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