Dubai Court of Cassation, Commercial Appeal No. 109 of 2024, judgment of 28 August 2024
The Court distinguished two remedies against the managing partner of a limited liability company. Removal (عزل) only relieves the manager of management, and he remains a partner. Expulsion (فصل وإخراج) ends his membership of the company and requires serious reasons that justify excluding him, which the trial court assesses under Article 677 of the Civil Transactions Law. A court that treats a final judgment ordering removal as having also decided a request for expulsion, without examining the evidence of serious misconduct put forward, misapplies the law and gives inadequate reasons.
The majority partner of a Dubai LLC (51 per cent) sued the minority partner (49 per cent), who managed the company. He asked the court to remove the manager, to expel him from the company and value his share, to order audited financial statements for 2016 to 2022, to pay the claimant his share of profits with interest, and to set the profits off against the value of the manager's share. He alleged that the manager had taken company money, kept no proper accounts, held no annual general meetings and paid no profits.
The first-instance court dismissed the claim. The appeal court reversed in part: it removed the manager for breach of his management duties under Article 85(1) of the 2015 Companies Law and appointed an accountant to run the company until the partners agreed on a new manager. That judgment became final when a cassation appeal against it was dismissed. Because the other requests had not been decided, the claimant applied to the first-instance court to rule on them. That court, after an expert report, refused, reasoning that the expulsion request had been dealt with by the removal judgment, and the appeal court affirmed.
The Court of Cassation allowed the appeal. Removal and expulsion differ in nature and effect: removal concerns management only, while expulsion ends the partnership and rests on the company's higher interest and serious reasons, such as grave faults that caused losses. The courts below had conflated the two and never examined the claimant's evidence that the manager failed to prepare accounts, call meetings or distribute profits, manipulated financial data, and moved the business into his own similarly named company at the same premises. They had also relied on an expert report without dealing with the claimant's objections, including his request to compute profits from balance sheets signed by the manager. The judgment was quashed and the case remitted to the Court of Appeal.
Deadlocks between LLC partners often end with a court order removing the manager. This judgment confirms that removal does not exhaust the other partners' remedies: a separate request to expel a partner whose conduct is seriously harmful must be examined on its own evidence, together with claims for accounts and profits. It also shows that requests a court leaves undecided can be revived by an application to rule on them.
| Article 677 of Federal Law No. 5 of 1985 (Civil Transactions Law) on expulsion of a partner for serious reasons — text of article 677 Decided under this law; it has been replaced by Civil Transactions Law 2025. |
| Article 85(1) of Federal Law No. 2 of 2015 on Commercial Companies (basis of the earlier removal judgment) Decided under this law; it has been replaced by Commercial Companies Law. |
“المناط في إخراج الشريك من الشركة طبقا للمادة 677 من قانون المعاملات المدنية أن تكون هناك أسباب جدية تبرر فصله كشريك من الشركة”Short quotation from the judgment as published by the court. The full judgment is on the court’s official service.
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