The Court of Cassation Speaks: No Justice Without Reasoning, No Judgment Without Scrutiny.

Practice Area: Civil Litigation – Partnership Disputes, Contractual Obligations, Financial Claims

Outcome: Judgment annulled; case referred to the Court of Appeal for retrial

I. Introduction
This case concerns a civil dispute between partners in a construction company regarding the execution of an agreement for the transfer of ownership of certain company divisions and the settlement of the resulting accounts, along with the associated reciprocal financial claims.

The dispute originated before the Court of First Instance and proceeded through the appellate stages, ultimately reaching the Court of Cassation, which annulled the contested judgment and referred the case back to the Court of Appeal for reconsideration.

II. Facts
The facts of the case can be summarized as follows: the appellants (two partners) filed the original lawsuit against the respondent (the third partner), requesting that he be compelled to pay a specified sum of money pursuant to an agreement signed between them in 2021, which served as an addendum to a Memorandum of Understanding executed in 2017. This agreement stipulated the transfer of ownership of three company divisions to the respondent at their book value, after deducting his entitlements from the agreed-upon price.

The respondent, however, refused to pay the amount despite the appellants fulfilling their obligations, prompting them to initiate the lawsuit.

Following the appointment of an expert and the submission of their report, the respondent filed a counterclaim, seeking to compel the appellants jointly to pay him AED 34,017,097 with a legal interest of 9%. He argued that the valuation of the divisions had not been based on audited financial statements and that the profits due to him for the years 2021–2023 had not been correctly calculated.

After the appointment of a second expert, the Court of First Instance ruled that the appellants were to pay AED 20,688,513.04 with a legal interest of 5%, while rejecting the remaining claims.

Both parties appealed the judgment, and the Court of Appeal upheld the original decision. The appellants subsequently filed an appeal against this judgment before the Court of Cassation.

III. Grounds of Appeal
The appellants’ grounds of appeal asserted that the contested judgment violated the law and infringed upon their right to defense. They argued before the Court of First Instance that the respondent’s counterclaim should be dismissed on the basis that the respondent lacked standing, as it is the companies—not the individual partners—that owe profits to the partners. They also contended that the claim for price reduction was time-barred, having been filed more than one year after the respondent received the transferred assets.

The appellants further challenged the judgment for deficiencies in reasoning and misapplication of the law. They highlighted that the expert report relied upon by the Court contained a material calculation error: the expert double-counted the respondent’s entitlements—once as part of his share of profits and again under the “partners’ loans” account—thereby inflating the amounts owed. Additionally, the expert failed to address the appellants’ objections regarding the valuation of the three company divisions transferred to the respondent, despite a clear agreement documented in an email in which the respondent explicitly acknowledged the valuation. The judgment, however, overlooked this fundamental defense and relied on the flawed expert report, constituting inadequate reasoning and a violation of the right of defense, warranting annulment.

IV. Court’s Opinion and Reasoning
The Court of Cassation found that the appellants’ arguments regarding calculation errors in the expert report and deficiencies in reasoning were substantial and directly impacted the outcome of the contested judgment. The Court recognized that the final expert report, relied upon by the Court of First Instance, contained a significant error: the expert accounted for profits due to the respondent twice—once as part of his share of prior years’ profits and again as a “partners’ loan”—resulting in duplication and overstatement of amounts owed.

Moreover, the appellants emphasized that the expert had acknowledged in his preliminary report the difficulty of verifying these calculations due to the discontinuation of the company’s old accounting system in 2015–2016, with relevant data no longer accessible. This required an independent verification of the partners’ loan accounts to ensure accuracy, which the expert failed to conduct, leaving the issue unresolved.

The appellants also argued that the expert ignored a critical aspect of the dispute: the agreed valuation of the three transferred divisions. The expert did not adopt the valuation confirmed by the respondent in an email dated 16 May 2021 and instead reduced the valuation without technical or legal justification, prejudicing the appellants and undermining fairness in assessing the parties’ financial rights.

The Court concluded that the Court of First Instance, by relying on the flawed report without addressing the substantive objections or explaining why the expert’s opinion was preferred despite its inconsistencies, issued a judgment suffering from inadequate reasoning and a violation of the right of defense. It is well-established that a court must confront substantive defenses, clearly articulate reasons for rejecting them, and base its decision on sound reasoning evident in the case record; failure to do so renders the judgment null.

Consequently, the Court of Cassation held that the contested judgment relied on an incomplete and insufficiently reasoned expert report, necessitating annulment and referral to the Court of Appeal for reconsideration of the dispute in light of the substantive objections concerning profit calculations and the valuation of transferred divisions.

V. Conclusion
The Court concluded that the appellants’ appeal was well-founded in fact and law. The contested judgment was found deficient in reasoning and violative of the right of defense due to reliance on an expert report containing material calculation errors and failure to consider fundamental defenses regarding double-counted profits and verification of partners’ loan accounts. The judgment also ignored the agreed valuation of the transferred divisions, as documented in official correspondence, recognizing that the parties’ relationship was governed by partnership agreements and internal account settlements rather than a sale or claim for price reduction.

Accordingly, the Court annulled the contested judgment and referred the case to the Court of Appeal for retrial, underscoring the principle that safeguarding the right of defense and ensuring sound judicial reasoning are essential pillars of valid judicial decisions.