Law firms in uae

CONTRACT WATCH – My Mistake

A recent ADGM Case, NMC Healthcare LTD (in administration) and associated companies v Dubai Islamic Bank PJSC & Others, ADGM 0017/2023, [2023] ADGMCFI 0017 highlighted a number of key issues on areas including the intentions of parties in UAE contracts, mistakes in these contracts and the courts’ ability to rectify them. Although this case was heard in the ADGM Courts, it involved contracts governed by UAE law. The issues in it centred around the meaning and effect of two Assignment of Receivables Agreements (ARAs} which had been concluded between the main claimant (NMC Group Holding Company(NMC)) and the defendant Dubai Islamic Bank PJSC (DIB). In particular, it focused on whether NMC’s subsidiaries were bound by these agreements. Article 197 of Federal Law No. 5/1985 states,’a mere mistake in an account or in writing shall not affect the contract and it shall be simply rectified’. If the mistake is a simple one which does not relate to substance or identity, it may be rectified. However, it does not allow material mistakes to be corrected.

In this case, it was held Article 197 of Federal Law No. 5/1985 could not apply as the reasoning behind this Article was not to change major elements of the contract but merely to correct obvious mistakes. Therefore, this provision could not be used to make the subsidiaries parties to the ARAs when they were not parties under the original agreement.

In addition, Article 194 of Federal Law No. 5/1985 does not allow correction of mistakes in terms of the identity of the contract or the subject matter of the contract. In this case the judge was satisfied that the mistakes in the ARAs were mistakes relating to the agreements’ subject matter so they would not rectify them.

 

DID NMC HAVE AUTHORITY TO BIND THE SUBSIDIARIES AS THEIR AGENTS?

UAE law takes a conservative approach when it comes to construing an agency’s scope. There are specific requirements which need to be met to establish an agent’s authority under Article 153 of Federal Law No. 5/1985.

For example, an agent must act in the principal’s name. In addition, under Article J54 of Federal Law No. 5/1985, there must be an express declaration that the agent is contracting in their capacity as a proxy. If there is no express declaration the contract will not attach to the principal. In this case, there was no indication that the directors of NMC were signing on behalf of any other principal or that by entering into the ARAs they were acting on behalf of anyone other than themselves.

 

INTERPRETATION

The courts may consider basic contractual interpretation principles under UAE law. Contracts can be interpreted according to the parties’ intentions under Article 258(1} of Federal Law No. 5/1985 and can also be corrected by a court after a thorough review of the parties’ intentions after having reviewed relevant documents.

However, under Article 265 of Federal Law No. 5/1985, the court will only do this where the contract is unclear. The court will not depart from the contract’s terms where the words are clear and unambiguous and will interpret the contract literally. In this case, the court held that the wording of the ARAs was sufficiently clear and on their natural reading could only bind NMC. They also found that under Article 210 of Federal Law No. 5/1985, the ARAs were void because they did not include the ’essential elements’ of a contract. This was because even though NMC was a party to the ARAs it did not have any interest in the insurance receivables it purported to assign to the bank. Under Article 201 of Federal Law No. 5/1985 if the subject matter of a contract is inherently impossible at the time the contract is made, the contract will be deemed void.

When considering the parties’ intentions under Article 258 of Federal Law No. 5/1985, the court may be asked to look at evidence about related transactional documents, previous dealings and contemporaneous  documents such as emails in order to have an interpretation which would give the contract commercial sense. Under the Evidence law, contextual evidence is admissible, but witness testimony is inadmissible if it contradicts or goes beyond what is contained in the written evidence. In this case the court looked at related contracts but were not convinced they supported the bank‘s case that there was an overt mutual intention to bind the subsidiaries to the ARAS.

For the contracts to apply automatically to subsidiaries, there would have had to be clear provisions in the contract making them a contracted party and binding them to its terms. They would also have had to agree to the terms by their authorised representative’s signature.

 

Contributor

Faridah Sarah

Co-founder, Ingmires Limited

 

www.lexis.ae  Lexis Middle East Law Alert

New Civil Procedures Law in Force

On 3 October 2022, the UAE enacted Federal Decree-Law No.42, which will come into effect as of 2 January 2023, the new UAE Civil Procedures Law (the “New Law”).

The New Law amends certain procedures in civil/commercial courts, with the purpose of making the litigation process a more streamlined and efficient.

Below is a summary of the key changes of the New Law:

Official Language of Court Proceedings:

The official language of UAE Courts is still Arabic language. However, the New Law provides an exception where cases may be held in the English language in certain circumstances:

  • Where the Vice-President of the Federal Judicial Council or the supervising judge of the local judicial authority issues a decision to direct specific judicial circuits to hold the case proceedings in the English language, including the written submissions;
  • If so directed, all court proceedings, decisions, parties and witness statements, statement of claims, court memoranda, supporting evidence/documents, and verdicts shall be in the English language;
  • In case the Court decides to hear parties’ or witnesses’ statements whose language is not the English language, it must be under oath and through a certified interpreter according to the rules of the decision issued by the Vice-President or the supervising judge.

Abu Dhabi’s Court of First Instance New Jurisdiction:

The New Law gives the Abu Dhabi’s Courts exclusive jurisdiction over all cases where a ministry or any federal entity is a party to the case.

Experts:

The process of appointing an expert by the Court during case management has changed. The New Law provided that during the case management stage, the supervising judge may request the assistance of one of the local or international experts to prepare or review the reports submitted to the court as part of the case. The court will discuss the outcome of such reports with the appointed expert and have the right to instruct them to amend or add further points to their reports.

It is expected that further regulations will be issued to deal with this in more detail, for example who would bear the costs of appointing experts.

Court of Appeal Council Chambers:

 Similar to Cassation Court, Courts of Appeal will have the right to review the Appeal challenges in the Council Chambers upon referral to them without the need for the legal representatives to attend or require the submission of any oral/written pleadings.

The Appeal Courts will have the authority to either issue a decision or schedule hearings for the Appeal on the merits.

Cassation Appeal Period:

One of the significant amendments of the New Law is that appealing before the Court of Cassation shall now be within 30 days, instead of 60 days, from the issuance date of the Appeal judgment.

Cassation Judgements Revocation:

As of 2 January 2022, the Court of Cassation may rescind their decisions or verdicts at their sole discretion or following a request submitted by one of the parties.

Article 190 of the New Law stated that the Court of Cassation may rescind its own decisions/judgments in one of the following situations:

  • If the Court or its associated entities made a procedural error that affected the final result of the decision/judgment;
  • If the decision/judgment was issued based on a revoked law and applying the applicable law will change the final result of the decision/judgment; and
  • If the judgment contradicts any of the judicial principles set out by the Court of Cassation Chambers or is contrary to the principles established by the Court of Cassation.

The rescindment request shall be submitted to the relevant Court (Federal Supreme Court or Court of Cassation) with a deposit of AED 20,000, which will be reviewed by a committee that consists of five (5) judges.

Provisional Attachments:

The New Law grants those who have First Instance Judgements in their favor the right to proceed with preventive procedures such as provisional attachment.

The New Law provided a new time restriction on applying for provisional attachment. The party who has a provisional attachment in their favor is now obliged to commence executing the appeal judgment within a timespan of Thirty (30) days of the attachment’s issuance. Otherwise, the imposed provisional attachment shall be void by law.

Execution Grace Period:

According to the New Law, the debtor has a grace period of seven (7) days (instead of 15 days) from the date of a successful notification in order to amicably clear the debt to avoid any provisional attachment procedures.

In summary, the New Law has been introduced in order to make the process more efficient. Time will tell how these amendments will work in practice.