Dubai Court of Cassation, Commercial Appeal No. 67 of 2025, judgment of 13 March 2025
A limited liability company formed in a Dubai free zone has, from its formation and registration, a legal personality and assets separate from those of its partners, who are liable for its debts only up to their shares. A person who signs a contract as the representative of another is not personally bound by it (Articles 151 and 153 of the Civil Transactions Law). A guarantee is not presumed and must be express. An owner who signs a bank's general terms for facilities only as the company's representative and owner does not thereby guarantee the company's debts. A bank's liability for services to a customer is governed by the contract and requires proof of fault, harm and causation.
A bank lent money to a company in the Dubai Multi Commodities Centre free zone, formerly a sole establishment and later a limited liability company, secured by an investment portfolio. The bank liquidated the portfolio and, alleging unpaid instalments, sued the company and its owner jointly for about USD 1.46 million. The company and owner counterclaimed about USD 12.4 million, alleging that the bank had wrongly liquidated the portfolio. The courts below, relying on a banking expert, ordered both to pay the sum claimed with 5 per cent interest and dismissed the counterclaim. The appeal court held that the owner was liable because he had signed the facility terms as the establishment's representative and owner and could guarantee it.
The Court of Cassation rejected the challenges to the dismissal of the counterclaim. A bank's liability for banking services is governed by the contract and by banking custom and arises only on proof of fault, harm and causation; the expert had found that the liquidation was carried out in accordance with the contracts and banking practice, including confirmation of the owner's identity by telephone, and the court was not obliged to appoint a panel of experts. The expert's visit to the bank alone to inspect its records was within his role, and he had shared the documents with the customers' lawyer.
The owner's ground succeeded. A free-zone limited liability company has its own legal personality and assets; whoever contracts through a representative is the party bound; and a guarantee must be express. The general terms the owner signed in his capacity as representative contained no guarantee by him. The Court partly quashed the judgment and, deciding the appeal itself, dismissed the claim against the owner.
Owners of free-zone companies routinely sign bank documentation on the company's behalf. The judgment confirms that this does not make them guarantors: personal recourse requires a separate, express guarantee. It also illustrates that a bank's sale of pledged securities after default will be upheld where it followed the contract and banking practice.
| Articles 151 and 153 of Federal Law No. 5 of 1985 (Civil Transactions Law) on contracting through a representative — text of articles 151, 153 Decided under this law; it has been replaced by Civil Transactions Law 2025. |
| Law No. 4 of 2001 on free zones and the offshore companies regulations issued by the Ruler's resolution of 15 January 2003, as cited by the Court |
“الكفالة لا تفترض بل يجب أن تكون صريحة ودالة على التزام الكفيل بالدين الأصلى عند عدم وفاء المدين به”Short quotation from the judgment as published by the court. The full judgment is on the court’s official service.
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