Al Suwaidi & Company has recently succeeded in a judgment of commercial dispute before The Dubai Court of Appeal, which has become final and has not been challenged and it is now under implementation. The case relates to a cancellation of a contract for sale of a boat (Yacht) and to return the situation to what it was before the contract with compensation, we have filed the case on behalf of our client against a free zone company affiliated to Dubai Multi Commodities Center (DMCC), one of the shareholders of the company and company director.

The shareholder-the second respondent-has filed a claim of lack of capacity in confrontation as a shareholder shall not be questioned to the company’s limited liability obligations and is not liable to fulfill its obligations of his own funds, in accordance to the principle of separation of the two liabilities.

The Court of first instance, supported by the Court of Appeal, rejected this claim, according to that it is clear from the first respondent company’s trade license it is a free zone company affiliated with the DMCC and that the provision in Article 12 of Regulation No. 4 of 2002 on the Organizing Operations at the Dubai Commodities and Metals Centre which has been changed to Dubai Multi Commodities Center (DMCC) by virtue of Resolution No. (2) of 2006 states that each limited liability company incorporated in accordance with Article 10 of this Law shall mention in all its activities, contracts, advertisements, invoices, correspondence and publications along with its name the following:

  1. It was incorporated under this system and it is a limited liability.
  2. It’s a company in the center.

In the event of omission of what has been mentioned in Clause A and/ or B of this Article, the owner or owners of the company shall be held liable in all their funds for the company’s obligations.

Article 13 of the same law stipulates that the Dubai Courts shall apply the laws pertaining to the Center when considering any dispute related to the acts carried out therein.

When the court found that the invoice issued by the first respondent company and the correspondence issued by it is free from any mention of the data referred to in Article 12 above, the court has decided to oblige the second respondent along with the first respondent in the amount of the indebtedness and has rejected the claim of lack of capacity.

This result is a good example of protecting investors’ funds from being wasted by people who always manipulate under the guise of limiting liability by setting up limited liability companies without complying with the requirements of the law.