Claim No: XXXX
THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS
In the name of His Highness Sheikh Mohammad Bin Rashid Al Maktoum, Ruler of Dubai
IN THE COURT OF APPEAL
BEFORE THE DEPUTY CHIEF JUSTICE SIR DAVID STEEL, JUSTICE ROGER GILES AND H.E. JUSTICE ALI AL MADHANI
(1) GEARY MIDDLE EAST FZE
(2) GEARY LIMITED
Hearing: 7 September 2016
Counsel: Roger Ter Haar QC instructed by Berwin Leighton Paisner for the Appellant
Michael Black QC instructed by Clyde & Co LLP for the Respondent
Judgment: 9 October 2016
UPON hearing Counsel for the Appellant and Counsel for the Respondents on 7 September 2016
AND UPON reading the submissions and evidence filed and recorded on the Court file
IT IS HEREBY ORDERED THAT:
1. The Appellant’s Appeal is dismissed.
2. The Appellant shall pay the Respondents’ costs of this appeal on the standard basis to be assessed if not agreed.
Amna Al Owais
Date of Issue: 9 October 2016
JUSTICE ROGER GILES:
1.H E Justice Omar Al Muhairi declined to set aside an award, and ordered that it be recognised and enforced. This appeal has two limbs. At the heart of the first limb is the contention that the award should have been set aside because the arbitration agreement was not validly made and did not bind the appellant. Under the second limb it is contended that the interest component of the award should have been calculated not at 12 per cent, but at the prevailing market rate.
2. The appellant, Gada, and the respondents, Gaston FZE and Gaston Ltd, entered into a number of significant contracts for the performance of works. There were outstanding payments due from the appellant, and a number of unresolved claims and potential claims between them.
3.On 21 May 2009 the appellant and the respondents entered into a settlement agreement providing for resolution of all claims, payment under a payment schedule, and ancillary matters. The appellant’s obligations were guaranteed by its ultimate parent company. The total payment amount was a little over AED 900 million, and on its face the settlement agreement was a detailed and carefully drawn document. As execution for the appellant, the settlement agreement bore its company stamp with the signature, as “Authorised Signatory”, of its Executive Managing Director.
4. Clauses 17 and 18 of the settlement agreement provided –
“17. This Agreement is governed by and construed in accordance with the laws applicable in the Emirate of Dubai.
18. Any dispute arising out of or in connection with this Agreement, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the Arbitration Rules of the DIFC-LCIA Arbitration Centre, which Rules are deemed to be incorporated by reference into this clause. The seat, or legal place, of arbitration shall be the Dubai International Financial Centre (DIFC) in Dubai. The language of the arbitration shall be English.”
5. On 18 February 2014 the respondents commenced arbitration proceedings, claiming recovery of the final payment of AED 31,500,000 plus interest. An arbitrator was appointed under the DIFC – LCIA Arbitration Rules (“the Rules”). The arbitration was held in the DIFC, and on 17 November 2014 the learned arbitrator delivered an award in favour of the respondents for AED 31,500,000 and interest at 12 percent.
6. The appellant took the objection that the arbitrator did not have jurisdiction because Executive Managing Director did not have authority to enter into the arbitration agreement in clause 18 of the settlement agreement. The arbitrator received extensive submissions on the matter, and ruled that he had jurisdiction to decide the dispute.
The first limb: setting aside the award
(a) The contention
7. Article 41 of the DIFC Arbitration Law, DIFC Law No 1 of 2008, relevantly provides –
“41 (1) Recourse to a Court against an arbitral award made in the seat of the DIFC may be made only by an application for setting aside in accordance with paragraphs (2) and (3) of this Article.
