JACOB ENGINEERING GROUP INC , RECLAIMING MOTION TED JACOB ENGINEERING GROUP INC AGAINST (FIRST) ALEXANDER PETER MORRISON AND (SECOND) DECLAN THOMPSON [2019] ScotCS CSIH

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	Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> JACOB ENGINEERING GROUP INC , RECLAIMING MOTION TED JACOB ENGINEERING GROUP INC AGAINST (FIRST) ALEXANDER PETER MORRISON AND (SECOND) DECLAN THOMPSON [2019] ScotCS CSIH_22 (05 April 2019) URL: http://www.bailii.org/scot/cases/ScotCS/2019/2019_CSIH_22.html Cite as: [2019] CSIH 22, 2019 SC 487, [2019] ScotCS CSIH_22, 2019 GWD 13-187, 2020 SLT 14

Defenders and Reclaimers: Sandison QC, O’Brien; Gilson Gray LLP

[1] The pursuer is a company incorporated in California. It carries on business as a

consulting engineering firm, and has its headquarters in Oakland, California. On

20 September 2011 it entered into a Sale and Purchase Agreement with Robert Matthew,

Johnson-Marshall and Partners (generally referred to as “RMJM”), a Scottish partnership.

RMJM had extensive business interests as architects and consulting engineers. In particular,

part of their business consisted of providing architectural and engineering services in Dubai,

in the United Arab Emirates. Under the Sale and Purchase Agreement, the pursuer

purchased RMJM’s engineering business in Dubai. The Sale and Purchase Agreement was

subject to the law of the United Arab Emirates as in force in Dubai.

[2] In order to operate in Dubai, however, a foreign entity required to hold licences

granted by the local authorities. At the time when the Sale and Purchase Agreement was

concluded, the pursuer did not have any such licence. Consequently the Sale and Purchase

Agreement contemplated that RMJM would remain as the contracting party on existing

projects, but that the pursuer would perform the engineering services on those projects until

such time as the necessary licences have been obtained. Because RMJM remained the

contracting party, the Agreement made express provision for sums paid by clients to the

[3] Following the concluding of the Sale and Purchase Agreement, disputes arose

between the pursuer and RMJM as to the allocation between the parties of certain payments

received from clients. Those disputes were resolved through a further agreement between

RMJM and the pursuer, referred to as the Closing Agreement, dated 16 August 2012. Like

the Sale and Purchase Agreement, the Closing Agreement was subject to the law of the

United Arab Emirates as in force in Dubai. The dispute between the parties turns initially

on the interpretation of the Sale and Purchase Agreement and the Closing Agreement and

the application of the provisions of those agreements to the payments received by RMJM

from clients, but for present purposes the critical question is the liability of the defenders to

the pursuer to account for the sums so received. These issues require consideration of the

law of agency and deposit in the UAE and the applicability of certain provisions in the

principal statute of the UAE governing companies and partnerships, the Companies Law

[4] The pursuer contends that RMJM collected substantial sums which were ultimately

due to the pursuer under the contractual arrangements but failed to remit those sums to the

pursuer as required by the foregoing provisions. Instead, it is said, RMJM made use of the

amounts collected for its own purposes, and concealed its activities from the pursuer. In

those circumstances, the pursuer avers that, as a matter of UAE law, when RMJM collected

sums from clients that fell within the foregoing contractual arrangements it acted as an

agent for the pursuer, and that in consequence RMJM held the monies so collected as a

depositary on behalf of the pursuer. When it appropriated those monies for its own

purposes, RMJM became liable to restore the amount so taken to the pursuer.

[5] At the time when the Sale and Purchase Agreement was concluded, the partners of

RMJM were two companies, both incorporated in Cyprus: first, RMJM Middle East Ltd, and

secondly, RMJM Overseas Ltd. The defenders were the directors of each of those

companies. The pursuer avers that as a consequence of those arrangements the defenders

were the natural persons responsible for the wrongful acts of RMJM when it acted in breach

of its obligations as a depositary, once again as a matter of UAE law. Consequently it is

alleged that the defenders are liable to make payment to the pursuer of the sums wrongfully

appropriated by RMJM. The present action has been brought in order to enforce that claim.

The pursuer seeks payment of £7,752,078.32, with interest, which is said to be the amount of

money wrongfully appropriated in breach of RMJM’s obligations as depositary.

[6] The action proceeded to a preliminary proof on the applicable law of Dubai, an

expression which obviously signifies the law of the United Arab Emirates in force in the

Emirate of Dubai. That is the system of law that governed both the original sale of RMJM’s

engineering business in Dubai to the pursuer, in accordance with the Sale and Purchase

Agreement, and the subsequent arrangements concluded between RMJM and the pursuer,

including the Closing Agreement. It is also the system of law that governs the possible

liability of the defenders described in the preceding paragraph, namely that they were the

natural persons who were responsible for RMJM’s breach of its obligations as a depositary

under the contractual arrangements in force between RMJM and the pursuer. The precise

issue at the preliminary proof is not wholly clear from the interlocutors of the commercial

court or the opinion of the commercial judge. It appears, however, that the purpose of the

exercise was to determine the provisions of UAE law that were applicable to the case

disclosed on record by the pursuer’s averments, and in so doing to decide whether on the

proper application of UAE law those averments disclose a relevant case, on the assumption

that the averments on the merits (as against on UAE law) are established by evidence.

[7] At the preliminary proof evidence was led from two expert witnesses on the law in

force in Dubai, Mr Elias Wadih Hanna for the pursuer and Dr Hassan Arab for the

defenders. At the proof Mr Hanna’s status as an expert was challenged by counsel for the

defenders, but that challenge was rejected by the commercial judge, and his decision on this

matter is not now disputed. The commercial judge noted that Mr Hanna was a very

experienced practitioner in the law of the UAE, having practised in Dubai for 42 years. He

also observed that, on seeing and hearing Mr Hanna giving evidence, the fact that he was

eminently qualified to give expert evidence was quite clear. We would add that we have

found Mr Hanna’s opinion of the law, as disclosed in two expert reports and the transcript

of his evidence, to be clear and coherent, in a manner that we discuss subsequently.

[8] Following that proof, the commercial judge issued a lengthy opinion in which he

answered the various questions about UAE law that had been raised by the parties. His

answers were generally in accordance with the case put forward by the pursuer, although

obviously the application of the UAE law as so found must await a proof on the merits, in

the absence of any alternative disposal. The defenders have now reclaimed against the

commercial judge’s decision on two specific grounds. First, it is contended that under UAE

law the defenders would not be treated as directors of RMJM, and therefore could not be

personally liable under UAE law for any wrongs committed by RMJM. Secondly, it is

contended that the commercial judge erred in finding that articles 111 and 112 of the 1984

UAE Companies Law applied to RMJM by virtue of article 113 of that law; the defenders

state that the commercial judge misunderstood the overall scheme of the 1984 Law, and

ought accordingly to have held that articles 111 and 112 did not apply to RMJM.

