A recent judgment of the Abu Dhabi Court of Cassation provides important guidance on how UAE courts may approach investment arrangements involving multiple companies, overlapping management roles and limited formal documentation.
The decision confirms that the absence of a single written investment agreement is not necessarily decisive. Courts may examine the complete course of dealing — including transfers of funds, payment of investment returns, correspondence, guarantees and the roles performed by the various participants — to determine the true nature of the investment relationship and the parties responsible for its performance.
The judgment also draws an important distinction between corporate responsibility and personal liability. Holding a management or financial position does not, by itself, make an individual personally liable for corporate obligations. Personal liability requires a separate legal and evidential basis.
Background
The dispute arose from a substantial investment made through a group of related businesses for investment in gold.
There was no single written agreement setting out the entire investment relationship. The evidence instead included the original transfer of the investment funds, a lengthy history of periodic investment distributions, correspondence between the parties and a subsequent written commitment concerning repayment of the investment.
After distributions ceased, the investor sought recovery of the invested capital, further returns and compensation.
The Court of First Instance found that the documentary record and the parties’ course of dealing established a genuine investment relationship despite the absence of a comprehensive written contract. It ordered several corporate and individual defendants jointly to return the invested capital, together with delay interest and supplementary compensation.
A series of appeals followed. The Court of Appeal removed one finance officer from joint liability but otherwise substantially upheld the judgment.
The matter ultimately reached the Abu Dhabi Court of Cassation.
An investment relationship may be proved by conduct
One of the central issues was whether an investment relationship could be established where the documentation did not contain a single agreement comprehensively defining the rights and obligations of all participants.
The Court upheld the lower courts’ approach.
The evidence showed that the investor had transferred the investment funds into an account maintained by one of the relevant financial institutions, that the funds had been treated as an investment in gold, and that investment distributions had been made over a number of years by entities connected with the arrangement.
The Court considered the commercial reality of those dealings rather than requiring the relationship to be evidenced by one particular contractual document.
This is an important point for commercial disputes generally. Contractual relationships may be established through the parties’ conduct and the documentary record as a whole, particularly where the evidence demonstrates payment, performance and acceptance over an extended period.
Substance prevailed over corporate and contractual labels
The Court also rejected arguments that responsibility rested exclusively with a separate investment fund.
It upheld the conclusion that the relevant investment relationship extended beyond the fund itself because the evidence showed that other entities had received the investor’s funds, participated in the investment arrangement and made distributions to the investor.
The Court therefore looked beyond the formal description of each entity and examined what each participant had actually done.
This does not mean that companies within the same commercial group automatically become jointly liable for each other’s obligations. Rather, the judgment demonstrates that separate corporate personality will not prevent a court from determining that several entities were themselves participants in the same underlying transaction where the evidence supports that conclusion.
Recovery of the investment and implied rescission
The Court also reaffirmed an important contractual principle.
Where one party seeks repayment of sums paid under a reciprocal contract because the counterparty failed to perform its obligations, the claim for repayment may necessarily involve a request to bring the contractual relationship to an end and restore the parties to their pre-contractual position.
The Court treated the investor’s claim for return of the invested capital as carrying that consequence.
Previous investment distributions did not prevent recovery of the principal. The Court distinguished between distributions received during earlier periods of performance and the capital that remained due after the defendants ceased performing the investment obligations.
Personal liability requires a separate basis
A particularly useful aspect of the judgment is the distinction drawn between different individuals involved in the businesses.
The Court of Appeal had removed a finance officer from joint liability. The evidence showed that he acted in his professional capacity, was subject to the instructions of management and had not personally guaranteed repayment or assumed an independent obligation towards the investor.
The Court of Cassation upheld that conclusion.
By contrast, liability remained against another individual whose position was materially different. The courts relied on his management role, the extent of his authority, the documentary record, his involvement in a written repayment commitment, and findings concerning the management of the investment funds.
The Court referred to the statutory principles under the UAE Commercial Companies Law governing liability of company managers for fraud, abuse of authority, breach of law and gross management fault.
The distinction is significant. Corporate office alone does not create personal liability. The court must identify conduct or an undertaking capable of giving rise to responsibility in the individual’s own right.
Force majeure must be proved
The defendants also relied on political and operational difficulties affecting the underlying gold investment.
The Court rejected the force majeure argument on the evidence.
It reaffirmed that an event relied upon as force majeure must satisfy the legal requirements for relief from liability and must be shown to have caused the relevant non-performance. General references to unrest, temporary disruption or governmental measures will not be sufficient without evidence establishing their nature, effect and causal connection with the failure to perform.
The judgment therefore illustrates the evidential burden facing a party seeking to rely on external events as an excuse for contractual non-performance.
Delay interest and supplementary compensation
The courts awarded delay interest on the unpaid capital and also upheld a separate award of supplementary compensation.
The Court of Cassation confirmed that these remedies address different forms of loss.
Delay interest compensates for the debtor’s failure to pay a determined monetary obligation when due. Additional compensation may be available where the claimant establishes loss exceeding the damage compensated by delay interest and the statutory requirements for such an award are satisfied, including fraud or gross fault.
On the facts, the Court upheld the additional compensation awarded for the further material and moral damage established in the proceedings.
Cassation deadlines remain strict
The judgment also contains an important procedural reminder.
One of the cassation appeals was filed one day after expiry of the statutory 30-day period. The Court held that the right to appeal had therefore lapsed.
The result was unaffected by the shortness of the delay. Compliance with statutory appeal periods is a matter of public order and may be considered by the Court of its own motion.
Practical Significance
The judgment provides several practical lessons for investors, financial institutions, investment managers and corporate groups.
Investment structures should be comprehensively documented. The identity of the contracting parties, the recipient and legal holder of investment funds, the investment vehicle, the responsibility for distributions and the mechanism for return or liquidation of capital should be clearly recorded.
Businesses operating through several related entities should also ensure that payments, correspondence and operational responsibilities remain consistent with the intended corporate structure. Where several companies receive funds, make distributions or communicate directly with an investor, those facts may become relevant when a court determines who participated in the underlying transaction.
For directors and senior executives, the decision also reinforces the importance of maintaining a clear distinction between acting for the company and undertaking obligations personally. A management title alone does not create personal liability, but personal guarantees, independent representations or conduct amounting to fraud, abuse of authority or gross fault may materially change the position.
Finally, parties intending to rely on force majeure should preserve contemporaneous evidence demonstrating the event, its effect on performance and the causal connection between the event and the inability to perform.
Conclusion
The Abu Dhabi Court of Cassation’s judgment demonstrates the UAE courts’ willingness to examine the commercial substance of an investment arrangement rather than relying exclusively on formal labels or the absence of a single written agreement.
The decision also preserves an equally important principle: liability must be established separately against each party. Corporate involvement does not automatically create personal liability for directors, officers or employees.
For participants in complex investment structures, the judgment reinforces the importance of contractual clarity, documentary consistency, clearly allocated responsibilities and disciplined corporate governance.
DISCLAIMER
This publication is provided for general information only. It does not constitute legal advice and should not be relied upon as such. The outcome of any matter will depend on its particular facts, documents and applicable law. Specific legal advice should be obtained before taking or refraining from taking any action.