(2) Such application may only be made to the DIFC Court. An Arbitral award may be set aside by the DIFC Court only if:
(a) the party making the application furnishes proof that:
(i) a party to the Arbitration Agreement was under some incapacity; or the said agreement is not valid under the law to which the parties have subjected it or, in the absence of any indication thereon, under the law of the DIFC;
8. The appellant’s argument, effectively repeating that put to the arbitrator and the trial judge, went as follows –
(i) pursuant to clause 17 of the settlement agreement, the applicable law governing the validity of the arbitration agreement in clause 18 was UAE law;
(ii) as a private joint stock company incorporated in non-DIFC Dubai, the appellant was subject to Article 103 of the UAE Companies Law, Federal Law No 8 of 1984, which provided –
“The board of directors shall have all powers required for carrying out the activities necessary to achieve the company’s objectives except those powers reserved by the law or by the company’s articles of association for the general assembly. However, the board of directors may not contract loans for more than a three year period, sell the company’s real estate properties or its trading shop, nor mortgage such properties; and the board shall not relinquish the debts owed by the company nor shall it agree to a reconciliation or arbitration except when such actions are permitted by the company’s articles, or when these actions are natural elements in the company’s business; otherwise the board must obtain the general assembly’s approval for undertaking them”.;
(iii) the appellant’s Articles of Association (article 25.2) did permit the Board to “conduct conciliations or approve arbitrations”;
(iv) but the Board did not approve entry into the arbitration agreement, and there was no suggestion that a General Assembly of the appellant had approved entry into it;
(v)therefore the arbitration agreement was not binding on the appellant.
9. The conclusion at step (v) was generally expressed in the terms that Executive Managing Director did not have authority to enter into the arbitration agreement. From the preceding steps in the argument the lack of authority was because the Board had not approved entry into the arbitration agreement, not because his authority as Executive Managing Director did not extend to entry into the arbitration agreement if entry into it had been approved. In the course of argument counsel for the appellant accepted that, if the Board had specifically approved entry into the arbitration agreement, his argument would fail. But he then asserted that Executive Managing Director otherwise lacked authority to enter into the arbitration agreement, and it is necessary to address that addendum to the argument described above.
(b) The trial judge’s decision
10. The learned trial judge held that, the seat of the arbitration being the DIFC and the DIFC-LCIA Arbitration Rules applying, the law governing the validity of the arbitration agreement was DIFC law; and that even if Executive Managing Director lacked actual authority, the arbitration agreement was binding upon the appellant under principles of apparent authority under DIFC law. He considered that like principles would apply if UAE law governed the validity of the arbitration agreement.
11. The trial judge recorded (para 20) that the appellant appeared to accept that Executive Managing Director was authorised to sign the settlement agreement but said that his authority did not extend to signing the arbitration agreement in clause 18, and observed that “no evidence had been furnished… to support the position that Executive Managing Director had only limited authority as signatory to the settlement agreement”. However, he made no specificfinding as to Board approval or that Executive Managing Director’s actual authority.
(c) The appeal
12. The appellant submitted that the trial judge was in error in adopting DIFC law as the law governing the validity of the arbitration agreement. It submitted that UAE law governed, and that the trial judge was also in error in holding that there were applicable principles akin to apparent authority under UAE law. While taking issue with these submissions, for their part the respondents submitted first, that the appellant had waived any entitlement to challenge the award by force of a provision in the Rules and secondly, that Board approval of entry into the arbitration agreement was not necessary because arbitration was a natural element in the appellant’s business.
13. These last submissions may immediately be put aside. The first begs the question; if the appellant’s submissions are accepted, the Rules did not come into force between the parties. As to the second, on the wording of Article 103 of the Companies Law (as translated), arbitration being a natural element of the company’s business is an alternative to agreement to an arbitration being permitted by the company’s articles. Whether or not arbitration was a natural element of the appellant’s business does not matter when the alternative was satisfied (see step (iii) above). Even if it was, that does not answer the separate question of whether the Board approved entry into the arbitration agreement.
14. It is not necessary to decide whether DIFC law or UAE law governed the validity of the arbitration agreement. The appellant did not challenge the trial judge’s holding of apparent authority if DIFC law governed; and if UAE law governed, or more particularly Article 103 applied, for the reasons which follow (and without recourse to principles of apparent authority) the award should not be set aside.
