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The Nullity of the Arbitral Clause and the Arbitration Award For the Lack of Capacity on the Part of the Signatory to the Arbitral Clause

Upon drafting a sale and purchase contract for the purchaser of the residential unit in one of its projects, one of the pioneering real estate development companies in Dubai whose legal form is a limed liability company intended to verbally authorize its sale officer to sign a sale and purchase contract under its letterheads including the guaranteed conditions and obligations undertaken by the parties to the contract – both the seller and the purchaser –inter alia the clause which provides for the resort to institutional arbitration in lieu of the normal litigation. In order to give this representation of its sales officer a legal nature, it putits seal on all the pages of the contract, including the page where the arbitral clause is mentioned. It also issued receipt vouchers under its letterheads, bearing its seal. This indicates that the first payment was received together with subsequent payments as per the time schedule contemplated in Sale and Purchase Contract.

Pursuant to the provisions of the contract, in the event of any dispute arising between the purchaser and the sellerabout any of the contract clauses, the purchaser shall make recourse to arbitration and to the arbitration center determined in the contract to settle such dispute.

The purchaser was shocked to find that the company pleas for the nullity of the arbitral clause and the jurisdiction is that of the normal courts on the ground that the person who put an illegible signature in the column of the seller is not the company manager nor does he have any power of attorney or formal authorization to agree on the arbitral clause and that, pursuant to Article 203/4 of the Civil Procedures Law, “[a]n agreement to arbitrate shall not be valid unless made by persons having the legal capacity to make a disposition over the subject matter of the dispute.” Also pursuant to Article 4/1 of the Arbitration Law No. 6/2018, a valid arbitration agreement can only be concluded on behalf of a legal entity by a representative with capacity to agree to arbitration; the agreement would otherwise be invalid. The company insists on that defense in the arbitration and before the Court of First Instance, the Court of Appeal and the Court of Cassation, requesting to nullify the arbitration award.  

The question that suggests itself

Is the plea for the nullity of the arbitral clause or the nullity of the arbitral award approving the arbitral award [Sic] on the ground that the sale contract which includes the arbitral clause, includes its name in its capacity as a seller, not pairing it with the name of its legal representative. It also adds that the signature appearing on the contract is illegible, including neither the capacity nor the name of the signatory thereto. Accordingly, there is circumstantial evidence proving the capacity of the party in the agreement on the arbitration despite the fact that the arbitral award is nullified due to the nullity of the arbitral clause set out in the contract underlying the arbitral case because the contract was not signed by the party with the capacity to agree on arbitration on its behalf.

The answer

This argument is unsound and does not give rise to any legal effect. Acutally,Khairallah Advocates & Legal Consultants managed to reply to and refute this argument before the arbitral tribunal and obtained an award ruling that terminates the sale contract of a residential unit and ignores the argument presented by the developer that the arbitral clause is nullified on the ground that the contract was signed by an employee who is the apparent attorney without an authorization by it to agree on arbitration. It is a company with a limited liability whose manager at the time of concluding the contract was ….. as per its commercial license and the two letters issued by Department of Economic Development and … who did not authorize the signatory to the contract to agree on arbitration. The papers of the case were devoid of any evidence that it authorized the signatory to the contract to agree on arbitration.

However, Khairallah Advocates & Legal Consultants managed to obtain a conclusive judgment upholding the arbitral award and rejecting the incidental demand of nullifying the arbitration award on the ground that the lack of capacity on the part of the signatory to the contract including the arbitral clause on behalf of the developer seller.

In this regard, Khairallah Advocates & Legal Consultants replied to and refuted the seller’s request to nullify the arbitral clause before the Court of First Instance and obtain a judgment that accepts its incidental relief of nullifying the arbitral clause a set forth herein below:

  • It is well settled in the case law of the court of cassation in Dubai that the manager of the limited liability company manages the same and in this capacity he solely has the authority to agree on arbitration in its name and in its favor within the scope of its activities unless another person, by a special power of attorney, enters into agreement on arbitration. The arbitration authority may be express, implicit or apparent.
  • It is also established that if the name of a certain company appears at the outset or introduction of a certain contract and a person signed at the end thereof, this constitutes legal circumstantial evidence that the signatory thereto signed the same in the name and on behalf of that company, irrespective of whether his name is paired with or added to the name of the company. Consequently, the effects of such a contract including the rights and obligations will apply to the company and the same is not to be affected by the fact some expressions may be set in the first person pronouns showing his obligation or undertaking because the acting person, in this instance, speaks on behalf of the principal.
  • This signifies that if the name of the company appears at the outset of the contract including the arbitral clauseand an illegible signature appear at the end of the contact, then the signatory will be the person who has the capacity  to dispose of the right in question and the party contracting with the company will have the right to maintain the validity of the agreement on arbitration provided for in the contract concluded by and between the parties. Thus, the company may not object to the same alleging the lack of capacity on the part of the signatory to enter into agreement on arbitration.

According to the court of cassation judgment, it is evident from the first instance judgment upheld by the appealed judgment that the arbitration award at issue is approved and the incidental demand of the Appellant, where petitioning the nullity of that judgment,is rejected based on sound reasoning and in accordance with the principles of the above- mentioned law. This is based on the ground that, as evident from the contract concluded between the parties to the litigation, it included the Appellant’s name in its capacity as the seller without pairing its name with that of its legal representative and the signature appearing at the end of the contract is illegible and does not include the name or capacity of the signatory. Therefore, there is circumstantial evidence as to the establishment of the acting party in the arbitration agreement.

Khairallah Legal

Khairallah Advocates & Legal Consultants, a law firm based in Dubai, is one of the leading Law firms in UAE. We have some of the best lawyers in Dubai and provide excellent legal assistance in various areas. Please check out our law practice areas page for more details. Should you require any legal assistance, feel free to contact us.

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