Introduction

On August 13, 2025, the Dubai Court of Cassation issued a significant judgment (Case No. 720/2025) addressing several important legal principles relevant to commercial transactions in the UAE. The case involved a dispute between an individual guarantor and an oil and gas company regarding financial facilities provided under shareholder agreements. The Court’s decision provides valuable insights into the application of UAE law on international jurisdiction, arbitration clauses, and guarantor obligations.

Case Summary

Parties:

• Appellant: Individual Guarantor
• Respondent: Oil and Gas Company

Background:

The case arose from two shareholder agreements. Under the first agreement dated December 4, 2009, the appellant (in his personal capacity and as owner of an international company) and the respondent agreed to establish a joint venture to acquire shares in a corporation, with the appellant acquiring 15% of the shares through his company and the respondent acquiring 85%.

Similarly, under a second agreement dated February 28, 2011, they established another joint venture to acquire shares in another holdings company, with the appellant acquiring 5% of the shares and the respondent 95%.

In both instances, the respondent provided financial facilities to the appellant’s company to enable the share acquisitions, with the appellant personally guaranteeing the loans. When the appellant’s company defaulted on the loans, the respondent obtained a bankruptcy judgment against it from the Central Court in the Netherlands on September 27, 2022.

After settling part of the debt through the bankruptcy proceedings, the respondent claimed the remaining amount (US$96,706,986 plus interest) from the appellant as guarantor.

Key Legal Issues and the Court’s Reasoning

1. International Jurisdiction of Dubai Courts

Appellant’s Argument:

The appellant challenged the jurisdiction of Dubai courts, arguing that the shareholder agreements contained clauses conferring jurisdiction on English courts (first agreement) and Alberta, Canada courts (second agreement).

Court’s Ruling:

The Court of Cassation rejected this challenge, affirming that Dubai courts had international jurisdiction over the case based on Articles 19, 20, and 23 of the UAE Civil Procedure Law No. 42 of 2022. The Court held that:

• UAE courts have jurisdiction over cases brought against foreigners who have a domicile or residence in the UAE.
• Any agreement to the contrary is void as it relates to public policy.
• Since the appellant had a domicile in Dubai, the Dubai courts had jurisdiction regardless of where the agreements were signed or executed.

The Court also noted that the appellant failed to provide properly translated texts of the foreign laws he sought to apply (English and Alberta laws), which further justified applying UAE law.

2. Arbitration Clause

Appellant’s Argument:

The appellant argued that the case should be dismissed due to the existence of an arbitration clause in one of the documents submitted by the respondent, which required disputes to be resolved through arbitration by the Dutch Arbitration Institute

Court’s Ruling:

The Court rejected this defense, emphasizing the relative effect of contracts, including arbitration clauses. The Court held that:

• Contracts bind only their parties and produce obligations or rights only against them (the principle of privity of contract).
• The arbitration clause was contained in an agreement between the respondent and the bankruptcy trustee regarding the purchase of assets of the bankrupt company.
• Since the appellant was not a party to that agreement, he could not invoke the arbitration clause.

3. Bankruptcy Court Jurisdiction

Appellant’s Argument:

The appellant claimed that the Dutch court that issued the bankruptcy judgment against the debtor company had exclusive jurisdiction over all matters related to the bankruptcy, including the claim against him as guarantor.

Court’s Ruling:

The Court distinguished between bankruptcy proceedings and claims against guarantors, holding that:

• Bankruptcy proceedings aim to establish a new legal status rather than resolve disputes.
• The court handling bankruptcy has limited jurisdiction to examine the conditions for bankruptcy.
• A creditor’s claim against a guarantor is separate from bankruptcy proceedings and not subject to the bankruptcy court’s jurisdiction.
• According to Article 1089 of the UAE Civil Transactions Law, when a debtor becomes bankrupt, the creditor must file a claim in the bankruptcy to recover what they can, then pursue the guarantor for the remainder.

4. Guarantor Obligations and Validity of the Guarantee

Appellant’s Arguments:

The appellant raised several defenses regarding his obligations as guarantor:

• The claim was time-barred as it was filed more than six months after the due dates of the facilities.

• The respondent should have negotiated with him before filing the lawsuit, as required by the agreements.

• He lacked the financial capacity to deliver the guaranteed amount when the agreements were signed or when the company was declared bankrupt, making the guarantee invalid under Article 1061 of the Civil Transactions Law.

• His obligation was discharged after the bankruptcy declaration and the respondent’s settlement with the bankruptcy trustee.

Court’s Ruling:

The Court rejected all these defenses, holding that:

• The guarantee agreements contained provisions for the continuation of the guarantee until final payment of all amounts due, regardless of any intermediate payments or partial discharges.

• There is no legal obligation for a creditor to negotiate before filing a lawsuit.

• For financial debts, the guarantor’s ability to pay is presumed as money can be delivered as a substitute at any time.

• The validity of a guarantee is assessed at the time of the agreement and the creditor’s acceptance; changes in the guarantor’s financial situation after that do not invalidate the guarantee.

• The creditor’s claim against the bankrupt company and partial recovery through bankruptcy proceedings do not discharge the guarantor’s obligation for the remaining debt.

Practical Implications

This judgment has several important implications for commercial transactions and legal practice in the UAE:

1- International Jurisdiction: The case reinforces the principle that UAE courts will assert jurisdiction over disputes involving parties domiciled in the UAE, regardless of contractual jurisdiction clauses to the contrary.

2- Foreign Law Application: Parties seeking to apply foreign law must provide complete, properly translated texts of the relevant legal provisions.

3- Arbitration Clauses: The scope of arbitration clauses is limited to the actual parties to the agreement containing the clause; third parties cannot invoke or be bound by such clauses.

4- Continuing Guarantees: Guarantees can be structured to continue until full satisfaction of the debt, irrespective of partial settlements or changes in circumstances.

5- Bankruptcy Impact: A creditor’s claim against a guarantor is separate from bankruptcy proceedings against the principal debtor. After pursuing recovery through bankruptcy, creditors can claim the remaining amounts from guarantors.

6- Financial Capacity of Guarantors: The guarantor’s financial capacity is assessed at the time the guarantee is given; subsequent changes in financial status do not affect the validity of the guarantee.

Conclusion

The Dubai Court of Cassation’s judgment in Case No. 720/2025 offers valuable clarification on several key legal principles pertinent to international commercial transactions.

It highlights the robust approach of UAE courts in asserting jurisdiction over cases with connections to the UAE, the limitations of arbitration clauses, and the continuing obligations of guarantors despite bankruptcy proceedings against the principal debtor.

Businesses and legal practitioners should carefully consider these principles when structuring international commercial agreements, particularly when incorporating jurisdiction clauses, arbitration provisions, or personal guarantees.

Having said that, contact Khairallah Advocates & Legal Consultants and benefit from our free 30-min legal consultation.

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