15. I assume in the appellant’s favour that the validity of the arbitration agreement is governed by UAE law.
16. Under Article 41 of the Arbitration Law, the appellant must “furnish proof” that the Board did not approve entry into the arbitration agreement; or, if the addendum to the argument be considered, that Executive Managing Director otherwise did not have authority to enter into that agreement. The burden of proof is on the appellant.
17. I go first to the appellant’s argument apart from the addendum.
18. No member of the Board as at May 2009 was called, nor was Executive Managing Director called, in either case to give evidence of the Board’s consideration or lack of consideration of the settlement agreement. The settlement agreement concerned a number of significant contracts, comprehensively settled claims and potential claims between the appellant and the respondents, and committed the appellant to pay over AED 900 million. It included the parent company’s guarantee. The appellant accepted (in the terms that it did not challenge) that it was bound by the settlement agreement. It is likely to the point of near certainty that the settlement agreement was put before the Board for its consideration and approval and that entry into it was approved, and there was no evidence to the contrary.
19. The arbitration agreement was an important element in the settlement agreement, and is likely to have been in the Board’s attention as part of its consideration of that agreement. It is to be inferred as a finding of fact, in my opinion, that the Board approved entry into the arbitration agreement as part of its approval of entry into the settlement agreement. This Court can make the finding (RDC 44.141), Board approval having been left open by the trial judge. At the least, put negatively, I am not satisfied that the Board did not approve entry into the arbitration agreement.
20. The appellant submitted that approval of entry in the settlement agreement was insufficient to satisfy Article 103. It submitted that under UAE law a submission to arbitration was regarded as the giving up of a valuable right, and called for a particular and specific approval of an arbitration agreement; that it was insufficient that there might be approval of entry into an agreement such as a sale and purchase contract or a construction contract (here, the settlement agreement) which contained an arbitration clause. It relied on evidence given by the current General Counsel of the appellant (but not General Counsel in May 2009), that he coordinated and directed a physical and electronic search of the appellant’s records which disclosed –
(i) that the appellant did not have and never had “any document relating to the authority of Executive Managing Director to enter into the arbitration agreement set out in clause 18 of the Settlement Agreement specifically or to enter into arbitration agreements generally”; and
(ii) that “the Board resolutions (from 2006 – 20 February 2008) and thereafter do not include any resolution evidencing board approval for the arbitration agreement set out in Clause 18 of the settlement agreement”.
21. It is to be noted that General Counsel’s evidence was confined to the arbitration agreement in clause 18 and arbitration agreements generally; it did not deny approval of and authority to enter into the settlement agreement containing clause 18.
22. For its submission the appellant relied particularly on the decision of the Dubai Court of First Instance in Claim 121/2016 (“Case 121”), in which the present appellant submitted that two awards made against it in a DIAC arbitration were invalid because (as recorded by the Court) its officer who signed the agreement containing the arbitration clause “ha[d] no capacity to dispose of the right and issue without a special authorisation by [the Board]”.
23. The Court said, in the translation provided to us –
“As regards the first challenge raised by the Plaintiff to invalidate the two arbitral awards, which is that the person who signed the agreement dated 26/6/2008 that includes the arbitration clause is not authorized to approve arbitration, it is established by the Court of Cassation that Clause 2 of Article 58 of the Civil Procedure Law provides that: “A special authorization shall be required for acknowledging, waiving, conciliating, or arbitrating the claimed right”. This indicates that the agent of the litigant in respect of arbitration required a special authorization by the principal because agreement to arbitration means waiver of filing the case to the courts, including everything that is guaranteed by the judiciary system of the State for the litigants, which are not provided by arbitration, as exceptional means for dispute settlement. This condition that requires a special authorization for the agent depends on that the agent should be the one who concludes the arbitration agreement on behalf of his principal.