[9] We propose to set out the basis of the pursuer’s case against the defenders, and

thereafter to summarize the evidence that was led before the commercial judge and the

commercial judge’s decision on that evidence. Before doing so, however, it is necessary to

say something about the powers of an appellate court in dealing with questions of expert

evidence, and the proper approach which a court should take in relation to evidence of

[10] The pursuer’s written argument referred to the familiar decisions in McGraddie v

Investments Ltd, 2014 SC (UKSC) 203; 2014 SLT 775; [2014] UKSC 41, and Carlyle v Royal Bank

of Scotland PLC, 2015 SLT 206; [2014] UKSC 13. On the basis of those cases, it was said that

the Inner House should not interfere with the commercial judge’s findings on the law of the

UAE. Those cases, however, are essentially concerned with the first instance judge’s

findings as to credibility, reliability and the primary facts: what the persons involved in the

case actually did or said, or what happened to them. Findings of primary facts should be

contrasted with inferences drawn from such findings. In relation to inferences, it is well

established that an appellate court can assess the evidence effectively, on the basis of the

written record of such evidence, and should not hesitate from doing so: see Benmax v Austin

Motor Co Ltd, [1955] AC 370, and more recently AW v Greater Glasgow Health Board,

[2017] CSIH 58, at paragraphs [44]-[45]. Expert evidence is not evidence of primary facts, but is

rather an expression of opinion about the analysis of those facts according to the specialist

knowledge and skill of the expert; as such, it should be treated as inferential in nature, and

an appellate court is fully entitled to assess such evidence and if so advised to come to a

different conclusion from the judge at first instance: AW v Greater Glasgow Health Board, at

[11] That case dealt with medical evidence in the context of alleged negligence. Evidence

of foreign law was dealt with more recently in DNO Oman Ltd v Clouston, [2019] CSIH 1,

where the Lord President, giving the opinion of the Court, stated the law as follows (at

“Foreign law must be proved as a matter of fact. This often means that parties will

adduce experts in the foreign law to explain the relevant rules and principles. The

task of ascertaining foreign law remains that of the court. It will seldom be a

question of simply preferring one expert as more reliable than another as if he were

an eyewitness speaking to events which he had observed. Especially when the

foreign law is in codified form, the court will have to look at the written materials

and decide for itself, if necessary with the assistance of experts, what the law has

been proved to be (Kolbin & Sons v Kinnear & Co, 1930 SC 724, LJC (Alness) at 737-8,

Lord Ormidale at 748-9; Lord Anderson and 753). As it was put in Paraksho v Singh,

[1968] P 233 (Cairns J at 250, cited in King v Brandywine Insurance Co, [2005] 1 Lloyd’s

Rep 655, Waller LJ at para 66) ‘the question of foreign law, although a question of

fact, is a question of fact of a peculiar kind’. The same considerations as apply to a

review of fact, and the advantages which a first instance judge has from having

heard and seen the witnesses testify, do not apply with quite the same force. In this

case, in any event, the commercial judge does not appear to have taken account of

the testimony of the experts, other than to say erroneously that neither had departed

from the content of his reports. The judge relied exclusively upon an analysis of the

expert reports. The appellate court is at no disadvantage in carrying out the same

exercise to see if the judge has correctly understood their import.”

[12] Although the commercial judge in the present case did take account of the testimony

of the two expert witnesses, we consider that a similar approach should be taken on appeal.

The question is what the relevant foreign law is, and that is an issue that must ultimately be

decided by the court, not the experts. In the words of LJC Alness in Kolbin & Sons v Kinnear

“I think the same view is that the Court must construe foreign written law with the

assistance of the expert evidence adduced. The Court is not entitled to construe that

law for itself without any assistance at all.… With that assistance, however, I think

the Court may look at the law itself, as part of the evidence, and reach a conclusion

upon it. I do not apprehend that, merely because the expert evidence is conflicting…

the Court must necessarily throw up its hands in despair, and refuse to attempt to

This recognizes that the function of the experts is not to decide the foreign law but to assist

the court in the exercise of its function of deciding the case before it. If there is no conflict

between the experts, at least in the absence of a manifest absurdity, the court will normally

follow the expert opinion. If the experts conflict, however, or if there is a point of dubiety or

uncertainty in their evidence, the court must examine the experts’ views and come to a

conclusion as to what the foreign law is. That applies not merely to foreign law in the

abstract, but also to the correct application of the principles of foreign law to the facts of the

[13] As the cases cited in the last two paragraphs make clear, the fundamental task for the

court is determining the relevant principles of foreign law and their application to the facts

of the case. In doing so the court requires to consider the expert evidence that has been led,

in the form of reports from the parties’ experts and oral evidence. The Court may obviously

have regard to the primary sources of foreign law that are made available to it. This is

particularly important in cases where foreign legislative texts are founded on, whether in

the form of a code covering a wide area of law or a statute covering a more specific area.

Such material will typically form an important part of the evidence of foreign law. This is

particularly true of a legal system that has been codified generally, as with the French and

German legal systems, which are the source of the most influential codes found today. In

the present case, the evidence disclosed that the legal system of the UAE is based in large

measure on the Egyptian codes, which are in turn based on the French codes. Consequently

codified provisions of the law of the UAE must be examined and applied by a Scottish court

[14] In some cases, even in the absence of general codification, a particular area of the law

is codified; an example of this is found in the company law of the United Kingdom, where

successive Companies Acts have taken the form of a legislative code governing the

formation, operation and winding up of companies. Even in such a case, of course, elements

of common law are important. For example, the notion of separate legal personality is a

product of the common law, and many of the other fundamental principles are derived from

the common law rather than the Companies Acts themselves. In the present case, much of

the evidence on the law of the UAE was founded on Federal Law 8 of 1984, the Companies

Law as dealing with Commercial Companies, and the parties’ submissions founded largely

on the terms of that Law. The construction of the Law and its application to the facts of the

[15] The construction of legislation is obviously one of the most important tasks

performed by any court. That involves determining the meaning of a text, and the wording

used is obviously of fundamental importance. Nevertheless, it is difficult to understand

how the task of construing a text could be performed in any jurisdiction without having

regard to the underlying objectives of the legislation – its primary objectives rather than

niceties of detailed wording. The statutory wording must be construed so as to give effect to

the main purposes of the legislation and to ensure that so far as possible those purposes are

achieved. That will normally involve having regard to the wider structure of the statute in

question, or to the structure of the part of a legislative code that is in issue. Likewise, it is

difficult to understand how the task of construing a statute or provision of the code can be

achieved in any legal system without regard to the context in which legislation was enacted

and in which it operates. In almost any field of intellectual inquiry – for example history or

science – context is regarded as an essential tool for a proper understanding of what is being

said. Law is no different in this respect; the context of legislation, or indeed any legal text, is

critical to its proper interpretation. One of the important functions of expert evidence is to

explain the context in which a legislative text operates. A purposive and contextual

approach to construction will accordingly be appropriate in any case, at least in the absence

of evidence that a particular legal system refuses to follow in such an approach. It should be

added that a similar approach will normally be appropriate to the construction of contracts

[16] Case law will also frequently be an important aspect of foreign law, even in a

codified system. The Scottish court is likely to depend on expert witnesses to make it aware

of any relevant cases, and to provide a commentary on those cases and their potential

implications for the problem under consideration. The task of the Scottish court is to

determine how a foreign court would be likely to decide the issues of law that are relevant

to the particular facts of the case before it. Scottish judges will be familiar with general

principles of legal reasoning, and it can be assumed that these will apply to any legal

system. Judges will likewise be familiar with the general structures of the law: the tasks that

it performs, and the functions of typical institutions and rules. Especially in the commercial

field, these do not vary greatly from one legal system to another. In the modern world, the

basic forms of contract and business organisation are fairly standard. A Scots lawyer can

understand the structures and function of a company based in France or Delaware, or a

contract concluded under the law of Germany or the UAE. Even English law and the

systems based on English law are relatively easy to understand in the commercial field,

notwithstanding the significance of factors such as the division between law and equity and

the reluctance to recognize the importance of good faith in commercial dealings.

[17] The present case concerns the law of the UAE as applied in the Emirate of Dubai.

The legal system applied in that jurisdiction is largely codified. The relevant codes are

derived from the codes in force in Kuwait and Jordan, which in turn are based on the

Egyptian codes. The Egyptian codes are based on the French codes, including the Code civile

and Code commercial. Thus the law of the UAE is civilian in nature. It is not difficult for a

Scots lawyer to understand the legal concepts and rules of another civilian system. Expert

evidence is obviously important in directing the court to the existing state of the law, and in

particular any relevant case law. Interpreting the law, however, and most importantly

determining how the law applies to a particular factual situation, are not matters that a

Scottish court should find difficult. In this connection it may be important to have regard to

the functional equivalence of institutions in different legal systems. Legal concepts can be

given different names, and rules will obviously be differently expressed, but if they function

in essentially the same way, to achieve the same underlying purposes, they can be treated as

equivalent and interpreted and applied accordingly. This may be an important tool. For

example, in the present case the use of the contract of deposit and principles of good faith in

the law of the UAE are functionally equivalent to the use of fiduciary duties and implied

trusts in Scots law; in both systems, those institutions ensure that if a fund is paid to a

person such as an agent to be used for the benefit of another person, such as the agent’s

principal, the fund is effectively used for the benefit of that person. The importance of that

result for a properly functioning system of commercial law is perhaps self-evident.

