Headnote

Arbitration – Capacity – Public Joint stock company - Res judicata

Summary of facts

An arbitration award was rendered in relation to a dispute that arose out of a franchise agreement pursuant to which the Petitioner was granted payment by the Respondent of an amount of AED 750,000 with interest. While the Petitioner filed an action to ratify the award, the Respondent filed a counterclaim to set aside the award on the basis that the arbitration agreement was entered by a person who had no capacity to do so.

The Court of First Instance declined to hear the actions on the ground that they were not filed in accordance with the law. Both parties appealed the Court of First Instance judgment before the Court of Appeal which dismissed the decision of the lower court and remanded the matter to the Court of First Instance.

The Court of First Instance ratified the award and dismissed the counterclaim. The Respondent appealed the second decision of the Court of First Instance before the Court of Appeal which dismissed the appeal. Thereafter, the Respondent filed a petition before the court of cassation which overturned the decision of the Court of Appeal and remanded the matter to the lower court for reconsideration by a different panel. The new panel overturned the decision of the former panel of the Court of Appeal, dismissed the appeal and set aside the award.

The petitioner filed a petition to cassation.

Held

The petition to cassation was dismissed.

The General Manager of a public joint stock company does not have the capacity to execute a contract containing an arbitration agreement or to enter into an arbitration agreement unless he/she submits an evidence that he/she is authorised to do so.

Under the doctrine of res judicata, the decision must be that of a judicial body that has not exceeded its jurisdiction and that involved the determination of a matter which arose between the same parties and on the same subject matter and cause of action as the matter involved in the new proceedings.

Judgment

The Petitioner appealed mainly on two grounds:

Firstly, the Petitioner argues that the Court of Appeal incorrectly applied the law because the Franchise Contract in question was signed by the Manager of the Respondent Company who had the capacity to agree to arbitration by virtue of his powers to manage and act for a limited liability company as its authorised signatory, without the need for a special power of attorney. In setting aside the arbitral award on the basis that the Respondent’s Manager did not have a special power of attorney, the Court of Appeal’s decision is flawed and should be overturned.

The above argument is unsound on the ground that article 58 of the Civil Procedure Law provides that a special power of attorney shall be required to acknowledge, waive, settle and arbitrate claims while Article 216 of the said Law provides that the parties may, while the award is being reviewed by the court for the purpose of being confirmed, request that it be set aside if it is established that the agreement to arbitrate was made by a person lacking the capacity to arbitrate. The effect of articles 203, 95, 103, 104 of the UAE Commercial Companies Law is that an agreement to arbitrate shall not be valid unless made by persons having the legal capacity to make a disposition over the right, subject matter of the dispute. The board of directors of a [Page129:] joint stock company has all of the powers that are necessary to transact business in furtherance of the company’s objects. Any agreement to arbitrate by a company’s Board of Directors must be approved by its general assembly unless such action is expressly authorised by the company’s Articles of Association or falls within its objects.

The Respondent is a public joint stock company and Article 23(c) of its Articles of Association states that notwithstanding the provisions of Article 103 of the Commercial Companies Law, the Board of Directors, in furtherance of the Company’s objects, may agree to arbitration in cases involving the Company. Article 24 of the Articles of Association provides that the Chairman, Vice-Chairman, Managing Director, or any other member authorised by the Board of Directors’ resolution, may act as individual signatories for the Company. The Franchise Contract carries the signature of the Respondent’s General Manager who has not submitted any evidence that he is the Chairman or a member of its Board of Directors or its Managing Director or that he is authorised by the Board of Directors to execute the Contract. Hence, the General Manager does not have the capacity to execute the Contract containing the arbitration clause or the capacity to agree to arbitration.

The Petitioner further argued that the Court of Appeal incorrectly applied the law and failed to observe due process. The Petitioner invoked the conclusive effect of the decision rendered in Commercial Cassation Appeal No. 873-2009 between the same parties. That decision dismissed the Respondent’s allegation of an invalid arbitration agreement between the parties signed by said Manager on the grounds that he had the capacity to enter into agreements and conclude contracts in the Respondent’s name. The decision is accordingly res judicata as to the issue of capacity to agree on arbitration. Accordingly, the Court of Appeal’s decision is flawed and should be overturned.

The court held that the above is unsound on the grounds that under the doctrine of res judicata barring re-litigation of disputes previously decided, the decision must be that of a judicial body that has not exceeded its jurisdiction and involve the determination of a matter in controversy which arose between the same parties and on the same subject matter and cause of action as the new proceeding. The decision rendered in Commercial Cassation Appeal No. 873-2009 involved the same parties but a different subject matter. Commercial Action No. 1-2007 was brought by the Petitioner against the Respondent to appoint an arbitrator to settle the parties’ dispute involving the latter’s alleged takeover of outlets under usufruct contracts between the parties and replication thereof without legal cause. The Petitioner sought assessment of resulting damages, an order requiring the Respondent to surrender those outlets, and compensation for the takeover period. The instant action, on the other hand, was brought by the Petitioner against the Respondent to appoint an arbitrator to settle the parties’ dispute over the latter’s alleged breach of obligation.

The Court of First Instance had dismissed the plea of invalid arbitration clauses on the ground that the contracts in question were signed by the Petitioner’s Manager and the Respondent’s Managing Director and another officer on behalf of the Respondent and bore the Petitioner’s seal. That action is therefore different from the instant action in terms of subject matter and cause of action. Furthermore, the signatories to the contracts containing the arbitration clauses and the capacity in which they signed are different in each case. There is no factual or legal basis to invoke the conclusive effect of the decision rendered in Commercial Appeal No. 873-2009 and the Court of Appeal cannot be faulted for choosing not to respond to a clearly disingenuous plea.

For the above reasons, the petition to cassation is dismissed.