Al Suwaidi & Company succeeded in obtaining final and executory judgment rendered by the Dubai Court of Appeal in favor of our Client whereby it upheld to hold the shareholder of a limited liability company jointly and severally liable for said company’s obligation.

Short facts:

The Client filed a commercial dispute case before the Dubai Court of First Instance (CFI) for the cancellation of a Sale and Purchase Agreement which the Client entered into for the purchase of a yacht. He filed this case against the free zone company that is organized under the rules and regulations of the Dubai Multi Commodities Center (the “DMCC Company”) including its shareholder for failure to complete the sale and to deliver the yacht and sought for the restoration of the parties to their original position before the entry into the said contract (that is the return of all the monies paid for the yacht purchase) including compensation for damages.

The shareholder of the DMCC Company argued that his liability shall only extend to his share in the capital of the DMCC Company. He further asserted that he is not personally liable for the DMCC Company’s liabilities as the DMCC Company is a separate legal entity as distinct from its shareholder.

Accordingly, the Dubai CFI issued a judgment holding that the DMCC Company and its shareholder as jointly and severally liable for the payment of all the monies paid for the yacht purchase as a result of the valid termination of the Sale and Purchase Agreement.

The DMCC Company’s shareholder then filed an appeal before the Dubai Court of Appeals alleging that the Dubai CFI erred in the application of the law.

Issue:

Whether the Dubai CFI erred in the application of the law in adjudging the DMCC Company and its shareholder as jointly and severally liable for the payment of all monies paid for the yacht purchase pursuant to a valid termination of the Sale and Purchase Agreement.

Decision:

The Dubai Court of Appeals (CA) affirmed the judgment rendered by the Dubai CFI and rejected the appeal filed by the DMCC Company’s shareholder. The Dubai CA held that the DMCC Company’s license clearly establishes that it is a limited liability company organized under the rules and regulations of the Dubai Multi Commodities Centre (DMCC). Nonetheless, the provisions of Articles 10 and 12 of Regulation No. 4 of 2002 (the “DMCC Regulation”) on the Organizing Operations at the Dubai Commodities and Metals Centre state that each limited liability company incorporated in accordance with DMCC rules and regulations shall mention the following in all the DMCC Company’s activities, contracts, advertisements, invoices, correspondence and publications:

  • The company is established and incorporated with limited liability; and
  • The company is established and incorporated under the rules and regulations of the DMCC.

In the event a company established in DMCC fails to mention the above item nos. 1 and 2, the owner or owners of the said company shall be held personally liable for the company’s obligations.

Article 13 of the DMCC Regulation further stipulated that the Dubai Courts shall apply the laws pertaining to the DMCC when considering any dispute related to the acts carried by the company established in DMCC and the UAE law shall be supplemental.

In view of the foregoing, the Dubai CA found that the invoices issued by the DMCC Company as well as its correspondence did not mention the above item nos. 1 and 2 of Article 12 of the DMCC Regulations. As such, said Court decided to hold the DMCC Company including its shareholder as jointly and severally liable to our Client for the return of all monies the latter paid as a result of a valid termination of the Sale and Purchase Agreement for the yacht.

We note that this case is an exception to the well-established general rule laid by the law whereby the liability of a shareholder only extends to his share in the capital of the Company. This judgment shows the Dubai Courts’ commitment in providing a satisfactory remedy to customers to obtain full relief by extending the liability of a company to its shareholder(s).