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In a recent decision by the Dubai Court of Cassation (‘DCC’), critical issues surrounding the scope and continuity of guarantee obligations were addressed. 

The ruling in Commercial Appeal No. 1313 of 2024, delivered following a public session on 29 January 2025, provided important guidance on how guarantor liability is interpreted in commercial disputes. 

This article analyses the key aspects of the judgment, focusing on the interpretation of guarantee agreements, the impact of a guarantor’s exit from a debtor company, and the application of statutory provisions governing guarantee termination.

Case Background

The dispute arose when BII LLC initiated Commercial Case No. 5482 of 2023 before the Dubai Court of First Instance. 

It had sought to enforce a financial obligation against AS, who had provided a personal guarantee for funds provided to a legal entity, ACTC.

Under the guarantee, AS undertook to pay an outstanding debt of AED 871,359.72—representing the unpaid value of 18 invoices for supplied goods—plus interest at a rate of 5% per annum, accruing from 31 May 2021 until full settlement.

Despite the BII LLC obtaining four cheques from ACTC, corresponding to the invoice value, the said cheques were dishonoured due to there being insufficient funds. 

In response, BII LLC initiated enforcement proceedings against ACTC via cheque execution (akin to a payment order) under case No. 6753 of 2022. 

However, actual execution of the order obtained could not proceed because ACTC had closed its bank accounts and had no attachable assets. 

With ACTC continuing to default on its obligations, BII LLC pursued direct enforcement against AS.

Eventually, BII LLC secured an execution order (No. 2168 of 2022) against AS in his capacity as guarantor. 

AS appealed and the Dubai Court of Appeal uphel the lower court’s order, with AS proceeding with an appeal before the DCC.

AS’ Objections and Arguments

AS raised several preliminary objections, including an assertion that he was no longer an appropriate party to be held liable under the guarantee. 

His contentions were the following:

Termination of Guarantee Due to Exit from ACTC

AS asserted that his guarantee was strictly tied to his role as a partner in ACTC. He contended that following his exit from the company pursuant to a share sale, his guarantee should have terminated.

Expiration of Guarantee Under the Six-Month Rule:

Additionally, AS argued that the guarantee should be considered as expired because more than six months had passed since the due date of the underlying invoices. 

He relied on Article 1092 of the Civil Transactions Law, which provides that a guarantor may be released if the creditor fails to claim the debt within six months of its due date.

Furthermore, AS maintained that a settlement had been reached between BII LLC and ACTC. 

This settlement allegedly involved the settlement of the unpaid invoices with four stamped cheques, effectively releasing him from further obligations. 

He also contended that his liability should be limited to his proportionate share as a partner rather than his personal obligation as guarantor.

DCC’s Analysis and Reasoning

The DCC, after reviewing extensive documentary evidence, including the guarantee document dated 5 June 2016, a related expert report, and the record of enforcement proceedings, found that BII LLC’s claim was substantiated. 

According to the DCC, the evidence clearly demonstrated that ACTC had not paid the guaranteed invoices, and the four dishonoured cheques had not resulted in any actual payment.

In assessing AS’ arguments, the DCC reiterated established legal principles regarding guarantee agreements. 

Under Articles 1056, 1057, and 1078 of the Civil Transactions Law, a guarantee is an incorporation of the guarantor’s liability into that of the debtor. 

It is formed through explicit language or equivalent expressions of commitment. 

The DCC stressed that a guarantor’s consent is effective unless it is expressly revoked by the creditor. 

Moreover, the DCC clarified that the right to enforce a guarantee remains attached to the original obligation, regardless of changes in the guarantor’s corporate relationship with the debtor.

Regarding the six-month rule, the DCC reiterated that this was not a rule of public order. 

The DCC noted that Article 1092 does not automatically extinguish a guarantee after six months and that is subject to the agreement of the creditor and the guarantor. 

In the present case, the guarantee was intended to remain in force until the full discharge of the ACT Company’s obligation. 

AS’ claim that his exit from the company should terminate his guarantee was similarly rejected. 

The guarantee document did not provide for automatic termination upon the guarantor’s departure, and the parties had not agreed to any such condition.

Finally, the DCC dismissed AS’ request for the production of additional guarantee documents, finding that the guarantee already submitted was clear and unambiguous. 

The lower court’s decision, which imposed a payment obligation of AED 600,000 plus interest on AS, was firmly grounded in both the contractual language of the guarantee and the supporting documentary evidence.

Implications and Conclusion

Ultimately, the DCC rejected AS’ cassation appeal, thereby upholding the lower courts’ decisions.

As was ordered to pay BII LLC the amount specified, along with applicable interest, and to bear a nominal amount towards legal costs and attorney’s fees. 

The DCC ruling in this case reaffirms that guarantee agreements are to be interpreted strictly in accordance with their express terms and established principles. 

A guarantor’s obligation remains binding even if there are changes in corporate status or if non mandatory statutory time limits might otherwise suggest termination – unless there is clear, contractual evidence to the contrary. 

This DCC judgment emphasises that any modification of a guarantee’s duration or scope must be expressly agreed upon by all parties involved.