Sharjah Court of Appeal Upholds the Sanctity of Share Transfer Agreements in the UAE

11 min 29 sec

Written by

Adnan Al Erqsousi

Senior Associate

a.alerqsousi@tamimi.com View LinkedIn Profile

A party cannot simply walk away from a valid, binding contract because the bargain later looks unfavourable. Under the UAE Civil Code, most recently codified under Federal Decree-Law No. 25 of 2025 on Civil Transactions (which replaced the former Federal Law No. 5 of 1985), a contract that is validly formed may not be revoked, modified, or rescinded except by mutual consent of the parties, by order of the court, or by operation of law. This is not merely a background principle: it sets the evidentiary bar a disgruntled party must clear before a court will even consider unwinding a deal. Where a party alleges that he was induced to contract by deception (taghreer), or that the price was grossly unfair (ghubn fahish), the law does not allow the allegation to stand on its own. Deception must be affirmatively proven — specific fraudulent conduct, verbal or physical, by the other contracting party that actually caused the complaining party to consent to terms he would not otherwise have accepted. And unfairness in value, however stark, is legally irrelevant as a ground for avoidance unless it is accompanied by proof of that deception. Absent both elements together, there is no basis in law to annul, rescind, or modify the contract on grounds of fraud or unfairness.

The Sharjah courts’ handling of Case No. 5250 of 2025 (Court of First Instance judgment of 10 December 2025), Case No. 73 of 2026 (Court of Appeal, judgment of 26 February 2026) and Case No. 129 of 2026 (Court of Cassation, order of 21 September 2026) illustrates exactly how this evidentiary standard operates in practice. A buyer of shares in a Sharjah-incorporated company, having completed the purchase at a price of USD 3,000,000, sought to annul the transaction on the combined grounds of deception and gross unfairness. At every tier, the courts rejected the claim — not because contracts are sacrosanct in the abstract, but because the buyer could not point to a single act of deception by the seller, and because unfairness in price, standing alone, does not open the door to annulment.

This article examines what the Sharjah courts required the buyer to prove before his allegations of fraud and unfairness could even be entertained, and why the absence of proven deception was fatal to every one of his claims — a point of direct relevance to practitioners advising on share transfers, joint ventures, and commercial transactions in the UAE.

Background

A dispute arose between the Appellant, a Pakistani national, and the Respondent, a Swedish national. Both were shareholders in a single person company incorporated in the Emirate of Sharjah with a registered capital of AED 20,000 divided into 20 shares of AED 1,000 each. The Appellant held 11 shares and served as the company manager, while the Respondent held the remaining 9 shares.

On 10 December 2024, the Respondent offered to sell his entire 9-share stake in the company to the Appellant for USD 3,000,000. By the Appellant’s own account, he accepted this offer without any negotiation of the price, attributing his acquiescence to trust in the Respondent and his own youth.

The transaction was subsequently formalised through a series of steps: supplementary agreement (3 February 2025); notarised debt acknowledgment (6 February 2025) and share transfer.

Following the completion of the transfer, several of the Appellant’s cheques were dishonoured. The Respondent initiated cheque execution proceedings. Notably, the Appellant was imprisoned in connection with these execution proceedings and, upon appearing before the execution judge on 20 August 2025, agreed to pay AED 600,000 as a first instalment and requested permission to discharge the balance in further instalments. The Appellant commenced proceedings before the Sharjah Court of First Instance under Case No. 5250 of 2025, advancing a multi-layered set of claims.

Court of First Instance Judgment

Before the Court of First Instance, the Appellant sought the nullification of the sale agreement dated 10 December 2024 and its supplement dated 3 February 2025, together with the cancellation of all associated cheques and the notarised debt acknowledgement, on the combined grounds of deception (taghreer) and gross unfairness or lesion (ghubn fahish) — never on gross unfairness alone. In the alternative, the Appellant sought rescission of the agreements and the restoration of both parties to their pre-contractual positions. As a further alternative, he requested the court to reduce the sale price on the basis of an expert valuation of the shares. Finally, by way of urgent relief, the Appellant sought the suspension of all pending cheque execution proceedings.

