28 April 2016

Dubai Court adopts a purposive approach to rule in favour of foreign stakeholder

In a recent landmark judgment dated 21 February 2016 the Dubai Court of First Instance decided in favour of a foreign shareholder, against a local Emirati, in a winding up petition. This is contrary to the long established protectionist trend employed by Courts in the United Arab Emirates. What is even more surprising is that the Court, in reaching its decision, has adopted a purposive approach, rather than simply applying the black letter of the law, as has traditionally been the case.

Case Details

The Claimant applied to the Dubai Courts for, inter alia, the dissolution and liquidation of two companies on the basis that the dispute between the foreign Claimant and the local partner was irreparable to the point that it was impossible to lift a moratorium which had been imposed.

The Claimant argued that:

  • The business relationship between the partners was permanently damaged, thus triggering the operation of Article 281(3) of the Companies Law, as all of the companies’ assets would inevitably and substantially deplete over time as a result of the freeze; and
  • The application would allow for mitigation, limiting the loss sustained by each of the parties which would otherwise continue to grow (as a result of the moratorium).

The Defendant argued that the Court could not make an order for liquidation or dissolution of the companies on the basis that none of the exhaustive pre-conditions set out at Article 281 were satisfied.

The Court found for the Claimant.

Conclusion

This decision represents a significant diversion by the Dubai Courts from standard practice.  It is rare for a Dubai Court to allow a foreigner to exit from its shareholder relationship with a local partner and sponsor, without the consent of the local shareholder.

Cases such as these are usually rejected, giving rise to a perception that the Courts will protect the position of the local towards the foreigner. This decision is a leading example of a fresh approach, offering a new direction for the Courts.

The ruling achieved here is a prime example of the innovative and market-leading work our Arabic courts litigation team is carrying out, and of the high standard of quality legal advice our clients can expect.

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