The Dubai Court of Cassation No 120 of 2024 (Commercial) has shed light on the applicable limitation period for contractual breaches, following the introduction of the new UAE Commercial Transactions Law No 50 of 2022 (the “22 CTL”)which came into effect in January 2023 and introduced shorter limitation periods compared to the previous UAE Commercial Transaction Law No 18 of 1993 (the “93 CTL”).

The Facts

The case concerned a series of contractual breaches by a service user who failed to effect various payments over 2016 and 2017 in relation to residential services provided by a service provider in Dubai.

At the Dubai Court of First Instance, and following the report of a court appointed expert, the service provider was successful in obtaining judgment in its favour. On appeal, the Dubai Court of Appeal amended the judgment and apportioned the judgment amounts but otherwise upheld the Dubai Court of First Instance judgment.

Referral to the Dubai Court of Cassation by the Public Prosecutor

In a rare and unusual application of Article 176 of the UAE Civil Procedure Code, the matter was appealed before the Dubai Court of Cassation by the Public Prosecutor as an appeal of legal significance affecting the interpretation of the applicable laws on the limitation period.

Under this law, the Public Prosecutor may file an appeal against any final judgment of the court if it considers there to have been an error of law or error in the application or interpretation of law in cases where the parties have no right to appeal any further, or where the deadline to appeal the case has elapsed.

Question for the Court

It was argued, by the Public Prosecutor before the Dubai Court of Cassation, that by virtue of the 22 CTL, a limitation period applied of five years for debt claims.

However, the Public Prosecutor contended that the limitation period commenced from the date the contractual breaches occurred, which preceded the enactment of the 22 CTL.

Dubai Court of Cassation decision

The Court reviewed Articles 6 and 7 of the of Federal Law No 5 of 1985 (UAE Civil Code) which state that:

Article 6

The new provisions relating to the statute of limitations shall apply form the time they come into force to any limitation period that has not yet been completed.

Article 7

1. If the new provision sets a shorter limitation period than the old provision, the new period shall apply from the time the new provision comes into force, even if the old period had already commenced.

2. However, if the remaining period under the old law is shorter than the period set by the new provision, the limitation period shall be completed upon the expiry of this remaining period.

It determined that the new provisions relating to the limitation period apply from when they came into force and are applicable to any limitation period that has not yet been completed, irrespective of whether the new law extends or shortens the limitation period.

It further held that, if the new law introduces a shorter period than that provided by the previous law, then the new period applies from the time the new provision came into force.

However, where the remaining period under the previous law is shorter than the period set by the new law, the limitation period completes on the expiry of the remaining period under the old law.

On application in this case, Article 95 of the 93 CTL provided for a limitation period of ten years, whereas Article 92 of the 22 CTL, provides a limitation period of five years.

The 22 CTL introduced a much shorter limitation period and therefore the new period applies from the effective date of the new provision and not from when the date of the entitlement of debts arose which, in this instance, was between 2016 to 2017.

Where the remaining period under the 93 CTL is shorter than the period under the 22 CTL, then the limitation period expires at the conclusion of the period calculated under the 93 CTL.

In this instance the various contractual breaches, as indicated, occurred between 2016 and 2017.

The limitation period applicable under the 93 CTL would have been ten years, meaning that the limitation period would have expired on or around 2026 to 2027.

However, in January 2023, the 22 CTL changed the limitation period to five years. Accordingly, because the remaining limitation period under the 93 CTL was between three to four years, as of January 2023, the limitation period of ten years since 2016/2017 under the 93 CTL would be the one applicable.

In contrast, if the contractual breaches had occurred in January 2021, then the limitation period under the 93 CTL would have been ten years, meaning that this would have expired in January 2031. This means that in January 2023, when the 22 CTL came in force, eight years would have been remaining from the limitation period.

However, the new limitation period introduced by the 22 CTL in January 2023, stipulated a five-year period. This is a period shorter than the outstanding limitation period of eight years, under the 93 CTL. Therefore, the party wishing to bring a claim in that scenario, would have had an additional five years from 2023, i.e., the two years that elapsed since the breach of contract plus the five years afforded by the 22 CTL.

The Dubai Court of Cassation did not allow the appeal as the Dubai Court of Appeal had correctly applied the limitation period.

Conclusion

Whilst the circumstances under which this appeal was filed were unusual, the resulting judgment of the Dubai Court of Cassation provided a useful guide on how to calculate the correct limitation period for contractual breaches that occurred before the 22 CTL came into force.