Introduction
In a recent arbitration case, which concerned a real estate project; a real estate developer company incorporated in the
The Owner sought to establish his ownership rights in respect of the Project and claimed monetary compensation against the
Background
The dispute relates to the sale of shares of the Owner's Company in the Project based on two separate sale and purchase agreements, with two different parties.
Two agreements were executed; the first was a share purchase agreement (the “SPA”) entered between the Owner and an offshore company incorporated in Jebel Ali,
The second agreement was executed two years thereafter; a tripartite sale and purchase of business agreement (the “Project Purchase Agreement”) entered between the Owner, the Purchaser, and the
By virtue of the Project Purchase Agreement, the
Applicable law
The SPA was governed by the laws of the
Legal Issue to be determined
The question in this arbitration was whether by virtue of the Project Purchase Agreement, there was an assignment of the Purchaser's obligation under the SPA (to the
The Owner argued that the Purchaser's obligations had passed on to the
Summary of parties' positions
Regarding the issue of 'assignment'; the Owner argued that the issue should be determined based on real estate laws, and that the DIFC real estate law cannot apply because the property (Project) was located outside the DIFC jurisdiction. On that basis, the Owner referred to Article 251 of the
Personal rights created by the contract relating to a property that has subsequently been transferred to a particular successor shall devolve to this successor at the same time as the transfer of title to the property, if it is an essential element thereto and if the particular successor in title had knowledge of these rights at the time of the transfer of the property to him.
Relying on the above referenced provision, the Owner argued that his claim was not based on the existence of an 'assignment', but rather, 'replacement' of the Purchaser with respect to the obligation of handing over the Project under the SPA. Furthermore, the claim adds that the
Alternatively, the Owner argued that even if the Tribunal finds that the DIFC laws are applicable, this would have led to the same outcome. The Owner contended that the position is similarly supported by reference to Articles 92(1) and 96(1) of the DIFC Law No. 6 of 2004 (“DIFC Contract Law”).
The
Analysis & decision
The distinction drawn on behalf of the Owner on whether there was an assignment or 'replacement', was considered a moot point. The Tribunal did not recognize the existence of a legal concept of 'replacement' and noted that such distinction did not take the Owner's case any further.
The Tribunal dismissed all the claims against the
The starting point of the Tribunal's analysis was to highlight the basic fact that the
An assignment of rights and obligations is defined under Article 92 of the DIFC Contract Law as follows:
92. Assignment of rights and obligations
(1) An assignment of a contractual right is a transfer by virtue of which the assignor's right to performance by the obliger is extinguished in whole or in part and the assignee acquires a right to such performance.
(2) An assignment of a contractual obligation is delegation of the obligation to the assignee.
(3) An assignment of a contract by a party is an assignment of the contractual rights and delegation of the contractual obligations of the party.
The definitions set out above are supplemented by further interpretation of the words of assignment and its legal effect under Article 96 of the Law:
96. Interpretation of words of assignment; effect of acceptance of assignment
(1) Unless the language or the circumstances indicate the contrary, as in an assignment for security, an assignment of a contract or of all rights under a contract or an assignment in similar general terms includes a delegation of the unperformed duties of the assignor under the contract.
(2) unless the language or the circumstances indicate the contrary, the acceptance by an assignee of such an assignment operates as a promise to the assignor to perform the assignor's unperformed obligations, and the obliger of the assigned rights is an intended beneficiary of the promise.
The limits on assignment of rights and delegation of obligations as well as the discharge of the obligation of the delegating obliger are clearly defined under Article 94:
94. Limits on assignments and delegations
(1) A contractual right can be assigned unless:
(a) the substitution of a right of the assignee for the right of the assignor would materially change the duty of the obliger, or materially increase the burden or risk imposed on him by his contract, or materially impair his chance of obtaining return performance, or materially reduce its value to him; or
(b) assignment is precluded by contract.
(2) A contractual obligation can be delegated unless:
(a) the oblige has a substantial interest in having the obliger perform or control the acts promised; or
(b) the delegation is precluded by contract.
(3) Neither delegation of performance nor a contract to assume the duty made with the obliger by the person delegated discharges any obligation or liability of the delegating obliger.
Firstly, with reference to Article 94(2)(b), it was found that no 'assignment' had taken place because the SPA contained a provision which prevented the Purchaser from assigning or delegating any of the rights or obligations provided under the SPA. Accordingly, the Tribunal found that in accordance with Article 94(2)(b), the assignment or delegation was precluded by the contract itself, i.e., the SPA.
It was further explained that even in cases where a contractual prohibition of an assignment may not prevent the assignment of a right entirely, it will in any case, prevent the delegation of performance of a duty/obligation by the assignor to the assignee, which is also consistent with Article 95(1) of the DIFC Contract Law:
95. Contractual prohibition of assignment
(1) Unless the circumstances indicate the contrary, a contract term prohibiting assignment of the contract bars only the delegation to an assignee of the performance by the assignor of a duty or condition.
Therefore, in the present case, the contractual prohibition prevented the delegation of the Purchaser's performance obligation to the
Nonetheless, in further consideration of the Claimant's case, the sole arbitrator discussed that even if the contractual prohibition did not form part of the SPA, the outcome of this issue will remain the same in view of the circumstances and the agreements that had been executed.
Turning to the Project Purchase Agreement, the Tribunal decided that this created new contractual rights and obligations between the concerned parties. That, could not, have created an assignment in respect of rights and obligations under a different agreement executed by different parties (i.e., the SPA), unless it expressly provided for the assignment in terms consistent with Article 92 of the DIFC Contract Law. Similarly, and in any event, the SPA itself could not have created an assignment to any other third parties (including the
Further to the Owner's argument that the
It was established that it is not only necessary to show that assignments may take place under the applicable law, but to further show by reference to factual evidence that the assignment was agreed by both the assignor and the assignee and accordingly created.
In absence of unequivocal evidence of the Respondent's intention to become the assignee with respect to the Purchaser's contractual obligations, and its intention to assign such obligations to the
Finally, the Owner's reliance on provisions of
In view of the above findings, it was decided that the Owner did not meet the threshold to establish the existence of an assignment.
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