[18] The pursuer’s case against the defenders proceeds against the background of the sale

of RMJM’s engineering business in Dubai to the pursuer and the requirement of Dubai law

that any person carrying on such a business must be duly licensed by the Dubai regulatory

authority. Under the agreement the pursuer and RMJM, the business, in the sense of the

work to be performed under both existing and new contracts, was to be transferred to the

pursuer immediately. Because of the requirement of a licence, however, it was impossible

for the pursuer to become a contracting party until such time as it obtained a licence from

the Dubai regulatory authority. Consequently, so far as clients and the regulatory authority

were concerned the business continued to be carried on by RMJM, and all payments due by

clients for work performed under existing contracts or contracts concluded during a

transitional period required to be made to RMJM as the contracting party, and not to the

pursuer. Because the work under those contracts was performed by the pursuer, however,

RMJM required to pay the pursuer the remuneration for that work; that was the manner in

which the immediate benefit of the contract for the sale of the business was passed from the

[19] The sums received by RMJM or any associated entity from clients were dealt with by

clause 10.3 of the Sale and Purchase Agreement. This provides as follows:

“Any sum received by the Vendor [RMJM] or any member of the Vendor’s Group to

the extent that it relates to [certain specified services rendered by the petitioners]

shall be received by the Vendor or relevant member of the Vendor’s Group for and

on behalf of the Purchaser [the pursuer] and shall be accounted for and paid by the

Vendor to the Purchaser in full within 20 Business Days of receipt”.

The important feature of that wording is that payments made to RMJM or associated entities

from clients should be received “for and on behalf of" the pursuer and should be “accounted

[20] As already noted, following the concluding of the Sale and Purchase Agreement

disputes arose between the pursuer and RMJM as to the allocation between them of certain

of the payments received from clients. Efforts were made to resolve the dispute, and in

consequence the pursuer and RMJM entered into a further agreement, the Closing

Agreement, dated 16 August 2012. Like the Sale and Purchase Agreement, the Closing

Agreement was subject to the law of the United Arab Emirates as in force in Dubai. This

agreement made provision for payments made by clients in clause 9, which was in the

“(i) Not later than Completion, the Vendor [RMJM] shall convert an unused

special purpose bank account in the name of the Vendor which shall be used

exclusively for the receipt and remittance of payments relating to Multi-Disciplinary

Customer Contracts, Engineering Contracts or Interim Business Instructions which

the Vendor and the Purchaser [the pursuer] has entered into a Sub- Contract (the

(ii) Pursuant to each of the Sub-Contracts, the principal employer under the

Multi-Disciplinary Customer Contracts, Engineering Contracts or Interim Business

Instructions to which the Sub-Contract relates will be directed (by notice to be issued

within 5 Business Days of Completion) to send any and all payments for services

rendered and to be rendered after the Deemed Transfer Date to the Joint Account.

(iii) If, notwithstanding the payment instructions to be given as described in

clause (ii) above, any collections are received by the Vendor other than to the Joint

Account (relating to the contracts described in sub-clause (ii) above…) after

Completion in respect of services that were (or will be) performed after the Deemed

Transfer Date under a contract with the Vendor entered into prior to Completion, the

Vendor shall, not later than two (2) business days after the end of the month in

which the payment was received by the Vendor, transfer such collections to the Joint

At a general level, the foregoing provisions oblige RMJM to transfer payments received by it

for certain contracts where the work was carried out by the pursuer into a specially

designated bank account. The use of a special purpose bank account is, of course, a device

that is used to ring-fence funds that are held for the benefit of another party. There is no

difficulty in understanding the concept involved, which is very familiar in Scottish

[21] The pursuer’s case as pled on record is that RMJM received substantial sums of

money under contracts with clients that fell within the foregoing provisions of the Sale and

Purchase Agreement and the Completion Agreement. RMJM failed to pay sums so received

to the pursuer, as it was obliged to under those agreements, but instead made use of the

funds received for its own purposes. It is further averred that RMJM concealed those

[22] The arrangements governing the funds received by RMJM from clients were subject

to UAE law. The pursuer avers that, on a proper construction of the Sale and Purchase

Agreement, a relationship of principal and agent was created between the pursuer and

RMJM in respect of monies received by RMJM to which clause 10.3 applied. The result of

that was that RMJM as agent held the monies to which clause 10.3 applied on deposit for the

pursuer. It accordingly owed the pursuer the duties of a depositary under UAE law, which

were analogous to the duties of a trustee in Scots law. These included keeping the deposited

property safe, returning it to the principal on demand, accounting for any profits to the

principal and restoring to the principal any property that perished in its hands as a result of

wrongful act or error. The pursuer avers that RMJM breached all of the foregoing duties by

appropriating for its own purposes monies held on deposit for the pursuer.

[23] So far as the defenders are concerned, the pursuer avers that they were the natural

persons responsible for determining the conduct of RMJM, and that they were accordingly

responsible for determining that RMJM should act in breach of the duties which it owed to

the pursuer as a depositary. The consequence, it is said, is that the defenders are personally

liable to the pursuer for the loss of monies that had been held on deposit for the pursuer by

RMJM. That gave rise to personal liability in terms of articles 304 and 305 of the UAE Code

of Civil Transactions, which provide that when a person takes what belongs to another

person he must return it to the owner in its original condition. Personal liability would arise

under articles 304 and 305 because the pursuer averred and offered to prove that it was the

defenders personally who controlled what happened to the monies belonging to the pursuer

that were held by RMJM as a depositary. Such liability is essentially contractual in nature.

In addition, the pursuer averred a case that the defenders’ conduct was fraudulent, which

permitted a claim against the defenders in delict or tort rather than contract.

[24] An alternative route to personal liability on the part of the defenders was averred,

based on the companies legislation in force in the UAE. Under the Companies Law of the

UAE, personal liability was imposed on directors of a company such as the defenders.

Although RMJM was a Scottish partnership whose partners were Cypriot companies, the

pursuer averred that UAE company law applied with equal force to such arrangements as it

would to indigenous corporations. This turned on the detailed construction of certain

provisions of the Companies Law, in particular article 313, taken together with articles 111

[25] Following that proof, the commercial judge issued a lengthy opinion in which he

answered the various questions about UAE law that had been raised by the parties. His

answers were generally in accordance with the case put forward by the pursuer, although

obviously the application of the UAE law as so found to the facts must await a proof on the

merits, in the absence of any alternative disposal. His conclusion was that that the pursuer

had proved that its claim against the defenders was sound as a matter of UAE law and that,

so far as the claim was made under the Companies Law of 1984, it was not time-barred in

[26] In summary, the commercial judge’s findings were as follows. The contract between

RMJM and the pursuer required to be construed in terms of the Civil Code, and in particular

the principles of construction found in articles 258, 259, 265 and 266. The rules of

construction stated in those articles are not greatly different from those in use in Scotland.

The criterion for construction of contracts is “intentions and meanings and not words and

form”. The exercise of construction goes beyond the literal meaning of words, and in

construing a transaction guidance may be sought “from the nature of the transaction and the

trust and confidence which should exist between the parties in accordance with the custom

current in dealings”. The terms of a clause in a contract should be construed in the context

of the contract as a whole. On the foregoing basis, clause 10.3 was plainly intended to create

an agency relationship, notwithstanding the absence of any express provision to that effect.

Consequently sums received by RMJM falling within clause 10.3 were only held by RMJM

as the pursuer’s agent. The fact that RMJM and the pursuer also acted as contractor and

sub-contractor under the Sale and Purchase Agreement (in relation to work done for clients)

was irrelevant to the relationship created by that clause. In reaching this conclusion the

commercial judge considered the meaning of clause 10.3 in the context of the Sale and

Purchase Agreement, read as a whole, and in the context of the parties’ commercial dealings.

In particular, monies falling within the ambit of clause 10.3 were monies to which the

pursuer was ultimately entitled under the Agreement, and to which RMJM was not entitled.

Furthermore, the phrase “for and behalf of” only made sense in the context of an agency

[27] Once it was established that an agency relationship had been created, the

consequences were a matter of agreement between the experts. RMJM acting as an agent

held the monies to which clause 10.3 applied on deposit. It thus owed the pursuer the

duties of a depositary, broadly similar to those of a trustee; those included duties to keep the

property deposited safe; to return the property to the principal on demand; to return any

profits to the principal; and to restore any property that perished in its hands as a result of

[28] The commercial judge further considered arguments presented by the pursuer to the

effect that the actings of RMJM and the defenders amounted to fraudulent conversion as a

matter of UAE law. This matter is not directly relevant to the reclaiming motion. The

commercial judge held, however, that “fraudulent conversion”, although not a term of art

under the law of the UAE, indicated embezzlement or appropriation of sums deposited.

This amounted to what under UAE law is considered fraud. To the extent that Dr Arab, the

defenders’ expert, had contended that the term “fraudulent conversion” was not found in

UAE law, that was essentially a semantic point; what Mr Hanna understood by the term was

[29] The commercial judge held that the defenders bore personal liability for the

wrongdoing of RMJM under articles 304 and 305 of the Civil Code of the UAE, in the

manner described in the preceding paragraph. These covered taking what belong to others

unlawfully, without the consent of those others, or by an aggressive act or trespass. The

defenders had power over the bank account containing the funds collected from customers

by RMJM, and were accordingly responsible for compliance with the terms of the Sale and

Purchase Agreement, and in particular the terms of clause 13.5 in respect of the funds

collected. RMJM was a corporate entity, and was accordingly run and represented by

individual natural persons, in the form of the defenders. Thus if the pursuer’s averments of

fact were established the defenders had to bear the consequences of their fraudulent and

unlawful actions and their breaches of the contractual undertakings of the corporate body

which they represented or acted for. We observe that this area of dispute is based on actions

that are delictual or tortious in nature: the misuse of funds held by RMJM as agents to be

applied for specified purposes. Nevertheless, acts of this nature can also amount to a breach

[30] The next matter of dispute was whether the defenders were personally liable for the

actings of RMJM under the company law of the UAE. For the purposes of UAE company

law RMJM were a branch of a foreign company. The dispute between the parties’ experts

related to whether provisions of the Companies Law of 1984 (articles 111, 112 and 237)

which the pursuer claimed rendered the defenders responsible for the actions of RMJM in

fact applied to RMJM as a foreign company. The parties’ experts disagreed on this matter;

Dr Arab asserted that the only provisions of the Companies Law that were applicable to

RMJM were those relating to foreign branches within the UAE; these comprised articles 327-

332 of the Companies Law 2015, corresponding to articles 313-316 of the Companies Law

1984, and did not include articles 111, 112 and 237, the provisions founded on by Mr Hanna.

In response, Mr Hanna stated that article 313 of the 1984 Law (article 327 of the 2015 Law)

was contrary to Dr Arab’s position; article 313 provided that “the provisions of this law

apply to foreign companies which practise their main activity in the State or have their main

office therein, with the exception of the provisions relating to the incorporation of

[31] The commercial judge preferred the views of Mr Hanna, on the basis that Dr Arab’s

position was contrary to their natural meaning of article 313. The expression “this law”

referred to the Companies Law 1984 as a whole; it could not sensibly mean anything else.

The exception for the provisions relating to the incorporation of companies could only

sensibly be understood if the expression “this law” applied to the whole Companies Law;

[32] So far as prescription was concerned, the commercial judge held that the application

of the principle depended on whether the liability of the defenders should be regarded as a

tortious or a contractual liability. Mr Hanna had given evidence that it would be regarded

as a contractual liability. Dr Arab had not considered this matter in his report. The

commercial judge accordingly preferred the views of Mr Hanna on prescription. This had

the effect that any claim under the Companies Law 1984 was subject to a 10-year

prescriptive period and was therefore not time-barred in terms of UAE law.

[33] The defenders have now reclaimed against the commercial judge’s decision on two

specific grounds, which are more restricted than the arguments considered in the

commercial court. To some extent the two grounds are related. The issues raised by these

grounds are important to the pursuer’s case against the defenders; if the defenders are

successful on either of them the pursuer will be unable to rely on articles 111 and 112 of the

Companies Law 1984 in the manner outlined at paragraphs [30]-[31] above. This has

consequences for the law of prescription, in the manner indicated in paragraph [32].

[34] The grounds of appeal are as follows. First, it is contended that under UAE law the

defenders would not be treated as directors of RMJM, and therefore could not be personally

liable under UAE law for any wrongs committed by RMJM. The defenders were directors of

Cypriot companies which were the partners of RMJM, a Scottish partnership. Although they

might incur personal liability under the law of the UAE if they personally committed a

wrongful act, they would not be treated as directors of RMJM for the purposes of the rules

of UAE law which were said by the pursuer to impose personal liability on the directors of

corporations. Secondly, the defenders contend that the commercial judge erred in finding

that articles 111 and 112 of the 1984 UAE Companies Law applied to RMJM by virtue of

article 313 of that Law; the commercial judge misunderstood the overall scheme of the 1984

Law, and ought accordingly to have held that articles 111 and 112 did not apply to RMJM.

Personal liability of the defenders for wrongs committed by RMJM: relevance of the

[35] The commercial judge states (at paragraph [62] of his opinion) that certain aspects of

UAE law had been agreed between the parties’ experts. One of those related to the

defenders’ status as directors of a Cypriot company that was a partner of RMJM. The

commercial judge summarized what he considered to be the experts’ agreement in the

“The experts are also agreed that the particular nature of the corporate structure

which was in place in respect of RMJM (in short, that the defenders were directors of

Cypriot companies which, in turn, were the partners of RMJM) makes no difference

to the application of the principles by which the defenders might be held personally

Reference was made to passages in the experts’ reports: paragraph 6.4 of Mr Hanna’s first

report and, although the reference is not wholly clear, part (8) of Dr Arab’s report, in

particular at paragraph 29. Counsel for the defenders challenged the proposition that any

such agreement had been reached. We think that that is strictly speaking correct on a proper

analysis of part (8) of Dr Arab’s report, which contains paragraph 29. That part of his report

is concerned not with the position of the defenders as directors of the Cypriot companies but

rather with the question of how UAE law would categorize RMJM for the purposes of the

application of the law dealing with responsibility for the acts of business organisations. In

other words, Dr Arab was dealing with the status of RMJM in UAE law, rather than the

responsibility of the defenders. Despite this, however, we are of opinion that, when the

relevant evidence is properly considered, the statement of law expressed by the commercial

judge is correct. This applies in particular to the evidence of Mr Hanna, which is generally

clear and coherent, and was moreover found reliable by the commercial judge.

[36] Mr Hanna’s evidence on this matter is found at paragraphs 6-6.4 of his first report.

Before setting out that evidence, however, we should note the legal background described in

earlier parts of that report. First, in part 2 of the report Mr Hanna deals with the significance

of clause 10.3 of the Sale and Purchase Agreement, and in particular the use of the words

“for and on behalf of” in that clause. He considered that the clause, and in particular the

words “for and on behalf of”, created a relationship of principal and agent, as the

relationship fitted the definition of “agency” in article 924 of the UAE Code of Commercial

Transactions: “a contract whereby a principal (or appointer) appoints another in his [place

and stead] for a lawful and known act”. We note that such a concept of agency is not greatly

different from that in use in Scotland, although Scots law perhaps gives greater scope to

implied agency relationships. Thereafter, RMJM had defaulted on its obligation to open a

joint bank account and to put arrangements into place whereby sums in the account were

paid to the pursuer. RMJM’s own account was controlled directly or indirectly by the

defenders. Instead of safe-keeping the amounts received from clients and paying them to

the pursuer, “RMJM appropriated the funds unlawfully by converting them to other

accounts in settlement of debts it owed to other parties or transmitting them to other

accounts of RMJM or its subsidiaries”. Furthermore, disbursements were not made in the

[37] Article 937 of the UAE Code of Commercial Transactions provided that monies

received by an agent on behalf of his principal should be deemed to be in the nature of a

deposit. Mr Hanna was of opinion that that provision applied to the present case as monies,

in the form of professional fees rightfully belonging to the pursuer, entered bank accounts

managed and operated by the directors of RMJM’s partner entities, or by otherwise

authorized signatories of RMJM. Those monies came to be under the control and in the

possession of RMJM. The law of the UAE governing deposit or custody was therefore

applicable. Deposit was dealt with in articles 962-996 of the Code of Commercial

Transactions. Under a contract of deposit, the depository is liable for the safe-keeping of the

deposit and for compensation if it is lost (article 966). The depository is obliged to return the

deposit to the depositor on demand, together with benefits and fruits accrued thereon

(articles 972-973). Once again, we observe that these provisions, at least in their practical

effect, are not significantly different from the corresponding legal institutions in Scots law.

In Scotland, when an agent receives sums due to his principal, the standard practice is to use

a trust to hold those funds, generally through an appropriately designated bank account:

recent discussion of such cases is found in an essay, “Trust, agency and Lehman Brothers”,

contained in “Nothing so Practical as a Good Theory”, a collection of essays to mark the

retirement of Professor George Gretton, ed Steven, Anderson and MacLeod (2017).

Functionally, the Scottish trust, whether express or implied, operates in broadly the same

way as deposit appears to operate in the law of the UAE according to Mr Hanna’s evidence.

[38] Mr Hanna indicated that RMJM’s actings with the funds deposited did not amount

simply to a breach of contract but rather to conversion or fraudulent conversion. The result

of that was that the party entrusted with keeping and delivering funds has to indemnify the

depositor and compensate him for all loss and damage sustained (report, paragraph 2.7).

Furthermore, under UAE law, in all matters relating to the performance of the parties’

contract, a contracting party is obliged to act bona fide and to display “the honesty and trust

which should prevail between the contracting parties according to the established custom in

dealings”: Code of Commercial Transactions, article 265.1; report, paragraph 3.2. The result

is that a depositary becomes obliged to return the deposit on demand. That is vouched by

decisions of the Dubai Supreme Court which are cited by Mr Hanna in his report.

[39] For present purposes, of course, the critical issue is the personal liability of the

defenders for the acts of RMJM in the light of their position as directors of the Cypriot

companies which were the partners in RMJM. This matter was considered by Mr Hanna in

part 6 of his report. The question to be answered is stated in the following terms:

“It has been raised that the Defenders are not technically Directors of RMJM but

rather Directors of its two owning legal entities. Does this reflect on their liability?”

“6.1 If Mr Thompson and Mr Morrison were not acting in their capacity as

Directors, they would have simply acted on the force of having full control over the

RMJM bank account. It would be them – jointly or individually – who operated the

accounts, received the TJEG funds and forwarded them either to settle RMJM

payables to company creditors or to other bank accounts of RMJM or one or more of

6.2 In the premises, I would say that the Defenders, jointly or severally, had

abused their powers and disposed of monies which were supposed to be entrusted

and preserved in RMJM’s account to the advantage of RMJM and/or its subsidiaries”.

“Note: In my opinion, the Defenders – being the individuals with power over the

bank account – were responsible for compliance with the terms of the SPA,

particularly its ‘for and on behalf’ commitment. It follows that the misappropriation

and disposition of TJEG’s funds was a breach of RMJM’s contractual undertaking to

preserve and return these funds to their rightful owner. RMJM, as a corporate entity,

is run and represented by individual natural persons, who are the Defenders directly

or through their directorships of the partner companies. They should bear the

consequences of their fraudulent and unlawful actions and their breaches of the

contractual undertakings of the corporate body which they represent or act for”.

[41] In our opinion this account of the law of the UAE is strongly persuasive. Two

general propositions emerge. First, if a person receives funds to hold and apply them for a

specified purpose, the funds must be held and applied for that purpose, and should not be

used to benefit the holder of the funds. This appears to us to be a matter of elementary good

faith. Secondly, an artificial legal person such as a company or partnership has no mind of

its own. Its knowledge of events and its intentions as to its actions must be those of the

individuals in control of it. In our opinion it is obvious that any legal system that has regard

to commercial practicalities must be capable in appropriate circumstances of holding those

individuals responsible for the acts of the artificial person. Otherwise dishonesty can be left

without any sanction. This is not to suggest that the so-called corporate veil – the separate

personality of the artificial legal person – should be disregarded on a general or

undiscriminating basis. Nevertheless, adequate sanctions must be available to deal with acts

of dishonesty – acts which are designed to deprive a person truly entitled to an asset of that

asset or its proceeds. This principle is recognized in the company law of the United

Kingdom. For example, where in the course of insolvency proceedings it is discovered that

the business of a company has been carried on with intent to defraud creditors, the

shareholders and directors will be personally liable for the creditors’ loss: Insolvency Act

1986, section 213. Wrongful trading, in the sense of continuing to trade when a director

knew or ought to have known that there was no reasonable prospect that the company

would avoid going into insolvent liquidation, is covered by section 214 of the same Act.

Misfeasance by directors attracts the sanctions found in section 212 of the Act. It would be

remarkable if other legal systems did not adopt a similar approach, to prevent corporate

structures from being used to deprive persons of what is rightfully theirs. What is at issue is

not the detailed provisions of a statute or code, but fundamental principles of ethical

behaviour which must be recognized by every legal system. It is accordingly not surprising

that the individuals who are ultimately in control of a legal person, albeit qua directors of a

company that is a partner in a partnership, should be liable for the misuse of funds by that

legal person. That is the essential basis for Mr Hanna’s evidence.

[42] In his evidence before the commercial judge, Mr Hanna commented on the foregoing

parts of his report (at pages 326-329 of the appendix). He was asked to comment on the fact

that the defenders were not technically directors of RMJM but rather directors of the Cypriot

companies that were partners in RMJM; in particular, he was asked whether, on that basis,

provisions of UAE company law relating to directors would apply to the defenders.

Mr Hanna replied that the trading operation in Dubai that had been carried on by RMJM

was registered as a branch of a foreign company, the mother company being a Scottish

partnership. The word used for “company” in Arabic covered not merely companies in the

strict sense but partnerships, limited partnerships and other forms of corporation. The

Dubai branch had no independent existence, and the Scottish company or partnership did

business in Dubai through the branch. The partners were two Cypriot companies, but the

corporate body itself, RMJM, was nevertheless run, managed and operated by the directors

of the Cypriot companies. Those directors must therefore assume liability for their fault or

their violation of the law. Thus in the present case it was necessary to pierce the veil of the

Scottish partnership to discover who was actually running the operation. Those persons

were the two directors of each of the Cypriot companies, the defenders. Those were the

people who controlled the bank account where the misappropriation of funds took place.

The defenders ran the account and gave instructions as to what was to be done with the

money in the account and where it was to be sent. Consequently, Mr Hanna’s position was

that the directors of the Cypriot companies which were the partners and owners of the

Scottish partnership should bear liability in UAE law for RMJM’s misuse of the funds held

[43] In his report, Dr Arab considered whether the defenders, as the natural persons

alleged to have controlled RMJM, could be liable for breaches of contractual or agency

duties owed by RMJM (question (7); paragraphs 21-23). He stated that a claim under a

contract of agency or deposit is contractual in nature and can only be brought against the

contracting party; it therefore could not be made against the defenders unless what they

personally did amounted to a tort (delict). In order for a claim to count as tortious in nature,

it must be based on a crime or fraud or be the result of a “gross mistake”. The status of the

defenders as directors of the Cypriot companies did not alter the applicability of those

principles. We note that this part of the report is confined to actings that can be considered

tortious rather than contractual. Nevertheless, the misappropriation of funds held on

deposit is clearly a serious matter; it is the equivalent of a dishonest breach of trust in Scots

law. Conduct of that nature is normally criminal in nature, and is in any event likely to be

fraudulent or at best the result of a “gross mistake”. For this reason we cannot hold that this

part of Dr Arab’s report exonerates the defenders of responsibility for the misuse of funds

[44] Question (7), and in particular paragraph 23, of Dr Arab’s report appears to be the

passage relied on by the commercial judge in support of the proposition that we have set out

at paragraph [34] above, to the effect that the experts were agreed that RMJM’s corporate

structure, including the defenders as directors of the Cypriot companies, made no difference

to the defenders’ personal liability for the wrongs of RMJM. When the narrative preceding

paragraph 23 is considered, however, it is apparent that Dr Arab was concerned only with

liability for conduct that was criminal in nature, or amounted to a fraud, or to a “gross

mistake”. Exactly what those amounted to in practice is not clear from the terms of his

report. In particular, he did not address the question of whether the misappropriation of

funds held on deposit amounts to fraud, or what might amount to “gross mistake”. This

lack of clarity, especially in relation to the application of the rules of UAE law to the facts of

the case, stands in marked contrast to the report and evidence of Mr Hanna, which is clearer

[45] In question (8) of his report, Dr Arab considered the manner in which UAE law

would categorise RMJM, as a Scottish partnership with two Cypriot limited liability

partners, for the purposes of the law of the UAE dealing with responsibility for the acts of

business organisations (paragraphs 24-29). He expressed the view that the 1984 Companies

Law only recognized partnerships formed of nationals of the UAE, but some Emirates

including Dubai recognized business structures owned by non-UAE nationals. RMJM was

registered in Dubai as a branch of a foreign company, and was licensed in accordance with

provisions of the Companies Law 1984 applicable to such branches. It would therefore be

treated as such a branch for the purposes of the UAE law applicable to business entities.

Once again the report is not wholly clear as to how the law would apply to the facts of the

present case. Nevertheless, Dr Arab appears to recognize that RMJM would be recognized

[46] Dr Arab’s evidence did not go into the foregoing questions in any detail. The reason

for this is that the defenders’ pleadings did not advance the proposition now relied on, that

they would not be treated as directors of RMJM for the purposes of the rules of UAE law

relied upon by the pursuer which were said to impose personal liability on the directors of

corporations. In Dr Arab’s examination-in-chief he was asked (pages 585 et seq of the

appendix) about section (7) of his report. He stated that he did not think that a UAE court

would search for who were the directors of the company owning the Scottish company

(partnership) which controlled the branch in Dubai. At this point counsel for the pursuer

objected to the line of evidence, on the ground that it went well beyond anything found in

Dr Arab’s report, and had not been put to Mr Hanna. The commercial judge upheld the

objection, and consequently the line of evidence was not developed. Consequently there is

nothing in Dr Arab’s oral evidence that goes beyond the somewhat cryptic statements found

in sections (7) and (8) of his report. Perhaps more importantly, this means that the

fundamental issue raised by the first ground of appeal was not properly dealt with in the

evidence for the defenders. On that basis alone, it is impossible to hold that Dr Arab’s

evidence supports the first ground of appeal. Apart from that, however, as we have

indicated we find the evidence of Mr Hanna on this matter to be of a higher quality than that

Conclusion on the defenders’ personal liability under Dubai law in the light of RMJM’s structure

[47] Overall, we find that the evidence of Mr Hanna gives a clear and coherent account of

the manner in which Dubai law would treat RMJM’s structure, including the existence of

two Cypriot companies as partners and the position of the two defenders as directors of

each of the Cypriot companies. In particular, we consider that Dr Arab did not give a

satisfactory account of how the defenders, as the individuals who ultimately controlled

RMJM, would be regarded for the purposes of Dubai law. Dr Arab conceded that, to the

extent that there had been fraud or “gross mistake”, the defenders would be liable for the

acts of RMJM, but he did not go on to consider how that might apply to the facts of the

present case as pled by the pursuer on record. In view of the fact that the pursuer’s

averments amount to the misappropriation of funds held on deposit, it appears to us to be at

least arguable that fraud was involved. The same goes for the concept of “gross mistake”,

an expression that was not fully elucidated. Finally, as we have already explained,

Dr Arab’s evidence did not take in the proposition now advanced as the first ground of

appeal, that the defenders would not be treated as directors of RMJM for the purposes of

rules of law that were said to impose personal liability on the directors of corporations.

[48] The foregoing stands in sharp contrast with the evidence of Mr Hanna, both in his

reports and in his oral evidence. In our opinion Mr Hanna gave a coherent account of the

law and its application to the facts which conformed to the commercial and ethical

standards that one would expect of a modern legal system. In our opinion it is permissible

for a Scottish court in applying foreign law to consider such standards. They form part of

the essential commercial context in which the law operates in every jurisdiction. The same is

true of the analysis of the contract of deposit, which as we have observed corresponds

functionally at least to the use of an express or implied trust in the Scots law of agency. It is

to be expected that any such institution will protect the funds deposited for the benefit of the

person entitled to them. Equally, the willingness of UAE law to impose personal liability on

the individuals ultimately responsible for the misappropriation of funds held by an agent is

a feature found in Scots law and other civilian legal systems, as well as those based on the

English common law. These features are exactly as would be expected in a modern system

of commercial law. For all the foregoing reasons, we prefer the evidence of Mr Hanna on

[49] Finally, on the first ground of appeal, we should note the practical consequences if

the defenders’ argument were correct. It is apparent that the law of the UAE, like every

other developed legal system, imposes liability for the misuse of funds that are held on

deposit for the benefit of another person. (In Scots law the same result can also be achieved

through a trust of the funds, and the principles that apply are analogous). It would be

anomalous, to say the least, if liability for misuse of funds held on deposit could be avoided

by setting up a structure such as that used by RMJM, whereby the partners of a firm are

corporations and the individuals who are in fact in charge of the firm and its activities

exercise their powers as directors of those corporations. Permitting individuals to avoid

responsibility for the misuse of funds in this way would entirely subvert the purposes of the

law of deposit, or corresponding institutions such as the trust in Scots law. Furthermore, if

the defenders’ argument were correct, the provisions of the Companies Law 1984 applicable

to foreign companies could easily be evaded by using a comparable structure, with activities

in the UAE carried on by a foreign partnership whose sole partners were foreign companies.

Once again, that appears to run contrary to the purposes of those parts of the Companies

Law. In our opinion this is a powerful reason for preferring Dr Hanna’s approach to the

[50] For the foregoing reasons we are of opinion that the first ground of appeal should be

refused. The commercial judge was correct to hold that the fact that the defenders were

directors of Cypriot companies which were in turn the partners of a Scottish partnership,

RMJM, carrying on business in Dubai made no difference to the application of the principles

of UAE law which made the defenders personally liable for the wrongs of RMJM.

The application of articles 111 and 112 of the Companies Law 1984 to RMJM

[51] The second ground of appeal relates to the application of articles 111 and 112 of

Federal Law 8 of 1984, the Companies Law as dealing with Commercial Companies,

generally referred to as the Companies Law 1984, to RMJM, which was of course a foreign

partnership. We begin by setting out the terms of the relevant legislation, the commercial

judge’s decision on this matter and the defenders’ ground of appeal. Thereafter we consider

the evidence of Mr Hanna and Dr Arab on this matter, and finally express our conclusion.

[52] We should note at the outset that the UAE Companies Law 1984 applies to entities

other than companies, in the strict sense; the entities to which it applies include partnerships

and limited partnerships. The provisions of the Law that are material to the present case are

in two parts. The first three provisions, articles 110-112, are each headed

The company shall be bound by the actions of the board of directors performed

within its competence. The company shall also be liable for compensation in respect

of losses caused by unlawful actions performed by the members of the board in the

The chairman and members of the board of directors shall be liable towards the

company, the shareholders and third parties for all acts of fraud, abuse of power,

violation of the law or the company articles, in addition to mismanagement. Any

All board members shall be held liable for any of the actions provided in the

preceding article if the fault occurred as a result of a resolution adopted

unanimously. However, if the majority adopted the resolution causing a liability, the

dissenting directors shall not be held liable if they had entered their objections in the

The absence of a director from the meeting in which the decision was adopted will

not absolve the director from liability unless it is proven that he was not aware of the

resolution or that he was aware of it but was unable to object to it”.

[53] The second set of provisions that are material to the parties’ dispute is found in

articles 313-316. These are each headed “Foreign Companies”. They provide as follows:

Without prejudice to special agreements concluded between the federal government

or one of the local governments and some companies, the provisions of this law shall

apply to foreign companies which practise their main activity in the State or have

their main office therein, with the exception of the provisions relating to the

With the exception of foreign companies licensed to practice activities in the free

zones of the State, foreign companies may not practise their main activity or establish

offices or branches except after obtaining a licence issued by the Ministry upon

acquiring the approval of the Competent Authority in the Emirate concerned. The

licence shall specify the activity which the company is permitted to practise. As a

prerequisite to granting the said licence, the company must engage a national of the

State as its Agent. If the Agent is a company, it must be a UAE national company

Foreign companies, their offices or branches stipulated in the preceding Article may

not commence their activities in the State except after their registration in the

They must have a separate balance sheet, a separate profit and loss account and must

If a foreign company or its office or branch thereto practises activities in the State

before applying the formalities stipulated in the preceding article, all the persons

who performed this activity shall be personally and jointly liable for their actions”.

[54] The commercial judge held that articles 111 and 112 applied to RMJM,

notwithstanding that it was a foreign partnership, with the result that the defenders were

bound by the provisions of the Companies Law relating to the actions of directors. On this

matter, he preferred the evidence of Mr Hanna to that of Dr Arab, and held in particular that

the natural meaning of article 313 of the Companies Law 1984 was that the provisions of that

Law in general applied to RMJM and its partners and their directors. If that were not so, he

thought that there was no point in the exception in article 313 for the provisions of the Law

relating to the incorporation of companies: see paragraphs [30]-[31] above.

[55] The pursuer’s case relies particularly on articles 111 and 112 of the Companies Law

1984. These are directed primarily towards companies with boards of directors, as is

apparent from their wording. The pursuer avers, however, that the provisions are of

general application and apply to other forms of business organisation than ordinary joint

stock companies. That would include a foreign partnership such as RMJM. For this

purpose, the pursuer relies in particular on article 313, as explained in the evidence of

Mr Hanna. In summary, the pursuer’s case is that the word “company” used in the Law of

1984 is wide enough to encompass partnerships, including foreign partnerships, and the

references to “directors” are wide enough to encompass those in charge of a partnership –

the partners, or if the partners are corporate entities those in charge of those entities.

[56] The defenders’ second ground of appeal is that the commercial judge erred in

holding that articles 111 and 112 of the Companies Law 1984 applied to RMJM by virtue of

article 313 of the Law. The commercial judge had relied on what he considered to be the

natural meaning of the words used in the latter article. Nevertheless, it was clear from the

terms of the 1984 Law that it applied to a variety of different forms of body corporate, seven

in total: these were general partnerships, simple limited partnerships, joint ventures, public

and separately private joint stock companies, limited liability companies, and partnerships

limited by shares. Articles 111 and 112 appeared in the chapter of the Law dealing with

public joint stock companies, although they were also applied to private joint stock

companies and limited liability companies. They did not, however, apply to all forms of

corporate body found in Dubai. If the commercial judge were correct, and the Law applied

to entities such as RMJM, foreign corporations or partnerships would be subject

simultaneously to seven distinct legislative regimes, which were not consistent with one

another. In addition, the commercial judge had relied on the evidence of Mr Hanna, but

Mr Hanna had accepted in his oral evidence that foreign companies were not subject to all of

the various provisions of the 1984 Law. Finally, articles 111 and 112 assumed the existence

[57] Mr Hanna dealt with articles 111 and 112 of the Companies Law 1984 in

paragraphs 5 et seq of his first opinion. The question that he addressed is whether the breach

of obligations imposed on a corporate agent or trustee or depositary could apply to the

directors or managers of such a person. Mr Hanna responded in the affirmative. He

referred to the terms of articles 111 and 112. The terms of those articles were a clear

indication that company directors are personally liable for acts that they commit in the

course of exercising their powers and duties or by taking advantage of their prerogatives

and corporate posts. In this part of his report Mr Hanna made reference to criminal

provisions that corresponded to the relevant civil provisions of the 1984 Law, in particular

article 65 of the Penal Code (paragraph 5.1.6). Article 65 made it clear that a penalty

inflicted on the legal entity did not exempt the perpetrator (the director or agent who acted

for the entity) from being punished personally. In relation to the present case, Mr Hanna

thought that the defenders would be personally liable “if (i) they acted on their own

initiative without any instruction or corporate Resolution; (ii) if they transferred the funds to

their own personal account; or (iii) if they had consented to Board Resolutions of RMJM to

convert the funds to RMJM’s property” (paragraph 5.1.7). It should perhaps be noted that in

the civilian systems based on the French and German Codes a breach of the Criminal Code

will normally give rise to civil liability, without the complicated analysis that is generally

[58] Although the foregoing part of Mr Hanna’s report refers principally to companies,

the reference in paragraph 5.1.6 to article 65 of the Penal Code makes it clear that not only

directors but agents may be liable for acts carried out in the name of a legal entity. That

would extend to the partners or other representatives of a partnership to the extent that they

represented the underlying legal entity or made decisions on behalf of the entity; partners

who act on behalf of a partnership, or other agents acting on behalf of the partnership, are

inevitably acting as agents for the underlying entity. We are accordingly of opinion that this

part of Mr Hanna’s report is reasonably clear, to the effect that, if the individuals in charge

of an artificial legal person use their powers in relation to that person to transfer funds to

their own personal accounts, or to convert funds held by the artificial person for the

fiduciary purposes (which would include holding those funds as a depositary), they will be

[59] Such a view is further supported by paragraph 5.2.1 of Dr Hanna’s report, and also

by his oral evidence, which we consider subsequently. Article 5.2.1 deals with authoritative

legal writings and case law on the foregoing matters. These indicate in relation to a

company that, so far as external matters (those not relating to the internal affairs of the

corporation) are concerned, the board of directors is considered the agent of the company

according to the Companies Law. Board members could be liable to third parties for

tortious acts carried out by them in the name of the company. Dr Hanna continued:

“In my opinion,… an unlawful act by a director which deprives the company’s

creditor of his funds deposited with the company (such as the misappropriation of

this creditor’s funds and converting them to the account of the company) leads to the

joint liability of the company and the director(s) to compensate the third party

[60] Counsel for the defenders criticized Dr Hanna’s evidence on the basis, previously

adverted to, that if articles 111 and 112 of the Companies Law applied to RMJM, the

partnership would be subject to seven inconsistent legal regimes, dealing with different

types of legal entity. On a proper consideration of Dr Hanna’s evidence, however, it is clear

that he considered that the effect of article 313 of the Companies Law was merely that the

provisions of the Law (excluding those relating to the incorporation of companies) should

apply to RMJM and other foreign partnerships where the provision in question was relevant

to the partnership. In other words, the Law should not be applied in a general and

indiscriminate manner but should rather be applied having regard to its purposes and in the

context of the particular legal entity and transaction in question. That is the standard

technique used when legislative provisions are applied, in Scotland and in other

jurisdictions, and it has a clear rational basis. We accordingly consider that it is the obvious

way in which a court in the UAE would apply the Companies Law to an entity such as

[61] In his oral evidence, Mr Hanna was asked (appendix, page 320) whether the UAE

