Assignment of Right and the Non Applicability of the Arbitration Clause to the Assignee and the Inadmissibility of Cassation Against Non Final Judgments.

Practice Area: Civil Law – Commercial Contracts – Arbitration

Outcome: The Court of Cassation held that the arbitration clause was not binding on the assignee bank, as the assignment predated the arbitration agreement, and ruled the appeal inadmissible because the judgment was not final under Article 152 of the Civil Procedures Law.

Facts

The facts of the case are summarized as follows:
The first respondent bank filed a lawsuit before the Dubai Court of First Instance seeking a judgment validating and enforcing an assignment of right concluded between it and the contractor against the appellant company, and ordering the appellant to pay the amount of AED 248,550,000, together with legal interest. This claim was based on the ground that the contracting company had entered into a contract with the appellant for the development of a real estate project, then assigned to the bank all its financial rights arising from the project. The appellant was duly notified of the assignment but refrained from payment.

The bank also joined the consultant as a party to submit the project documents. The appellant pleaded inadmissibility of the claim due to the existence of an arbitration clause contained in the construction contract. The Court of First Instance rejected this plea and appointed an expert committee. The appellant appealed this judgment before the Court of Appeal, which upheld the appealed judgment. The appellant then challenged the judgment by way of cassation.

Grounds of Appeal

The appellant argued that the dispute is subject to the arbitration clause contained in the construction contract concluded between it and the contractor, and that this clause is binding on the bank in its capacity as assignee, on the basis that an assignment transfers the right together with its accessories, including the arbitration clause. Accordingly, the bank’s recourse to the courts was alleged to be contrary to the arbitration agreement agreed upon between the parties to the original relationship.

 

Court’s Opinion

The Court of Cassation concluded that the arbitration clause does not apply against the first respondent bank. It was established that the assignment of right was executed on 29/9/2019 and that the appellant was notified thereof on 22/1/2020, i.e., prior to the conclusion of the construction contract dated 13/5/2020, which contained the arbitration clause. Consequently, the right was transferred to the bank free from this clause, and no effect is given to a subsequent agreement concluded by the assignor with the debtor after the assignment had taken effect against the latter.

The Court further held that the letter of award upon which the assignment was based did not contain any arbitration clause or a clear reference thereto. Since the challenged judgment did not finally dispose of the dispute and was not among the judgments that may be appealed independently pursuant to Article 152 of the Civil Procedures Law, the Court ruled that the appeal was inadmissible.

Legal Principle

The transfer of a right by way of assignment results in the assignee substituting the original creditor within the limits of the assigned right and its accessories existing at the time of its transfer. An arbitration clause does not extend to the assignee if the agreement thereto was concluded after the assignment had taken effect against the debtor. Moreover, judgments rejecting a plea of inadmissibility based on the existence of an arbitration clause, where such judgments do not finally dispose of the dispute, may not be appealed independently by way of cassation, pursuant to Article 152 of the Civil Procedures Law.