before the arbitral tribunal. The most recent rulings of the Dubai Court of Cassation give rise to the proposition that failure to do so amounts to a waiver to raise the capacity defence at the enforcement stage. For the avoidance of doubt, the burden to prove lack of capacity rests on the award debtor. This being said, care has to be taken not to generalise the outcome of those rulings too readily, each turning on its own unique pattern of facts. That said, it is encouraging that the DIFC courts have equally endorsed the developments of Dubai case law precedent in their own rulings.

DWF LLP Dr Gordon Blanke

Share this post on: