The SAT & Co. Disputes team, led by partners Abubaker Karmustaji and Ahmed Yehia Hamdalla, has successfully defended its clients — the shareholders of a leading company in the pure gold trading sector — in a high-stakes commercial dispute, securing a favourable judgment from the Dubai Court of Appeal. The court dismissed a claim seeking over AED 55 million against the defendants, marking the end of a lengthy and complex litigation process.
The claim was brought against the company based on 11 investment contracts improperly executed by a former manager acting in bad faith. The investors demanded repayment from the company and its shareholders. However, the court found the contracts invalid because they were made in breach of the law and the company’s Memorandum of Association.
In a detailed and precedent-setting decision, the Dubai Court of Appeal reaffirmed several core legal principles governing Limited Liability Companies (LLCs) under UAE law. The judgment provides crucial guidance for directors, shareholders, and stakeholders involved in corporate governance and contractual obligations.
Key Highlights of the Court’s Ruling:
Authority of LLC Managers:
The Court clarified that the authority to manage an LLC lies solely with its appointed manager. The manager’s actions are binding on the company only when conducted within the limits of the company’s objectives and accompanied by a proper statement of his capacity. Any action outside this scope renders the company non-liable towards third parties.
Restriction on Certain Activities:
The judgment reaffirmed that LLCs, even when engaged in trade, are not permitted to conduct insurance, banking, or third-party fund investment activities. Any agreements purporting to invest funds on behalf of others are deemed to have no legal effect, as they contravene both the law and the company’s articles of association.
Director’s Personal Liability:
The Court concluded that the agreements in question were signed by the appellant in his capacity as a company director, but in doing so, he exceeded his lawful authority and violated the company’s objectives. As a result, the company is not held liable for the refund of the funds involved; instead, personal liability falls solely on the director.
This judgment serves as a clear warning to directors and managers of LLCs regarding the limits of their authority. Contracts entered into in contravention of a company’s constitutional documents or beyond a director’s scope of authority will not bind the company—and may leave the individual director personally liable.
SAT & Co’s litigation team is proud to have successfully navigated this complex dispute and to have contributed to the strengthening of jurisprudence in the field of corporate governance and director accountability.
If you have any questions or need further advice on related matters, please feel free to contact Ahmed Yehia: yehia@sat-law.com.
Written by Ahmed Yehia.
1 July , 2025