On 10 December 2025, the Sharjah Court of First Instance rejected the Appellant’s claims in their entirety because he could not identify any deceptive act by the Respondent — the indispensable element his claim required. The court found that the Appellant had entered into the transaction freely and with full legal capacity, being twenty-five years of age at the time and suffering from no proven incapacity. The court placed significant weight on the Appellant’s appearance before the Notary Public, which it regarded as confirmation of his free will and informed consent. Critically, the court observed that, as the company’s managing director, the Appellant was presumed to possess full knowledge of the company’s financial position, assets, and profitability — a presumption that directly answered his claim that he had been deceived about the value of what he was buying. The court further noted that the Appellant’s own subsequent conduct — including his execution of the supplementary agreement, his attendance at the Hamriyah Free Zone to complete the share transfer, his issuance of seven cheques, and his appearance before the execution judge where he offered to pay AED 600,000 as a first instalment and requested to pay the balance in instalments — was inconsistent with a party who believed he had been deceived, and instead confirmed free and voluntary consent.

In reaching its decision, the Court of First Instance applied Article 185 of the Civil Transactions Law, which defines “taghreer” (deception) as the use of fraudulent verbal or physical means by one contracting party to induce the other to give a consent he would not otherwise have given. The court treated this as the threshold question: without proof of such deceptive conduct by the Respondent, the Appellant’s claim could not succeed, regardless of how the price compared to the shares’ underlying value. The court also invoked Article 268, which provides that a valid, binding contract may not be revoked or modified except by mutual consent, judicial order, or operation of law — reinforcing that a party cannot exit a valid contract simply because he regrets the bargain. Applying these provisions, the court concluded that the Appellant had failed to adduce any evidence of fraudulent means employed by the Respondent, and that this failure alone was dispositive of the entire claim, including the unfairness allegation.

Court of Appeal Findings

Dissatisfied with the outcome at first instance, the Appellant filed an appeal before the Sharjah Court of Appeal.

The Court of Appeal’s decision is significant above all for what it confirms about the evidentiary threshold applicable to claims of deception (taghreer) under the UAE Civil Code. Under both the former Federal Law No. 5 of 1985 and the current Federal Decree-Law No. 50 of 2022 on Civil Transactions, taghreer requires proof that one party employed actual fraudulent or deceptive means — whether verbal or physical — that induced the other party to consent to a transaction he would not otherwise have entered into. A mere assertion that the bargain was disadvantageous, or that the price paid was disproportionate to the value received, is insufficient on its own and can never substitute for that proof. The complaining party must point to specific deceptive conduct by the other party; it is not enough to show that he was negligent or imprudent in assessing the merits of the deal, or that the deal simply turned out badly for him.

The judgment is equally important for what it says about gross unfairness or lesion (ghubn fahish): it is never a standalone ground for contractual avoidance under UAE law. The Civil Code treats gross unfairness as relevant only when it is accompanied by proven deception on the part of the other contracting party. Standing alone, the fact that one party paid significantly more than the market value of what he received does not suffice to annul the contract, modify its price, or rescind it. But differently, a party cannot allege unfairness in the value of a bargain and expect a court to act on it unless he also proves that the other party deceived him into accepting those terms; in the absence of both elements together, there is simply no legal basis for the allegation. This is not a matter of contractual sanctity for its own sake — it reflects a deliberate evidentiary allocation that prevents a party from using bare price disparity as a backdoor route to escape obligations he freely accepted.

Further, the Court of Appeal’s decision highlights how a party’s post-contractual conduct can itself disprove an allegation of deception. The Appellant’s actions after executing the share purchase agreement — signing a supplementary agreement, completing the share transfer at the Hamriyah Free Zone, issuing seven cheques, executing a notarised debt acknowledgement, and appearing before the execution judge to negotiate a payment plan — were all treated as incompatible with a claim that his consent had been procured by deception. A party who performs his obligations under a contract over an extended period, without protest or reservation, cannot credibly claim afterwards that his initial consent was obtained through fraud or deception practised on him by the other party. Had the Appellant genuinely been deceived, his own conduct would have been expected to reflect that discovery far earlier and far differently.

