Federal Supreme Court, Commercial Appeals Nos. 666, 676 and 682 of 2020, judgment of 29 December 2020
Under Articles 313 to 316 of the Commercial Companies Law then applicable (Federal Law No. 8 of 1984), a company incorporated abroad could carry on business in the UAE, or open an office or branch, only after obtaining a licence from the Ministry with the approval of the competent emirate authority and entry in the commercial register; foreign companies licensed in free zones were excepted. If it operated before completing those steps, it was not recognised as a legal person separate from its members for those dealings, and the persons who carried out the acts on its behalf were personally and jointly liable for them. The exemption for oil, gas, electricity and desalination companies covers companies incorporated in the UAE, not unlicensed foreign ones.
A UAE company built an ammonia plant in Hamriyah Free Zone, Sharjah, financed by bank loans, under a gas supply agreement of 9 July 2005 with a foreign company that was wholly owned by another foreign company, the owner of the gas, which had negotiated the deal. The gas was never supplied. The buyer sued both foreign companies and six individuals who, it said, had represented them and negotiated and signed the contract, claiming billions of dirhams in lost profits and other losses and arguing that, as neither company was licensed in the UAE, the individuals were personally and jointly liable under Article 316 of the 1984 law. Its free-zone affiliate, set up to perform the contract and licensed to run the plant, asked to join the case in support of the buyer. The Sharjah courts rescinded the agreement and ordered the supplier to pay damages, raised on appeal to about AED 1.06 billion, but held the claim inadmissible against the parent company and the six individuals, reasoning that the supplier was an unlicensed foreign company outside the Companies Law and, being in the gas sector, exempt from it; they also refused the affiliate's intervention. The Federal Supreme Court quashed that judgment on the buyer's appeal. Articles 313 to 316 barred foreign companies, whatever their activity, from operating in the UAE without a licence and commercial registration and made those who carried on the business personally and jointly liable; the exemption in Article 2(3) concerns energy and water companies incorporated in the UAE. The Court of Appeal should have examined whether the two foreign companies had operated in the UAE before obtaining a licence and whether the individuals had carried on their business, and so whether they were liable. It had also erred on the intervention: under Article 95 of the Civil Procedure Law an affiliate with an interest that claims no right of its own may intervene in support of a party. The supplier's two appeals, on the basis of the damages and the expert report, led to the same result, and the case was remitted.
Foreign groups that do business in the UAE through people on the ground without a licence or registration expose those individuals to personal, joint liability for the group's dealings. The rule continues in Article 336(2) of the current Commercial Companies Law (Federal Decree-Law No. 32 of 2021), which makes the persons conducting operations before the formalities are completed jointly and severally liable; the Technical Office's note on the judgment records the replacement of Articles 313 to 316 by Articles 335 to 337. Free-zone licensees remain outside the licensing requirement.
| Articles 2(3), 313, 314, 315 and 316 of Federal Law No. 8 of 1984 on Commercial Companies (printed in places as No. 18 of 1984); replaced by Articles 335-337 of Federal Decree-Law No. 32 of 2021, per the Technical Office's note Decided under this law; it has been replaced by Commercial Companies Law. |
| Article 95 of Federal Law No. 11 of 1992 (Civil Procedure Law) Decided under this law; it has been replaced by Civil Procedure Code. |
“وكل ما يتم من أعمال أو تصرفات لحساب هذه الشركة الأجنبية قبل تمام تلك الإجراءات يسأل عنها وبالتضامن الأشخاص الذين أجروا العمل أو التصرف وينصرف أثر هذا التصرف إلى ذمتهم الشخصية”Short quotation from the judgment as published by the court. The full judgment is on the court’s official service.
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