It is stated in the leading commentary on international commercial arbitration [Redfern and Hunter, 2015], regarding the validity of arbitration agreements that:
The general rule is that any natural or legal person who has the capacity to enter into a valid contract has the capacity to enter into an arbitration agreement.
This article aims to identify whether this general rule applies in the UAE by looking at the recent approach of the Dubai Court of Cassation with regards to capacity and authorisation of companies’ representatives to enter into arbitration agreements.
The question of capable and authorised signatories in the Statutory Law
Generally, for contractual obligations to be binding, they must be executed by a representative who has capacity to enter into a contract and who has authority to bind the company. In the UAE, it means that the contract must be concluded either by the corporate entity’s authorised representative or by a person who has apparent authority to do so.
The question is here whether a company’s representative who has the capacity and authority to enter into a valid contract has the capacity and authority to enter into an arbitration agreement?
To reply to this question, at the starting point is the Statutory Law in the UAE.
Regarding the conditions of validity of an arbitration agreement, they are to be found in Article 203(4) of the Civil Procedure Law which provides:
“An 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.”
As the Companies Law does not expand on the concept of legal capacity to bind the corporate entity, Article 85 of the Civil Transactions Law shall apply and this means that any representative who “has reached the age of majority in possession of his mental powers and who has not been placed under restriction” shall be of full capacity to exercise the rights of the company he represents.
However, a company’s representative who has legal capacity to enter into a contract may not be authorised to express the company’s intentions in the sense of Article 93 of the Civil Transactions Law. It is in the Companies Law that this issue is addressed.
Article 154 of the Companies Law sets out:
“The Board of Directors shall have all the powers specified in the Articles of Association of the company, other than as reserved by this Law or the Articles of Association of the company to the General Assembly. However, the Board of Directors may not enter into loans for a period in excess of three years, sell the property of the company or the store, or mortgage movable and immovable property of the company, discharge the debtors of the company from their obligations, make compromise or agree on arbitration, unless such acts are authorized under the Articles of Association of the company or are within the object of the company by nature. In cases other than these two ones, such acts require to issue a special resolution by the General Assembly.(emphasis added)”
Article 58(2) of the Civil Procedures Law further sets out:
“No admission or waiver of a right alleged or settlement or submission to arbitration […] or any other disposition in respect of which the law requires special authorisation may be made without special authority.(emphasis added)”
We can draw from the above that:
- The company’s representative shall have legal capacity in the sense of Article 85 of the Civil Transactions Law to enter into an arbitration agreement; and
- must be authorised to do so. Under UAE Law, a company’s representative who is authorised to enter into a valid contract is not a fortiori authorised to enter into an arbitration agreement. In the latter case, a “special authorisation” seems to be needed.
The question of authorised signatories in Case Law
Let us now look at how the Courts have addressed the question, how the relevant aforementioned provisions have been interpreted by the Dubai Court of Cassation.
- Why authority to enter into a valid contract does not necessarily mean authority to enter into an arbitration agreement? (Dubai Court of Cassation Cases No. 91/1998 and 577/2003)
The first question addressed by the Dubai Court of Cassation in relation to these articles is why in the UAE a company’s representative who is authorised to enter into a valid contract is not a fortiori authorised to enter into an arbitration agreement.
In Dubai Court of Cassation Cases No. 91/1998 and more recently in Dubai Court of Cassation Case No. 577/2003, the Court, with regards to Article 203 (4) of the Civil Procedures Law, held that
“[…] arbitration agreement may be made only by a party having the capacity and competence to dispose of the disputed right and not the capacity to resort to courts of law, given thatagreement to arbitration means waiver of the right to institute the action before the State Courts, with its guarantees provided to litigants; therefore it requires a special power of attorney and it is not sufficient in this respect for the Principal to authorise the Attorney-in-fact to administer certain disposals and transactions on its behalf.”
Since 1998, the Dubai Court of Cassation has consistently found that it is because Arbitration is an exceptional mode of dispute resolution, a waiver to the fundamental right to have access to Court that the authority to agree to arbitration should be limited.
