Appellate Judgment in Favor of Our Client Overturning the Court of First Instance Judgment and Referring the Dispute to the Bankruptcy Court.

Facts of the Case

One of the parties contracting with our client filed a real estate action before the Dubai Court of First Instance, seeking the nullification and rescission of an off-plan sale and purchase agreement, together with a refund of the full purchase price paid plus interest. The claimant alleged the developer’s failure to register the property in the interim real estate register and failure to deliver the unit within the contractually agreed timeframe.

After hearing the case, the Court of First Instance rendered a judgment declaring the agreement null and void and ordering the developer company (our client) to refund the full purchase price, together with legal interest.

Following the issuance of this judgment, our firm assumed legal representation of the adjudged company and promptly filed an appeal, relying on fundamental legal defenses relating to public order.

Grounds of Appeal

The appeal was primarily based on the plea of lack of jurisdiction, on the grounds that a prior judgment had been issued opening bankruptcy proceedings against the company and divesting its management of the authority to dispose of its assets. Consequently, exclusive jurisdiction over all disputes relating to the company’s debts was vested in the Bankruptcy Court.

In addition, we raised the defense of inadmissibility of the claim due to the existence of a valid arbitration clause in the sale and purchase agreement. We emphasized the principle of the independence of the arbitration clause from the main contract, as well as the appellant’s right to raise this defense for the first time before the Court of Appeal, pursuant to the devolutive effect of appeal proceedings.

The Court’s Opinion and Legal Basis

The Court of Appeal upheld the substantive defenses advanced by our firm and ruled that the issuance of a judgment opening bankruptcy proceedings produces an immediate legal effect namely, the suspension of the jurisdiction of ordinary courts to hear or continue any substantive claims relating to the debts of the bankrupt company.

The court relied on settled legal principles established by the General Assembly of the Court of Cassation, which confirmed the exclusive jurisdiction of the Bankruptcy Court over all disputes related to the bankrupt debtor’s debts, including real estate disputes arising from sale and purchase agreements.

Accordingly, the Court of Appeal ruled to fully annul the judgment of the Court of First Instance and to decide the matter anew by declaring the lack of jurisdiction and referring the dispute to the competent Bankruptcy Court. This judgment constitutes a significant procedural and legal precedent in favor of our client.

Legal Principle

Once a judgment opening bankruptcy proceedings is issued, exclusive jurisdiction is conferred upon the Bankruptcy Court over all claims, procedures, and disputes relating to the debtor’s debts, including debt-related disputes involving companies. No substantive action may be initiated against the debtor, nor may any pending action continue before the ordinary courts. In such circumstances, the court must declare its lack of jurisdiction and refer the dispute to the competent Bankruptcy Court, in furtherance of the legislator’s objective in regulating bankruptcy namely, the orderly liquidation of the debtor’s assets and the equitable distribution thereof among creditors, free from conflict or fragmentation of proceedings.