Headnote

Arbitration – Capacity to agree to arbitration

Summary of facts

On 9 December 2000, the Petitioner entered into an agreement with the Respondent for the Petitioner to design, execute and complete a factory and offices for the Respondent in Sharjah (the “contract”). Under the contract, any dispute was to be referred to arbitration. The Petitioner failed to fulfil its obligations, and the dispute was referred to arbitration. Three arbitrators were appointed, and the tribunal issued its award on 4 October 2003. The Respondent brought an action before the Dubai First Court of Instance to request the ratification and execution of the award. On 18 January 2004, the Petitioner filed an incidental claim requesting the nullification of the award. On 16 May 2004, the Court ruled to accept the Respondent’s claim and to ratify the arbitrators’ award issued on 4 October 2003. The Petitioner appealed this judgment, and on 30 November 2004 the Court of Appeal upheld the appealed judgment. The Petitioner subsequently challenged this judgment for breach and misapplication of the law, alleging that the Court had wrongly dismissed his defence, which argued that the arbitration agreement should be nullified on the grounds that it had been signed by the manager of the company, who was not authorized to agree to arbitration and so did not have the requisite capacity to sign the arbitration agreement.

Held

The Court of Appeal’s judgment was overturned.

As per Article 216(b) of the Civil Procedure Code, the capacity required for the valid signature of the arbitration agreement is the authority to act in respect of those rights. The manager of an establishment is an agent of its owner in performing all the acts required for the management of the establishment. However, the manager is not entitled to act in respect of the establishment’s rights without an authorization from the owner of the establishment that removes any doubt about the owner’s intention.

Judgment

The documents establish that the contract and the arbitration agreement were signed by the manager of the Respondent. The Respondent’s establishment licence states that it is an individual establishment and that the relevant signatory of the arbitration agreement is its manager. The authorization issued to the relevant manager by the owner of the company states that the relevant manager is authorized to sign official and semi-official documents relating to the municipalities in the UAE, as well as contracts with companies and individuals.

The challenged judgment concluded that the manager was authorized by the owner of the company to manage the establishment and had absolute powers to do so, including the power to sign the arbitration agreement without the need for special authorization from the owner of the company. In fact, such authorization was required. As it had not been granted, the challenged judgment was wrongly decided. It misapplied the law, involved an incorrect inference and should therefore be overturned.

Accordingly, the Court of Appeal’s judgment was overturned.