Dubai Court of Cassation, Commercial Appeal No. 40 of 2025, judgment of 19 March 2025
A party who relies on an arbitration agreement must raise it before making any request or defence on the merits (Article 8(1) of the Federal Arbitration Law). The right to arbitrate may be waived expressly or impliedly, but implied waiver requires conduct that clearly shows the intention to abandon it. An arbitration agreement binds only its parties; where some defendants are not parties to it, the dispute should not be split and the courts, which have general jurisdiction, hear it. A bounced cheque is an executory instrument, but the drawer may challenge its enforcement on the merits by proving that it lacks consideration, was obtained unlawfully, was given as security or was not owed.
A shipping company enforced an AED 8 million cheque, drawn by a second company, through the Dubai cheque-execution system. The drawer brought a substantive enforcement dispute, saying that the cheque had been signed in blank and lost by an employee in 2019 and had no underlying cause. The first-instance court rejected the dispute. On appeal a related company, which had vessel charter agreements with the beneficiary, intervened, and the appeal court, after a two-member expert panel, cancelled the enforcement: the cheque arose from trading between the beneficiary and the intervener, whose outstanding balance was only about AED 477,000, and the drawer had made payments on the intervener's behalf. Late in the appeal, the beneficiary objected that the charterparties referred disputes to the English High Court or to arbitration in Singapore or New York.
The Court of Cassation dismissed the appeal. The objection to arbitration must be raised before any defence on the merits; waiver may be implied but must be clear; and an arbitration agreement binds only its parties, so where a defendant is not a party the dispute is heard as a whole by the courts. The drawer was not a party to the charterparties, and the beneficiary had itself chosen to enforce the cheque in Dubai, which the appeal court was entitled to treat as an implied waiver; the beneficiary had also argued the merits in a memorandum of September 2024 before raising the objection in December 2024. Once a ground of jurisdiction under the Civil Procedure Law exists, Dubai courts may not give it up, and parties cannot agree otherwise. Finally, although a bounced cheque is an executory instrument, the drawer may contest enforcement on substantive grounds, and the finding that this cheque was not owed was within the trial court's assessment.
Creditors who hold cheques backed by contracts containing foreign jurisdiction or arbitration clauses face a choice. This judgment shows that enforcing the cheque in the Dubai courts can amount to giving up the clause, that a late objection fails once the merits have been argued, and that a cheque drawn by a non-party to the contract falls outside the clause altogether.
“الاتفاق على اللجوء إلى التحكيم لا يلزم إلا أطرافه، وبالتالي لا يسري على غيرهم”Short quotation from the judgment as published by the court. The full judgment is on the court’s official service.
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