April 07, 2016
Article 215 and 217 of the Civil Procedures Law of the UAE states that a person does not have the right to enter into an arbitration agreement if the signatory does not have the authority to bind the person it is representing through a private power of attorney to sign such a contract to arbitrate.
However, if a party signed on an arbitration agreement without having authorization to do so and the principal who was represented by such signing party later accepted such signature or action taken by the representative, even if at a later date, then such signature shall be valid and the contract shall be considered as effective.
Facts of the case
The claimant in the arbitration proceedings made a request for the appointment of arbitrators to resolve a dispute regarding a partnership agreement between the parties since one of the parties requested to terminate the contract and settle the financial liabilities. As it was agreed by the parties in the partnership agreement that both parties shall resolve any dispute through arbitration proceedings done by 3 arbitrators, the claimant proceeded to appoint his arbitrator and requested the other party to appoint its arbitrator. However, the other party failed/refused to respond to the request put forward by the claimant. As a result the claimant approached the Court to request the appointment of the remaining arbitrators.
The Court of First Instance accordingly appointed a second arbitrator to jointly appoint a third arbitrator along with the arbitrator appointed by the claimant. The respondent in the case at this instant did not approve the court's decision and appealed the judgment of the CFI.
The Court of Appeal dismissed the appeal at which stage the respondent applied to the Court of Cassation to set aside the judgment of the lower courts on the following grounds:
Grounds for Appeal, Objectioner's Point of View
The objectioner contended that the Arbitration clause contained in the partnership agreement is invalid because the person who signed the contract was not duly authorized by him to sign such a contract and to agree to arbitrate.
The Court observed that although there was no express authorization from the respondent to its representative to accept the arbitration clause in the partnership agreement, the respondent shall be deemed to have accepted the arbitration clause when he later acknowledged the existence of the partnership agreement and accepted its contents. Therefore the Court held that the respondent had provided its implied acceptance to the partnership agreement and its terms including the arbitration clause.
To reach this conclusion the Court relied on a correspondence which was sent from the respondent after the signing of the partnership agreement and before the case was filed. In this correspondence the respondent is quoted as saying, "the contract signed between you (the claimant) and ABC on our behalf...". The Court in its full discretionary power concluded that the usage of such language in the correspondence sent by the respondent is clearly indicating acceptance of the partnership agreement, its validity and its contents in full by the respondent.
Moreover, the Court of Cassation, while passing its judgment also took into account a mistake which was committed by the respondent. The respondent had, in one of its previous submissions, claimed that the issue was referred to arbitration pre-maturely without following the conditions to arbitration contained in the partnership agreement. This submission made by the respondent was seriously considered by the Court to consolidate its decision that the respondent had in fact accepted the partnership agreement and thereby had agreed to be bound by its terms including the arbitration clause.
In this case the Court of Cassation upheld the decisions of the lower courts and passed judgment that the communications exchanged by a party after the signing of a contract shall be sufficient to determine the parties' intent and to conclude whether an implied consent was given to an agreement which was signed by person who was not authorized to do so.