Who is authorised to sign an Arbitration Agreement (Dubai Court of Cassation 273/2006)
With regards to the question of “who is authorised to sign an arbitration agreement”, the Court of Cassation in Case No. 164/2008 held that unless expressly prevented from doing so in the Company’s Articles, the Director of an LLC has authority to sign an arbitration agreement.
With regards to the form of the authorisation and to the question of when a party can rely on implied or ostensible authority in respect of Article 203 of the Civil Procedure Law, it is worth noting that there was no constant position of the Court of Cassation until the recent cases of February and March 2016 analysed in the last part of this article.
The Court first rejected the application of the theory of apparent authority: in Case No. 220/2004and then later, in Case No 273/2006, held that:
“[…] an arbitration agreement involves a waiver of the right to bring an action before the courts of the UAE, with the guarantees that it affords to litigating parties, and the authority given to an attorney may be express or implied or apparent”.
The Court went further and defined:
- Express authorisation as the one “by words or writing”;
- Implied authorisation as the one which “may be deduced from the facts of the case, and everything that has been said or written”, and
- Apparent authorisation as “the ordinary mode of dealing may be assumed from the surrounding facts.”
Recent case law and the question of whether a company’s representative who has the capacity to enter into a valid contract has the capacity to enter into an arbitration agreement?
In a series of real estate disputes a developer challenged the validity of a series of awards on the grounds that the Arbitration Agreements contained in its different Sale and Purchase Agreements (“SPAs”) were not valid as the company’s representative who signed the SPAs was not the company’s general manager and was therefore only authorised to sign the SPA and not the Arbitration Agreement.
This brings us back to our initial question of whether a company’s representative who has the authorisation to enter into a valid contract has the authorisation to enter into an arbitration agreement. In three decisions of late 2015, early 2016, the Dubai Court of Cassation put an end to the above controversy.
In Case No 386/2015, the Dubai Court of Cassation, relying on principles of good faith, confirmed that when an SPA is validly signed by a company’s representative, the arbitration agreement comprised within the SPA is deemed to have been validly entered into. In the words of the Court:
“If the name of the legal person is only mentioned in the agreement without the name and capacity of its legal person, and the agreement is illegibly signed and if such agreement includes the arbitration clause, this shall constitute a crucial pretext affirming that the natural person who signed the agreement is the representative of such legal person and has the competency to act and agree to arbitration.”
In Case No. 547/2014, the Dubai Court of Cassation confirmed the admissibility of “implied authority” when it comes to Arbitration Agreements as the Court held that:
“if the name of certain company is mentioned in certain agreement and another person signed such agreement, this shall constitute a legal pretext affirming that the person who signed it did so for and on behalf of the company.”
In Case No. 340/2015, the Dubai Court of Cassation went further and confirmed the validity of “apparent authority”. The Court found that when the name of the Company is mentioned in the agreement and that in the space for signature it is set out “seller’s authorized signatory”, this constitutes a legal presumption affirming that the person who signed the sale and purchase agreement was authorized by the Company to agree to the arbitration clause set forth in such agreement.
It is noteworthy that in Case No. 293/2015, the Dubai Court of Cassation held, with regards to the bur-den of proof, that it is to the person contesting the authority of the signatory to demonstrate that the considered person was not authorised to sign the arbitration agreement.
In conclusion, in the UAE any natural or legal person who has the capacity to enter into a valid contract does have the capacity to enter into an arbitration agreement. However, any natural or legal person who is authorised to enter into a valid contract is not a fortiori authorised to enter into an arbitration agreement.
The Dubai Court of Cassation, when assessing whether a company’s representative has the authority to sign an arbitration agreement, does not adopt a strict interpretation of Statutory Law and admits that the authority given may be express, implied or even apparent. The recent decisions of the Dubai Court of Cassation are in some respects to be welcomed – on the basis that parties are entitled to believe that a contract means what it says.