In a recent ruling (cassation No. 1250 of 2023 Commercial) issued by the Federal Supreme Court of the United Arab Emirates, the court addressed a complex legal dispute involving contractual disagreements among multiple business entities. This significant ruling provides valuable insights into the intricate domain of commercial law and the precise application of legal principles within the UAE.

The case centered around two appellants who appealed against a sole proprietorship enterprise and its affiliated real estate venture. The appellants contested a ruling by the Fujairah Federal Court of Appeal. At the heart of the dispute was a purchase agreement, wherein the respondent allegedly defaulted on payment obligations related to the acquisition of a commercial kitchen.

Delving into the legal complexities, the appellants sought redress for various unpaid dues, including the remaining cost of the kitchen, rental dues for the associated land, and consequential losses incurred during the legal proceedings. Upon thorough examination of the case dossier, the Federal Supreme Court identified significant errors in the lower court's interpretation of the law, particularly regarding Article 42 of the Commercial Law concerning contractual validity.

The appellants contested the ruling, citing errors in the application of the law and lack of justification. They argued that the kitchen sale and purchase agreement, focusing solely on material elements, constituted a consensual contract imposing personal obligations on both parties. This oversight led to the ruling's invalidation, as it failed to acknowledge the specific terms of the contract and violated Articles 42 and 44 of the Commercial Transactions Law.

The court, demonstrating judicial wisdom, determined that the agreement, despite lacking certain formalities like authentication and registration, constituted a consensual contract primarily focused on the tangible components of the kitchen. Stressing the importance of safeguarding contractual rights, the judiciary emphasized the need for strict adherence to legal protocols to prevent contract nullification.

Additionally, the court faulted the appeal court's ruling for its insufficient justifications, leading to its overturning and remittance for further review. In light of these findings, the court annulled the contested ruling and returned the case to the appeal court for reconsideration. 

This ruling underscores the UAE courts' commitment to upholding the sanctity of commercial contracts and ensuring fair dispensation of justice. It emphasizes the importance of adhering to legal formalities to reinforce the validity of contractual agreements, thereby promoting transparency and investor confidence. Through this landmark decision, the Federal Supreme Court reaffirms its role as a guardian of justice in the UAE's dynamic commercial landscape.

Authors :

• Mostafa Regal

Legal Consultant - Litigation

Contact phone: +971 4 354 4444

• Ahmed Elkhatib 

Paralegal - Litigation