Companies Law 1984 applied to RMJM. He referred to the relevant provisions of the Law,

articles 111, 112 and 313, and to the corresponding sections of his first report. It was then

put to him that the defenders were not technically directors of RMJM but rather directors of

its two partners, and he was asked whether in that situation the provisions of UAE company

law relating to directors related to the defenders. We have already noted his response, at

paragraph [42] above. His conclusion was that the directors of the Cypriot companies

should be liable in UAE law for the misuse of funds held on deposit by RMJM:

“[T]he directors of the Cypriot companies which are the only partners and owners of

the Scottish partnership are to bear liability from my point of view from UAE law”

Thus Mr Hanna is quite clear to the effect that, although they were not directors in the strict

sense, the defenders bore analogous responsibilities and were liable under the Companies

[62] In cross-examination, Mr Hanna maintained his earlier position. It was put to him

that article 313 of the Companies Law applied to branches of foreign companies in the UAE

only the specific articles dealing with foreign companies, namely articles 313-316, and the

parts of the Law that were of general application (appendix, page 522). Mr Hanna disagreed

with that proposition; he stated that the text of the Companies Law did not allow such an

interpretation. He also disagreed with the proposition that everything in the Companies

Law 1984 applied to branches of foreign companies. The text of article 313 referred to “the

provisions of this law” and not to any specific parts of the Law. It did not follow, however,

that every provision of the Law applied to foreign companies. Only relevant provisions

[63] In his report Dr Arab considered the application of the Companies Law to foreign

corporate entities. He relied principally on the version of the Law enacted in 2015, but it is a

matter of agreement that that does not apply to the transactions under consideration.

Consequently his report as such is of little utility in relation to the present case. In oral

evidence, however, he commented on the Companies Law 1984 (appendix, pages 591 et seq).

He agreed with Mr Hanna that the Companies Law 1984 would be applicable to RMJM as a

branch of a foreign company. He disagreed, however, that articles 111 and 112 would be

applied to the directors of the company because he considered that those articles have

nothing to do with the branches of foreign companies. The provisions dealing with foreign

companies were found in articles 313-316 (quoted above at paragraph [53]). Beyond those

articles, the provisions of the Law would not apply to the branch of a foreign company. This

was subject to a possible exception for the general provisions in the first 22 articles of the

Law, although on that matter Dr Arab’s evidence appeared ultimately to be uncertain.

Consequently Dr Arab thought that the only basis on which the defenders could be liable

was in tort (delict) under the Civil Code, with no contractual liability and no liability under

[64] In relation to Mr Hanna’s view that article 111 would apply to the defenders as the

directors of the Cypriot companies that were the partners in RMJM, Dr Arab stated that

Mr Hanna’s view had never been tested before the courts in the UAE. He thought, however,

that judges in the UAE would not go beyond the view that the defenders were merely to be

treated as directors of entities outside the UAE and were therefore beyond the scope of

article 111. In cross examination it was suggested that Dr Arab’s view would produce a

strange result, in that persons in charge of a partnership carrying on business in the UAE

would escape the provisions of the Companies Law simply because of the interposition of

Cypriot companies as the partners. Dr Arab replied that matters would still be governed by

the Civil Code. (We should observe that the Civil Code only imposes delictual liability

directly on an individual, and does not impose duties on directors or partners as such).

Conclusion on the application of articles 111-112 of the Companies Law to RMJM

[65] On the application of articles 111-112 of the Companies Law, the commercial judge

preferred the evidence of Mr Hanna to that of Dr Arab, on the basis that we have

summarized at paragraph [54] above. On consideration of the evidence as a whole, we

agree with that conclusion. As with the first ground of appeal, we find the evidence of

Mr Hanna to be clear and coherent. Furthermore, it appears to us to accord with common

sense and the practical considerations that should regulate the conduct of those in charge of

[66] Articles 111 and 112 are relatively far reaching in their effects. Under article 111, the

directors of a company are liable towards the company, the shareholders and third parties

for fraud, abuse of power, violation of the law and mismanagement. It is impossible to

contract out of those provisions. Article 112 enacts the general rule that the directors are

jointly and severally liable for acts falling under article 111. We observe that there would be

no difficulty in applying those provisions to partnerships, substituting references to partners

for the existing references to directors. The partners are self-evidently the persons in charge

of the partnership, and function as the agents of the partnership. Their duties towards the

partnership and its creditors are comparable to those of company directors. In Scotland and

elsewhere in the United Kingdom, both partners and company directors are subject to

fiduciary duties owed to the company and, through the company, to its creditors. While the

law of the UAE does not make use of the concept of the fiduciary duty, in relation to the

funds held on deposit it is obvious that similar principles apply. Those funds must be held

and managed for the benefit of the person ultimately entitled to them, and must not be used

in such a way as to benefit the directors or partners of the entity that holds or administers

the funds. The evidence of Mr Hanna, which we have set out at paragraphs [36]-[42] above,

[67] Mr Hanna’s evidence was that article 313 of the Companies Law 1984 applies the

provisions of the law to foreign companies practising within Dubai so far as those

provisions are relevant to the particular body in question. On this basis he considered that

the law was quite capable of applying to a partnership such as RMJM. We find that

evidence persuasive. Especially in relation to the contract of deposit or its equivalents,

exactly the same considerations apply to a partnership as to a company. It is the persons in

charge of the partnership that should be responsible for the safe keeping of deposited funds,

in exactly the same way as company directors in the case of an incorporated company. If the

law were otherwise, funds that should be held on deposit and administered for the benefit

of the person ultimately entitled to them could be used to benefit the depository, or to pay

its debts. That would entirely subvert the purpose of the contract of deposit.

[68] Article 313 refers to “foreign companies”, but Mr Hanna explained that the Arabic

word represented by “company” covers a range of entities, including partnerships. On that

basis, article 313 applies directly to a foreign partnership practising in Dubai. The result,

Mr Hanna indicated, was that the relevant parts of the Law would apply to an entity such as

RMJM and its partners. The commercial judge held that the expression “this law” in article

313 must include the Companies Law 1984 as a whole. If that were not so, the exception

found at the end of article 313, for the provisions relating to the incorporation of companies,

would have no meaning. We agree with that view. Perhaps more important, however, is

the fact that if the relevant parts of the Law as a whole did not apply the affairs of foreign

entities, whether companies or partnerships, would not be subjected to the detailed

regulation to which similar entities registered in the UAE are subject. In our opinion that

[69] It was argued for the defenders that, if Mr Hanna’s interpretation of article 313 were

correct, a foreign entity such as RMJM would potentially be liable to seven different types of

legal regime, covering a range of companies, partnerships and joint ventures and other

entities. These were inconsistent with one another, and the result of the general application

of the Law to foreign entities would be chaotic. In our opinion this argument must be

rejected. It is clear from the evidence of Mr Hanna that only relevant parts of the Law

should be applied to any particular entity; a discriminating approach should be adopted.

The defenders’ argument was that article 313 only applied the provisions expressly headed

“foreign companies” (articles 313-316) to foreign entities, together with possibly the general

provisions found in the first 22 articles of the Law; the remaining articles were said to be

inapplicable. The problem with that approach is that it leaves the individuals in control of

foreign entities, whether as directors or partners or, as in the present case, directors of

partners, outside the system of control imposed by the Companies Law. If that were so, it

would be relatively easy to avoid the system of control found in the Law by making use of

foreign entities. It is perhaps unnecessary to describe the adverse consequences that would

result from such an interpretation. We have no hesitation in rejecting it.

[70] For the foregoing reasons we are of opinion that the second ground of appeal should

be refused, and that the commercial judge reached the correct conclusion on this matter.

Like the commercial judge, we accept the evidence of Mr Hanna that articles 111 and 112 of

the Companies Law 1984 applied to RMJM by virtue of article 313 of that Law.

[71] We are accordingly of opinion that both grounds of appeal should be refused. That

concludes the issues raised in the course of the preliminary proof on foreign law. It is still

necessary, of course, to determine the facts of the dispute between the parties, and thereafter

to consider how the evidence of foreign law applies to the facts found by the court. On that

basis, we well remit the action to the Commercial Court to proceed as accords.

Scottish Court of Session Decisions