Dubai Court of Cassation, Commercial Appeal No. 89 of 2024, judgment of 29 May 2024
A managing partner of a limited liability company is not liable in his own assets for the company's debts unless he commits a fault. If he breaches a management duty, the law or the company's constitution, he is liable for his personal faults and for acts involving fraud, deceit or gross negligence. Where a creditor relies on specific evidence that the manager pledged the creditor's goods as the property of a second company he runs, and that the two companies share a name and a bank account and paid each other's debts, the court must examine that evidence; rejecting the claim in one brief sentence is inadequate reasoning. A creditor claiming damages beyond the debt must prove actual harm.
A supplier sold medical equipment to an LLC under four contracts made between 2017 and 2019, keeping title until full payment. In November 2020 the outstanding AED 13.76 million was rescheduled, with all instalments falling due if four were missed. The buyer defaulted. According to the supplier, the buyer's manager, who also managed a second company with the same name, pledged the equipment to a bank as that second company's property. The supplier sued the buyer, the second company and the manager jointly for about AED 10.1 million plus interest and AED 5 million in damages. The courts below, on an expert report, ordered the buyer alone to pay AED 9.57 million with 5 per cent interest, and rejected the other claims.
The Court of Cassation rejected the challenge on damages. Contractual and tortious liability both require fault, harm and causation, and the creditor must prove the harm; the expert had found no evidence of loss, and the appeal court's further remark that the supplier had not registered a pledge over the goods under the law on pledges of movable property was superfluous and did not affect the result.
The challenge on the second company and the manager succeeded. Standing exists against whoever is answerable for the right claimed, and a manager is personally liable for personal fault, fraud, deceit or gross negligence. The supplier had argued, with supporting cheques, that the two companies were in reality one entity run by the manager, that they used one bank account, that the second company had paid an instalment of the buyer's debt, and that the manager had pledged the equipment knowing it still belonged to the supplier. The appeal court answered only that the second company was not a party to the contracts and that no fraud by the manager was proved, without examining the documents. The Court quashed that part and remitted it.
Creditors of an LLC usually cannot reach the manager or associated companies, but this judgment shows that a court must engage with concrete evidence of fraud or of affiliated companies being run as one, such as shared accounts, payment of each other's debts and dealings with the creditor's goods. It also confirms that a claim for damages on top of late-payment interest needs proof of actual loss.
| Federal Law No. 5 of 1985 (Civil Transactions Law): elements of contractual and tortious liability, as applied by the Court Decided under this law; it has been replaced by Civil Transactions Law 2025. |
| Federal Law No. 20 of 2016 on pledges of movable property as security for debts (referred to by the appeal court) |
“المدير الشريك فى الشركة ذات المسئولية المحدودة لا يُسأل فى ماله عن ديونها ما لم يرتكب خطأ”Short quotation from the judgment as published by the court. The full judgment is on the court’s official service.
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