DIFC Court of Appeal rejects argument Managing Director had no authority to make Arbitration Agreement

14 November 2016

In Gada PJSC (Appellant) v Gaston FZE (Respondent) [2016] DIFC CA-005 Gada sought to appeal an order of the Court of First Instance dismissing a challenge to, and recognising and enforcing, a DIFC-LCIA Arbitration Award for sums due under an AED 900 million settlement agreement on the grounds that its Executive Managing Director did not have authority to make the arbitration agreement contained in the settlement agreement. There was also a challenge to the Arbitrator’s award of interest described as “elusive” and there being “nothing in this argument”.

The challenge on the grounds of absence of authority is of some importance as it has become one of the stock arguments of Award Debtors in Dubai seeking to escape liability.  The DIFC Court of Appeal, like the Court of First Instance, was having none of it. It reminded itself that under Article 41 of the DIFC Arbitration Law the Appellant had to “furnish proof” that the board did not approve entry into the arbitration agreement or that Executive Managing Director otherwise did not have authority to enter into that agreement; the burden of proof being on the Appellant.

On the facts of the case, the DIFC Court of Appeal was not satisfied that the board did not approve entry into the arbitration agreement – it was 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; the arbitration agreement was an important element in the settlement agreement, and was likely to have been in the board’s attention as part of its consideration of that agreement so that it was to be inferred  that the board approved entry into the arbitration agreement as part of its approval of entry into the settlement agreement.

As to the Executive Managing Director’s authority to enter into that agreement, the DIFC Court of Appeal held that since Article 26 of the Appellant’s articles permitted delegation of signing authority, the Executive Managing Director had authority to enter into settlement agreement and he signed next to the company stamp which was 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 the settlement agreement as one of its provisions.

There will be general interest in the DIFC Court of Appeal’s observations on a number of Dubai decisions relied on by the Appellant:

  • Dubai Court of First Instance Case 121/2016 in which the Appellant itself ran the same argument. The Appellant submitted that the decision established that an arbitration agreement is not valid unless there is board authority to the signatory. Aside from the findings of fact in the present case, the DIFC Court of Appeal found that the case did not assist the Appellant because the decision rested upon Article 58(2) of the UAE Civil Code and the case did not stand against board approval of arbitration when the board approves entry into an agreement containing an arbitration clause;
  • Dubai Court of Cassation Case 164/2008 where 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 of Cassation rejected the argument on the ground that performance does not supply a want of authority. The DIFC Court of Appeal held that the case was different from one where the contract containing the arbitration clause was formally concluded;
  • Dubai Court of Cassation Case 220/2004 accepted the validity of an arbitration agreement within a contract. The DIFC Court of Appeal observed that 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;
  • Dubai Court of Cassation Case 547/2014 where 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. The DIFC Court of Appeal noted that 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 in the present case were limited or put negatively, at the least the Appellant did not furnish proof of any other want of authority.

The DIFC Courts have thus once again reaffirmed their status as an “arbitration-friendly” jurisdiction.

 

Roger Ter Haar QC instructed by Berwin Leighton Paisner appeared for the Appellant

Michael Black QC instructed by Clyde & Co LLP appeared for the Respondent

Barristers