Headnote

Arbitration – Validity of arbitration clause – Authority to agree to arbitration – Presumption of authority

Summary of facts

The Petitioner concluded a sale purchase contract with the Respondent for the sale of a plot for a total purchase price of AED 33,245,100. The Respondent defaulted in making the purchase price and the Petitioner brought an action claiming for an amount of AED 24,070,234 with 12% interest from the date of filing the action until receiving payment. The Respondent pleaded that the claim is barred by an arbitration clause and on the other hand, the Petitioner argued that as a limited liability company, their manager was not authorized to enter into an arbitration agreement at the time of concluding the agreement. The Court of First Instance rejected the Petitioner’s plea that the arbitration clause was void and accordingly dismissed the case due to the arbitration clause. The Petitioner filed an action before the Court of Appeal and the appeal court dismissed the appeal.

The Petitioner filed a petition to cassation.

Held

The petition to cassation was dismissed.

It is established that if the name of a particular company appears in the preamble and body of a contract and a different person signs at the bottom of the contract, this establishes a legal presumption that whoever signs the contract has done so in the name and for the company irrespective of whether the company’s name is associated with that of the individual signatory. In such case, the effects of the contract, in terms of rights and obligations, shall devolve directly upon the company.

Judgment

The Petitioner filed the petition to cassation arguing that it is a limited liability company and that its manager had no authority to agree to arbitration. Petitioner pleaded that the ex-manager who had the sole authority to enter into arbitration on behalf of the Petitioner did not grant such authority to the current manager who concluded the contract.

The Petitioner further argued that the Court of Appeal erred in upholding the Court of First Instance’s dismissal of the action due to the arbitration clause on the premise that the person who that signed the contract containing the arbitration clause did so as an authorized signatory of the Petitioner.

It is settled in the Court of Cassation that arbitration is a setting in which two parties explicitly agree to refer their dispute to arbitration rather than the courts. This requires that the person signing the contract containing the arbitration clause or the submission agreement have the requisite capacity and authority. The Court of Cassation held that in accordance with Article 216(4) of the Civil Procedure Law, arbitration may not be agreed except by persons having authority to dispose of the right, rather than authority to resort to court, since an arbitration agreement entails a waiver of the right to bring an action in court with the guarantees it affords the litigants. Thus, as an exceptional method of dispute resolution, arbitration, by UAE law, can only be agreed upon pursuant to a special power of attorney.

The manager of a limited liability company, as the person having authority to manage the company, has the sole power to agree to arbitration in the name and on behalf of the company, within the scope of its activities, unless the company’s memorandum of association restricts his authority by barring certain acts or expressly excludes the right to agree to arbitration.

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It is further settled in the Court of Cassation that if the name of a particular company has been included in the preamble and body of a contract while another person signs at the bottom of that contract, this establishes a legal presumption that whoever signs the contract has done so in the name and for the company irrespective of whether the company’s name is associated with that of the individual signatory. This necessarily means that if the name of the corporate entity appears in the preamble of the contract followed by the name and capacity of its legal representative, while the legible signature of another person appears at the foot of the contract which contains the arbitration clause, the corporate entity may invoke the nullity of the arbitration clause on the basis that it was not signed by its legal representative who is authorized to agree to arbitration.

But, if only the name of the corporate entity appears in the preamble of the contract without the name and capacity of its legal representative and an illegible signature appears at the bottom of the contract which contains the arbitration clause, this establishes a conclusive presumption that whoever signs the contract has the authority to act and the authority to agree to arbitration. In such case, no challenge may be entertained that the signature is not that of a person legally authorized by the corporate entity to act and agree to arbitration.

The contracts must be concluded in accordance with the requirements of good faith and must comply with the principle contained in Article 70 of the Civil Transactions Law which establishes that if a person seeks to set aside what has been conclusively performed by him, such attempt shall be rejected as well as the rule that no person may rely upon his own acts as proof of the validity of his allegations against a third party.

From the copy of the sale contract presented to the court, it was noted that, the contract contains an illegible signature purportedly belonging to the seller whose name appears in the preamble of the contract without the name of their legal representative. Thus the court held that the contract binds the Petitioner and the signature at the bottom of the contract is that of the authorized signatory.