(Cassation No. 275 of 2010, hearing of 1/6/2011)
Arbitration is the express agreement of litigants on the competence of the arbitrator and not the courts to adjudicate the dispute. This requires that the person who signs the contract that includes the arbitration clause or agreement to have capacity and competence. Arbitration can be referred to only by the party who has the capacity to act in respect of the disputed right and not to resort to the court. As exceptional means for dispute settlement, the lawmaker requires a special authorization for agreement to arbitration.
(Cassation No. 137/2015 Real Estate, hearing of 24/2/2016)
In light of the above, it is evidence in the agreement concluded between the Plaintiff and the Defendant on 26/6/2008 concerning the subcontract that includes the arbitration clause, basis of the two arbitral awards challenged for invalidity, is that the authorized signatory of the Plaintiff is Chris Odenil, Director and CEO of the Company, which is not disputed by the parties. It is evidence in Article 25.2 of the Articles of Association of the Plaintiff that the board of directors to …………, conciliate, or agree to arbitration. The Articles of Association do not state that any entity other than the board of directors is entitled to conclude or agree to arbitration. The documents lack anything that indicates that there is an authorization by the board of directors to the Plaintiff, which has the right to agree to arbitration according to the Articles of Association of the Company, to its CEO to sign the arbitration clause upon signing the agreement, or that there is a subsequent resolution by the board of directors approving the arbitration clause signed by its CEO. In fact, the Company maintained that the person who signed the agreement does not have the capacity to agree to arbitration. It raised this argument before the arbitral tribunal from the early hearings, and maintained this argument until the end, as evidenced in the notes of the arbitral award issued on 3/4/2014. Thus, the arbitration clause set out in the agreement dated 26/6/2008 is invalid because it signed by a person who does not have the capacity or the competence to agree thereto. This is not undermined by the fact that the person who signed the contract that includes the arbitration clause, Chris Odenil, has the capacity of a director in the Company and is its CEO, because this mere capacity is insufficient to grant him the right to sign the arbitration clause without special authorization by the board of directors that has the sole right in this regard.
24. The appellant submitted that this decision established that an arbitration agreement is not valid unless there is board authority to the signatory. The proposition appears to be less than the argument requires, and I take it to have meant that the signatory must have specific authority to enter into the arbitration agreement. The finding above of Board approval of entry into the present arbitration agreement means that the proposition leads nowhere, but in any event I do not think the decision assists the appellant.
25. There are some difficulties with the passage from Case 121, to which translation has no doubt contributed. Although Article 103 was also referred to when recording the appellant’s submission, the decision does not rest upon Article 103 of the Companies Law, but on Article 58 (2) of the Civil Procedure Law, which was no part of the appellant’s argument in the present case. The basis of the decision appears to be that there was not the necessary “special authorisation” to Mr Smith when he signed the contract containing the arbitration clause. But there is no reference to whether the board had approved entry into the contract; so far as appears, Mr Smith signed the contract in the exercise of his authority as Director and CEO, without reference to the board. Special authorisation may be more than is required for Article 103, but even if that is not so I do not think Case 121 stands against board approval of arbitration when the board approves entry into an agreement containing an arbitration clause.
26. The appellant relied also on the decision of the Dubai Court of Cassation in Case 164/2008 (“Case 164”). An arbitration clause in a contract was invoked as a defence to an action on the contract. It was said that the arbitration clause was invalid because the signatory to the contract had no authority to agree on arbitration; only the company’s general manager had that authority. In answer, it was argued that the company had performed the contract and thereby become bound by the arbitration clause. The Court rejected the argument, saying that it “is unsound because performing the subject of the original contract does not solely confirm the approval of the contracting party on the arbitration clause”.
27. The appellant submitted that this supported that approval of entry into the settlement agreement did not mean approval of entry into the arbitration agreement in its clause 18, and that specific authority to enter into the arbitration agreement was necessary. It was a question of fact. In Case 164 the Court was not prepared to find agreement to the arbitration clause from performance of the contract. It is different where the contract containing the arbitration clause is formally concluded; I do not think Case 164 assists the appellant.
