Dubai Court of Cassation, Commercial Appeal No. 151 of 2025 (joined with Appeal No. 160 of 2025), judgment of 14 July 2025
Between partners, none may prove anything contradicting or going beyond the memorandum of association except in writing, so a partner cannot prove without written evidence that another partner's recorded holding is sham; this rule is of public policy and applies even if no party invokes it. A partner's failure to pay his capital contribution does not make him a sham partner: he remains a debtor of the company, which alone may sue for it. A partner in a limited liability company becomes entitled to profits only when the general assembly resolves to distribute them after the accounts are prepared and approved, although partners cannot be deprived of profits the company actually made.
A foreign parent company owned 80 per cent of a UAE free-zone company; the remaining 20 per cent stood in the name of its manager. The parent sued to have the manager removed from the memorandum and licence as a sham partner, claiming that the shares had been given to him without payment because he claimed influence with government departments. It also sought repayment of about AED 1.96 million said to have been taken from the company, AED 3 million in damages and, in the alternative, his 20 per cent share of losses. The manager sued separately for his share of profits for 2012 to 2022 and for employment dues. The cases were joined. The first-instance court declared him a sham partner and ordered him to pay about AED 1.81 million; the appeal court reversed that part and dismissed both claims. Both sides appealed.
The manager's appeal was dismissed. Profits are due only from the general assembly's distribution resolution. The audited accounts showed accumulated losses of about AED 1.55 million for 2012 to 2017. A criminal judgment convicting others of misappropriating his profits had been given in absentia and was not shown to be final, and one accused was later acquitted, so it did not bind the civil court. The manager himself had been responsible for preparing the accounts.
The parent's appeal was also dismissed. Proof of sham against the memorandum requires writing, and sham means an apparent transaction concealing the real one. The appeal court had found, on the expert report, that the manager held 20 per cent under the transfer resolution and licence; his non-payment of capital did not make him a sham partner but left a debt owed to the company, which alone could sue for it and for the AED 1.81 million loss caused to it. The claim for AED 3 million was unsupported.
Foreign investors often hold free-zone or mainland companies with an individual recorded as a minority partner. This judgment makes it hard for either side to undo the register by oral or circumstantial evidence: written proof is required between partners. It also confirms that a partner's profit claim depends on approved accounts and a distribution resolution, and that claims for unpaid capital or losses caused to the company belong to the company, not to the other partner.
“لا يجوز لأحد الشركاء أن يُثبت في مواجهةِ الشريك الآخر صورية ما ورد بعقد الشركة من شروط إلا بالكتابة ، وهي قاعدة متعلقة بالنظام العام”Short quotation from the judgment as published by the court. The full judgment is on the court’s official service.
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