Sara Ibrahim Advocates & Legal Consultants


Importance of an arbitration clause in an agreement

A recent favorable judgment issued from Court of Cassation in Dubai in a commercial case registered before Courts of Dubai. The case discuss the importance and validity of an arbitration clause in any commercial agreement signed between both the parties and the authority of the courts to reject any civil claim on the grounds of parties’ confirmation and acceptance to resolve dispute through arbitration (as reflected in the agreement). 

Facts of the case 

The plaintiff registered a commercial order against the defendant to oblige the defendant to pay AED 5.5 million (due since 2017) in exchange of the commercial transactions between the two parties, solemnly rejected by the defendant. Nonetheless, the Court of First Instance issued a judgment against the defendant and obliged the defendant to remit the claim amount as per the commercial arrangement between the parties along with nine percent interest yearly until the full payment is submitted to the other party. 

An appeal was registered by the Defendant before the Court of Appeal wherein, the defendant (appellant) requested the court to set aside the judgment of Court of First Instance on the grounds that the commercial agreement signed between the parties confirms that the parties shall refer the matter to Arbitration, in case of any dispute. On the basis of the said claim, the Court of Appeal accepted the case of defendant (appellant) and set aside the judgment of Court of First Instance and obliged the other party to register the claim before the relevant arbitration institute. 

The case was thereafter registered before the Court of Cassation by the plaintiff for challenging the judgment issued by the Court of Appeal and requesting the court to oblige the defendant to pay the claim amount. The plaintiff based his case on the following grounds: 

  1. The parties were in a long-drawn commercial relationship and were conducting works on the basis of purchase orders issued every now and then, however, later a termination agreement was signed to terminate the relationship between the parties and confirmed that the dispute between the parties (in relation to termination agreement) shall be referred to the arbitration institute. In this regard, the plaintiff affirms that the arbitration clause is mentioned in the termination agreement and not mentioned in the commercial relationship or purchase orders exchanged between the parties. 

Court’s Response

The Court of First Instance has the authority to understand the clause of the arbitration agreement in the termination agreement without any supervision from the higher court. However, the First Instance Court has to clarify the reasons of understanding the said arbitration clause as the First Instance court mentioned in its judgment that the two parties agreed on the arbitration clause in the termination agreement, by appointing 1 arbitrator in Paris and the arbitration proceedings shall be conducted in Paris and the language shall be in English. 

In furtherance, as per the Civil Procedure Law of UAE, the plaintiff has the right to file the case if they have any proof of money owed by defendant in writing and if fails to prove, he shall not be allowed to register case before the urgent matter court. Additionally, the court has the right to reject the case, if the plaintiff does not have enough documents. 

  1. Secondly, the plaintiff argued that the signatory authority signing the termination agreement does not have a personal power of attorney to sign the arbitration clause in the termination agreement 

Court’s Response

The court responded that it is admissible to sign the arbitration agreement without a special power of attorney, because of the law and the previous Cassation judgments, which proves that the one who signs the agreement has the power of attorney to sign this type of agreement because of good faith. 

In reference to a precedent issued by Court of Cassation in Dubai, it was opined by the court that an arbitration is an agreement between the Parties to appoint the arbitration as a way to resolve dispute rather than regular courts. It is not acceptable and legal to invalidate such arbitration clause only because the one signing the agreement does not have a specific power of attorney. However, it is presumed that the one signing the arbitration clause has the authority to sign in good faith and it will be binding on both the parties. In furtherance, if the law obligates the signee of the arbitration clause to possess a specific power of attorney, but if the name of the company is mentioned on the agreement and another person signs the agreement, it proves that the one signing the agreement is a representative of the company. In addition, the court confirms that if on the first page of the agreement the name of the company and the legal representative of the company is defined and some other person signs the agreement, the contract shall not be deemed valid. It subsequently authorizes the party to challenge the validity of the contract and its good faith. In conclusion, the court confirmed that if only the name of the company is mentioned on the contract and some individual sign such contract, the company cannot challenge its validity on the ground that the individual signing the contract does not possess a specific power of attorney. 

In conclusion, the court accepted the defenses submitted by the defendant and refused the case submitted before the Cassation Court. Thereby, obliging the party to adhere with the provisions of the agreement signed between the parties and register the matter before the arbitration institute. In most circumstances of a commercial dispute, it is always advised to approach the best Commercial lawyers in Dubai to comprehend the provisions of the contract and safeguard the interest of the client at all give scenarios. 

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