The decision also addresses the Appellant’s complaint that the first instance court erred in refusing to appoint an expert to assess the fair value of the shares. The Court of Appeal implicitly endorsed the lower court’s exercise of discretion in this regard, finding that the refusal did not constitute a violation of the right to defence. Because the Appellant had not established the deception that was a precondition to any relief, a valuation of the shares could not, by itself, have changed the outcome: proving that the price was unfair is of no legal consequence without proof of deception. Under UAE procedural law, the appointment of an expert is a matter within the trial court’s discretion and is not an automatic entitlement of the parties, particularly where the claim lacks the factual foundation the law requires before expert evidence on value becomes relevant.

Finally, it is noteworthy that the Appellant’s position as managing director of the company proved decisive to the deception analysis specifically. As managing director, the Appellant was presumed to have had intimate knowledge of the company’s financial condition, its assets, its liabilities, and its profitability. This presumption did not merely support a general finding of free consent — it directly defeated the claim that the Respondent had deceived him about the value of the shares, since a party cannot credibly allege that he was misled about facts that fell within his own professional knowledge. The Court of Appeal ordered the Appellant to bear the costs of the proceedings, including AED 1,000 in attorney’s fees payable to the Respondent. The Appellant subsequently sought to challenge this outcome before the Sharjah Court of Cassation (Case No. 129 of 2026). By order of 21 September 2026, the Court of Cassation declared the further appeal inadmissible on procedural grounds, for failure to pay the security deposit required under Article 179 of the Civil Procedure Law within the prescribed period, leaving the Court of Appeal’s rejection of the deception and unfairness claims as the final word on the merits.

Conclusion

Across three tiers of the Sharjah judiciary — the Court of First Instance in Case No. 5250 of 2025, the Court of Appeal in Case No. 73 of 2026, and the Court of Cassation in Case No. 129 of 2026 — the Appellant’s claims of deception (taghreer) and gross unfairness (ghubn fahish) were rejected for the same underlying reason: he could not point to any act of deception by the Respondent, and unfairness in price, without that proof, is not a ground for relief. The judgment demonstrates that, under both the former Federal Law No. 5 of 1985 and the current Federal Decree-Law No. 25 of 2025 on Civil Transactions, the burden of proving deception rests squarely on the party alleging it, and that burden is not discharged merely by showing that the deal turned out to be a poor one, however stark the price disparity.

The case also serves as a cautionary tale for commercial actors in the UAE who later wish to challenge a bargain they have come to regret. Allegations of unfairness in price will go nowhere unless they are accompanied by concrete evidence that the other contracting party actively deceived them — specific fraudulent conduct, not mere hindsight dissatisfaction with the outcome. This is particularly so for company insiders such as managing directors, who are presumed to possess the knowledge needed to evaluate the subject matter of their own transactions, making a deception claim about value especially difficult to sustain. Youth, trust, or inexperience may explain why a party agreed to unfavourable terms, but they do not, on their own, establish that the other party deceived him, and without that proof the contract stands.

In the broader context of UAE commercial law, the judgment in Case No. 73 of 2026 — now final following the Court of Cassation’s rejection of the further appeal in Case No. 129 of 2026 — confirms that a party cannot exit a valid contract on the strength of unfairness allegations alone. The transition from the former Federal Law No. 5 of 1985 to the new Federal Decree-Law No. 25 of 2025 on Civil Transactions has not altered this evidentiary allocation: deception must be proven by the party alleging it, and gross unfairness in value is legally relevant only when deception by the other party is also established. In the absence of both elements together, there is no ground in UAE law to annul, rescind, or modify a validly concluded contract.