In a notable business dispute that unfolded in the UAE, the involved parties were entangled in a disagreement regarding company shares, operational costs, and financial responsibilities.
The case progressed through various legal stages, including appeals, ultimately reaching the Court of Cassation in Abu Dhabi.
Background of the Dispute
The dispute primarily arose from a disagreement between shareholders in a company registered in Abu Dhabi.
The company had three shareholders: two of them holding an 80% stake, and a third shareholder with a 20% stake.
The majority shareholders (referred to as the petitioners) claimed that the minority shareholder (referred to as the respondent) had failed to contribute to the company’s operational costs, such as office rent, employee salaries, and license renewals.
Despite repeated requests, the minority shareholder allegedly did not meet his financial obligations.
This led to a shareholders’ meeting, during which the majority shareholders decided to treat the minority shareholder as having effectively exited the company.
In doing so, they agreed to accept an offer from one of the majority shareholders to acquire the minority stake of 20%, in exchange for assuming the corresponding financial liabilities.
Counterclaims and Allegations
The minority shareholder, however, contested this move, raising a counterclaim in court. He argued that he was unlawfully deprived of his share of profits since the inception of the partnership.
He also alleged that the company had refused him access to the financial records, balance sheets, and financial statements.
The minority shareholder sought compensation for the damages incurred as a result of being excluded from the company’s financial benefits.
He further claimed that he had a 99% ownership stake in a different entity that was intricately linked to the dispute, making his claims even more complex.
Expert Report and Contested Financial Statements
The court-appointed expert conducted an investigation into the company’s financial records.
The expert reviewed the company’s balance sheets and financial statements from several years, most of which were provided in English.
However, a key issue arose: only the financial statements for the year 2020 were translated into Arabic, while the others remained in English.
The minority shareholder argued that without an official Arabic translation, he could not fully understand or challenge the financial records. He requested that the court compel the majority shareholders to provide translated versions of all financial statements.
Despite this request, the expert proceeded with his analysis, finding that the financial data provided in English was sufficient for the purposes of his report.
The expert also concluded that the financial obligations of the minority shareholder were substantial, and this played a role in the court’s eventual decision.
Legal Grounds and the Court’s Decision
The Court of Cassation in Abu Dhabi dismissed the minority shareholder’s appeal on several grounds.
Firstly, the court emphasized that documents submitted to court experts, even if in a foreign language, do not necessarily have to be translated into Arabic unless it is proven that the expert misunderstood or misinterpreted them.
In this case, the expert had thoroughly examined the financial records and did not deviate from their true meaning.
As such, the court found that the minority shareholder’s request for translations was not warranted.
Additionally, the court ruled that the expert’s report, which was based on English-language financial statements, was legally sufficient.
The court also rejected claims that the expert had overlooked any critical evidence or failed to account for the minority shareholder’s interests.
The court further noted that the expert’s findings about the minority shareholder’s failure to contribute financially to the company were well-supported.
As a result, the court upheld the lower court’s decision to reject both the original lawsuit and the counterclaims.
Key Legal Principles
This case highlights several important legal principles relevant to business disputes in the UAE:
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Translation of Documents: According to UAE Civil Procedure Law, documents presented in a foreign language must generally be translated into Arabic when submitted in court. However, if the documents are provided to a court-appointed expert and there is no evidence that the expert misunderstood them, a lack of translation may not be grounds for appeal.
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Expert Reports as Evidence: The UAE courts place significant reliance on expert reports in complex business disputes. Experts are entrusted with examining financial records, and their findings are often given considerable weight. However, these reports are not binding, and the court has the discretion to reject or accept the expert’s conclusions.
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Obligations of Shareholders: Shareholders in a company, particularly those holding a minority stake, have a responsibility to contribute to the company’s expenses. Failure to do so can result in legal action, including claims for compensation or requests for a shareholder’s exit from the company.
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Right to Access Financial Records: Shareholders have a right to access the company’s financial records and balance sheets.
If they are denied this right, they can seek legal recourse to obtain access or compensation for losses. However, the burden of proof lies with the shareholder to demonstrate that they were wrongfully excluded.
Conclusion
This case underscores the importance of financial transparency, adherence to corporate governance principles, and the careful management of shareholder relationships in business ventures.
Disputes of this nature can be complex, especially when involving multiple layers of financial obligations and shareholder rights.
The ruling provides valuable lessons for companies and investors alike, emphasizing the need to maintain clear financial records, ensure compliance with corporate obligations, and resolve disputes through legal processes when necessary.
For shareholders, it is critical to stay actively engaged in company affairs to avoid facing legal challenges that could jeopardize their ownership rights or financial interests.
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