28. There is authority that UAE law accepts the validity of an arbitration agreement within a contract. In case 220/2004 (“Case 220”), despite referring to legislation permitting arbitration in lieu of the State’s sovereign right of dispensing justice and waiver of the right to bring legal proceedings, the Dubai Court of Cassation recognised an arbitration clause within a contract as a means of establishing the mutual acceptance of arbitration instead of judicial decision: “This shall be valid in case of existence of arbitration Clause within the General Terms printed in the contract signed by the parties…” It would be odd, and scarcely conducive to commercial efficacy, if entry into a contract containing an arbitration clause did not carry with it agreement to arbitrate in accordance with that clause; it does not matter who approves entry into the contract, whether an individual, a company officer with appropriate authority, or a company board. If approval of entry into the arbitration agreement be a requirement, it can be found.
29. I turn to the addendum to the argument.
30. In my view, there was no other want of authority in the Executive Managing Director to enter into the arbitration agreement. Article 26 of the appellant’s articles permitted delegation of signing authority, and as I have said the appellant accepted that it was bound by the settlement agreement; thus it accepted that Executive Managing Director had authority to enter into that agreement. He signed next to the company stamp, which is ordinarily reserved for transactions approved by the Board. His authority to enter into the settlement agreement carried with it, once Board agreement to arbitration is found, authority to commit the appellant to the arbitration agreement in clause 18 as one of its provisions.
31. It is not necessary, in my view, to refer to the decision of the Dubai Court of Cassation in Case 547 of 2014 (“Case 547”), but there the Court affirmed that the manager of a limited liability company has authority to agree upon arbitration in contracts unless his powers are explicitly limited, and that the signature on behalf of the company binds the company unless contrary evidence is provided. Once board approval is found in the case of a private joint stock company, this is equally applicable to such a company. There was no evidence that Executive Managing Director’s powers were limited. Again put negatively, at the least the appellant did not furnish proof of any other want of authority.
The second limb: interest
32. The arbitrator recorded that the respondents asked for interest at 12 per cent and that the appellant “did not comment on” the interest claim; he noted that the appellant conceded that it was liable for interest, and allowed the interest at 12 per cent.
33. The appellant relied on the further provision in Article 41 of the Arbitration Law whereby an award may be set aside if –
“… the DIFC Court finds that:
(iii) the award is in conflict with the public policy of the UAE.”
34. The appellant’s apparent acceptance in the arbitration of interest at 12 per cent is not a promising start to a challenge to the award. Its argument on appeal was somewhat elusive; there was no reference to the public policy of the UAE, the closest being that there is “a reluctance under UAE law to allow interest to be recovered”.
35. The appellant submitted that the effect of Article 76 of the Commercial Transactions Law, Federal Law No 18 of 1995, was that if a rate of interest was not stated in a commercial contract, it should be the current market rate with a maximum of 12 per cent. Although not clearly enunciated, the proposition had to be that an award not in conformity with that Article was in conflict with UAE public policy.
36. The trial judge considered that this was a non-commercial contract, which was not governed by Article 76 so there was freedom to apply any appropriate interest rate, and that it was not for the Court to enter into the appropriate rate. With respect, the first step in this may be doubted. But it does not matter.
37. Public policy in a State may be found in or informed by domestic law, but the submission did not descend into why the interest rate should be regarded as a matter of public policy for the purposes of Article 41; the domestic law did not move the appellant to contest the rate of 12 per cent requested by the respondents. There was no evidence of a current interest rate, or even that there was a current interest rate less than 12 per cent (if there was evidence before the arbitrator, we were not referred to it). Where there was no such evidence, and no submission by the appellant against the rate requested by the respondents, there is no basis for concluding that the award of interest at 12 per cent is in conflict with UAE public policy. There is nothing in this argument.
38. I propose that the appeal be dismissed with costs.
DEPUTY CHIEF JUSTICE SIR DAVID STEEL:
39. I agree with the abovementioned judgment and have nothing further to add.
H.E. JUSTICE ALI AL MADHANI:
40. I agree with the judgment and have nothing further to add.
Amna Al Owais
Date of Issue: 9 October 2016