Background
Our client, an individual investor, was represented by the Emirati Advocate Mrs. Awatif Al Khouri of Awatif Mohammed Shoqi Advocates and Legal Consultancy, who personally led this dispute arising from a commercial arrangement under which our client transferred a substantial sum of money to a company on the basis that those funds would be invested in commodity-related transactions generating fixed returns with no exposure to loss.
The arrangement was documented through a commercial agreement, and our client was led to believe that the company was duly authorized to accept and invest third-party funds in this way. But this promise of returns was never realized in practice. Further investigation showed that the company’s trade license was limited to the sale of goods in certain categories and did not include the acceptance or investment of funds belonging to third parties.
Our client filed proceedings in the Dubai Courts for cancellation of the underlying agreement, full refund, and compensation. With the assistance of Awatif Mohammed Shoqi Advocates and Legal Consultancy, our client was able to successfully prove that the arrangement had no legal basis and obtained a judgment for repayment of the entire amount transferred, with interest and compensation.
Court of First Instance
The Court of First Instance approached the dispute by first examining the true legal nature of the relationship between the parties. An accounting expert was appointed during the proceedings, and the expert confirmed the total amount paid by our client to the company, the absence of any repayment, and that the company was not licensed to carry out the activity in question. Referring to the applicable legal framework, the court found the arrangement to be legally defective on several grounds, most notably that it guaranteed fixed profits while shielding our client from any losses.
On that basis, the court concluded that the agreement was null and void, and that its nullity was connected to public order, meaning that the defect could not be waived or remedied by agreement between the parties. The consequence of that finding was that the parties were required to be restored to the position they had each occupied before the contract was made. The court ordered the company to repay our client the full amount transferred, along with the compensation.
The individual manager of the company was separately considered. The court found that personal liability does not arise automatically from one’s position as a company manager and requires proof of fraud, gross negligence, or a specific breach of law or constitutional documents. As that standard was not met on the facts before it, the court did not extend liability to the manager in his personal capacity.
Court of Appeal
The company and the individual manager also appealed the first instance judgment. The appellate court held that the grounds raised by the company were essentially the same arguments that had been considered and correctly decided at first instance. It confirmed the company was not licensed to invest third-party funds, that the agreement was accurately characterised as null and void, and that repayment to our client was the correct and legally mandated remedy.
Conclusion
This issue illustrates the approach of the Dubai Courts towards commercial transactions outside the scope of the licensed activity of a company. If an arrangement is contrary to mandatory legal requirements and public order, then the courts will treat it as void and order repayment, irrespective of what the parties agreed or signed.
Through the efforts of Mrs. Awatif Al Khouri of Awatif Mohammed Shoqi Advocates and Legal Consultancy, our client secured full repayment of the amounts transferred, together with statutory interest, compensation, and costs.
