Agreeing to Arbitrate in the UAE: "Apparent Authority" and Article 25 of the UAE Commercial Companies law

It has long been believed that an arbitration clause in a contract could not be enforced against a UAE company unless the person signing the contract had specific authority to bind the company to arbitration, and not simply authority to enter into the contract. In Ginette PJSC and (1) Geary Middle East FZE and (2) Geary Limited, however, the DIFC Courts held that an arbitral award should be recognised and enforced notwithstanding that the individual who signed the arbitration agreement (which was contained in a settlement agreement) on behalf of an Award Debtor did not have express authority to bind the Company to arbitration. 

The Award Debtor, Ginette PJSC (the “Company”), sought to set aside the DIFC-LCIA arbitral award on the basis that Article 103 of Federal Law No. 8 of 1984 (the “Old UAE Companies Law”) provided that a private joint stock company could only be authorised to enter into an arbitration agreement if the power had been granted to the individual in the company’s articles of association or if authority was given by way of a shareholder resolution or a power of attorney. Although the Company’s articles of association granted its board of directors the authority to enter into arbitration agreements, the Executive Managing Director, who signed the settlement agreement on behalf of the Company was not, it claimed, a member of the board. The Company argued that the DIFC Court should set aside the award under Article 41(2)(a)(i) of DIFC Law No. 1 of 2008 (the “DIFC Arbitration Law”) because the arbitration agreement was not valid under the law. 

The Award Creditors, Geary Middle East FZE and Geary Limited (the “Contractors”) argued that the Company had not been able to provide any evidence that the Executive Managing Director was not an authorised signatory and successfully relied on the doctrine of apparent authority under Articles 130 and 131 of DIFC Law No. 6 of 2004 (the “DIFC Contract Law”). The judge also held that, as a result of Article 25 of Federal Law No. 2 of 2015 (the “UAE Commercial Companies Law”), which provides protection to a bona fide party in its relations with a company, the result of the dispute would have been the same even if UAE law (rather than DIFC law) had been applied.

1. The DIFC Courts’ decision

The DIFC Courts held that there was a distinction between there being no evidence that the Executive Managing Director had express authority to sign arbitration agreements and there being no actual evidence that the same individual was not authorised to sign arbitration agreements. 

Notwithstanding the absence of any express authority, the Executive Managing Director was found to have held himself out as having the requisite authority to sign the settlement agreement on behalf of the Company and therefore was deemed to have “apparent authority” pursuant to Articles 130 and 131 of the DIFC Contract Law. 

Articles 130 and 131 of the DIFC Contract Law provide: 

“130. Apparent authority is the power to affect the legal relations of another person by transactions with third persons, professedly as agent for the other, arising from and in accordance with the other’s conduct towards such third persons.

131. Except for the conduct of transactions required by statute to be authorised in a particular way,
apparent authority to do an act is created as to a third person by written or spoken words or any other
conduct of the principal which, reasonably interpreted, causes the third person to believe that the
principal consents to have the act done on his behalf by the person purporting to act for him”
(emphasis added).

The DIFC Courts held that the Company’s conduct had caused the Contractors to believe that it had consented to the individual signing the settlement agreement (and therefore the arbitration agreement) on its behalf.

2. The DIFC Courts consideration of UAE law position

Despite having jurisdiction over the dispute and acknowledging that DIFC law should be applied, interestingly, the
DIFC Courts went on to consider the position under UAE law and concluded that the outcome of the case would
have been the same even if UAE law had been applied. The judge drew parallels with Dubai Court of Cassation
Case No. 547/2014 in which it was held that there would be a presumption that a signatory, who had signed the
contract in the name of and on behalf of the company, was authorised if the company’s name was listed in the preamble of, or introduction to, the contract. The use of a company seal was also considered to be of further evidence that the signatory acted on behalf of the company, which meant that the rights and obligations of the contract would be attributable to the company.

The DIFC Courts also considered the application of Article 25 of the UAE Commercial Companies Law, which aims to grant protection to a bona fide party in its dealings with a company. Under Article 25 of the UAE Commercial Companies Law, a company may not claim lack of liability towards another party on the grounds that the managing director was not duly appointed (whether in accordance with the law or the company’s articles of association), provided that the acts of such director are within the usual scope of responsibility of individuals holding the same position in companies conducting the same type of activities. The exception to this principle is where a party knows or could have known based on its relationship with the company that there was a lack of authority. It was considered that there was no evidence that the Contractors knew or could have known that the signatory did not have authority to bind the Company to arbitration.

3. The significance of the judgment

The judgment suggests that if an individual holds himself or herself out as being authorised to sign an arbitration agreement on behalf of a company, and this results in a counterparty believing that the signatory has been given such authority, the company may be bound. 

Although this is not the first time that the doctrine of “apparent authority” has been considered by the DIFC Courts, it has never before been considered in this detail or within the context of arbitration. 

While the DIFC Court’s judgment is not binding on the UAE Courts, it provides some indication that Article 25 of the UAE Commercial Companies Law may provide recourse to a party where its counterparty attempts to deny the validity of an arbitration agreement on the basis of lack of authority. However, the judgment does not comment on the relationship between Article 25 of the UAE Commercial Companies Law and Articles 58(2) and 203(4) of Federal Law No. 11 of 1992 (the “UAE Civil Procedure Code”), which require specific authority to be given to the signatory of an arbitration agreement, and it is unclear how these provisions can be reconciled. 

In this case, the individual signed the arbitration agreement as the Executive Managing Director of the Company. Much of Article 25 of the UAE Commercial Companies Law centres on what the norm is for an individual in the specific position and it is unclear how other roles may be regarded by the courts. 

The recommended position therefore remains to ensure that specific authority has been granted to a person seeking to bind a company to arbitration in order to comply with Articles 58(2) and 203(4) of the UAE Civil Procedure Code. However, it will be interesting to see whether Article 25 of the UAE Commercial Companies Law is used by the UAE courts to recognise and enforce arbitration agreements in circumstances where the signatory is not appropriately authorised.

For further information, please contact Caroline Kehoe, Partner or Janine Mallis, Associate.