Between Lease and Investment: The Court of Cassation Defines Jurisdiction Limits for Resolving Rental Disputes in Build-Operate (BO) Contracts.

Practice Area: Real Estate & Investment Law / Contractual Disputes

Outcome: The Court of Cassation annulled the appealed judgment and confirmed that Dubai’s ordinary courts, not the Rental Disputes Center, have jurisdiction over Build-Operate (BO) contracts. The case was referred back to the Court of Appeal for resolution on the correct legal basis.

Introduction
This case addressed a nuanced issue concerning the classification of the contract concluded between Dubai Municipality and a private company—specifically, whether the contract should be treated as a lease, falling under the jurisdiction of the Rental Disputes Center, or as an investment contract of the build-and-operate (BO) type related to infrastructure projects, which would fall under the jurisdiction of Dubai’s ordinary courts.

The case raised a fundamental question regarding the scope of Decree No. (26) of 2013, which governs the Rental Disputes Center in the Emirate of Dubai, and whether its interpretation could be extended to encompass contracts of an investment nature.

The Court of Cassation ultimately overturned the appealed judgment, which had held that Dubai courts lacked jurisdiction. The Court affirmed that construction and operation contracts do not constitute rental disputes and emphasized that extending the application of the decree to cases beyond those explicitly stipulated by law constitutes a clear violation of its provisions.

 

Facts
Dubai Municipality (the appellant) initially filed a lawsuit against a private company (the respondent), seeking termination of a build-and-operate (BO) contract. The municipality requested that the company vacate the site, hand it over empty, and pay various amounts related to site utilization, delay penalties, compensation, and fees. The claim was based on the company’s alleged breach of contractual obligations, including delaying the commencement of commercial operations and ceasing performance without prior notice, despite several final deadlines for compliance.

In response, the company filed a counterclaim seeking restoration of the economic balance of the contract, an extension of its term, the appointment of experts to determine the fair rental value of the property, and calculation of operational losses along with compensation for construction costs.

After appointing a committee of engineering and accounting experts, the Court of First Instance ruled in favor of the municipality, terminating the contract, ordering the company to vacate the site, and awarding the claimed amounts while rejecting the counterclaim. Both parties appealed. The Court of Appeal annulled the judgment, holding that Dubai courts lacked subject-matter jurisdiction, as the dispute constituted a rental matter under the jurisdiction of the Rental Disputes Center. The municipality subsequently appealed this ruling to the Court of Cassation.

Court’s Opinion
The Court of Cassation found the appeal well-founded, emphasizing that while trial courts have the authority to characterize claims, such characterizations are subject to review if they result in the misapplication of the law.

Examining Articles (2) and (6) of Decree No. (26) of 2013, which governs the Rental Disputes Center in Dubai, the Court concluded that the decree departs from general jurisdictional rules and cannot be interpreted expansively. The Center’s jurisdiction is strictly limited to pure rental disputes arising between landlords and tenants in their respective capacities.

The Court highlighted that modern contracts in major projects take various forms, including BOT (Build-Operate-Transfer), BOOT (Build-Own-Operate-Transfer), and BLT (Build-Lease-Transfer) contracts. These are complex investment contracts designed for the development, operation, and management of public facilities and are fundamentally different from lease agreements.

Regarding the contract at issue, the Court noted that it was a Build-Operate (BO) contract, under which the investor company assumes all construction, operation, and maintenance costs and derives investment returns during the contract term, without acquiring usufruct rights over the property as in a lease. Consequently, the contract falls outside the definition of a lease under Law No. (26) of 2007, which governs landlord-tenant relationships in Dubai.

Accordingly, the Court held that the dispute lies outside the jurisdiction of the Rental Disputes Center and within that of Dubai’s ordinary courts. The appealed judgment, which had held otherwise, was therefore a misapplication of the law and was annulled, with the case referred back to the competent court.

Conclusion

The Court of Cassation concluded that Build-Operate (BO) investment contracts do not constitute leases under Dubai’s rental laws. Such contracts are based on the principle of investing in and operating public facilities, with the investor assuming associated costs and risks, rather than merely granting the right to use property for consideration. The Court emphasized that the jurisdiction of the Rental Disputes Center is exceptional and cannot be interpreted broadly. Consequently, Dubai’s ordinary courts are competent to hear disputes arising from such contracts. The Court annulled the appealed judgment and referred the case back to the Court of Appeal to resolve the dispute on the correct legal basis.