This important case was mentioned in a previous Law Update article (July/August 2012 issue) which provided a unique position on the issue of side (nominee) agreements.
In a dispute between a UAE investor and a foreign investor, the parties disputed over whether a side agreement or the official Memorandum of Association (MOA) governed their relationship. The UAE investor insisted that the official MOA is the valid document whereas the foreign investor argued that the side agreement states that the foreign investor has a greater percentage in shares and that the side agreement is the valid/ applicable agreement to govern the relationship between the two parties.
As outlined in the previous article, the matter had been decided in favour of the UAE investor at the first instance and appeal levels, however the foreign investor appealed further to the Supreme Court.
In its judgment, the Supreme Court held that the side agreement can be established by any means of evidence and allowed the parties to hear testimony of witnesses.
When the Court of Appeal heard witnesses brought in by the foreign investor and rejected the claim, the parties appealed again to the Supreme Court. The Supreme Court considered the evidence and decided that there was enough evidence to prove the existence of the side agreement and subsequently directed the Court of Appeal to look into this. Upon review of the evidence, the Court of Appeal issued its judgment confirming the existence of the side agreement.
The UAE investor appealed for the third time to the Supreme Court contesting the validity of the side agreement and it is this appeal which is the subject matter of this update.
LATEST SUPREME COURT JUDGMENT
The Supreme Court ruled on this matter for the third time and in this latest judgment, the Supreme Court decided very differently to the last decision and declared that the offical MOA as registered with the authorities is the valid agreement that governs the relationship between the parties and not the side agreement.
The Supreme Court relied on Articles 8, 10 and 11 of the Commercial Companies Law (CCL) and held that it is imperative for all agreements relating to commercial companies to be in writing, notarised and registered in the Companies Commercial Register so as to comply with the requirements of the CCL and that all amendments to the company documents (i.e. Memorandum of Association) must also be duly notarised and registered in the same manner as the MOA.
In this case, the Supreme Court concluded that as the side agreement was not notarised or registered in the Companies Commmercial Register, it is therefore null and void.
A dispute arose in relation to a limited liability company in Abu Dhabi between a UAE shareholder and a foreign shareholder over the ownership of the actual shareholding in a limited liability company. Legal action was commenced by the UAE shareholder requesting confirmation of its entitlement to 51% of the shares, assets and profits of the company according to the official memorandum of association (MOA) of the company as officially registered and declared with the competent authorities. The foreign shareholder, however, claimed that it owned more than it’s registered shares (as reflected in the side agreement).
COMMENTS ON THE JUDGMENT