News

In a recent judgment, the Dubai Court of Cassation sheds some light on the intersection between time bars for civil and criminal claims.

In this case, the Claimant, a major construction Public Joint Stock Company, issued proceedings against the First Defendant, who was the Claimant’s Chief Executive Officer between 2008 and 2016 and another party.

The Claimant sought from both Defendants joint and several payment of AED 470 million plus interest at 12% per annum from the date of the judicial demand up until full repayment.

The Facts

In October 2017, an internal investigation into the Claimant and its subsidiaries revealed unlawful activity and the misappropriation of various funds (including over AED 470 million) from the Claimant and its subsidiaries. The Claimant reported this to the Dubai Public Prosecution and obtained an international arrest warrant against the First Defendant.

It transpired that the First Defendant had presented a proposal to the Board of Directors in 2013 for the Claimant to venture into the construction sector in Saudi Arabia by acquiring some of the shares of the partners of a separate company by way of an investment of SAR 80 million in return for the Claimant and one of its subsidiaries securing a contract for a project worth SAR 1.7 billion.

The Claimant’s Board of Directors approved this and granted the First Defendant’s authority as a signatory on behalf of the Claimant on condition that there would be legal and financial due diligence carried out on the project and that the results would be presented to the Board for decision-making.

The First Defendant (without consulting the Board), entered into three contracts before issuing written instructions for the Second Defendant to sign these contracts and requesting that the Claimant pays the full price for the shares, which amounted to SAR 68.5 million.

The Claimant considered the First Defendant’s actions to have been unlawful, constituting gross negligence entitling it to claim significant losses which it claimed through a civil case before the Dubai Court of First Instance.

However, the case was filed more than three years had elapsed since the alleged unlawful act was committed.

The Court proceedings

At a hearing on 30 June 2021, the Dubai Court held that the Defendants were jointly and severally liable to pay the Claimant over 365 million dirhams in compensation and damages, along with interest.

The First Defendant successfully appealed against this decision before the Dubai Court of Appeal, arguing that the claim was time-barred pursuant to Article 298 of the UAE Civil Transactions Law, which states that:

1. An action for damages arising from an unlawful act is prescribed after three years from the date upon which the victim knew of the injury and the identity of the person who was responsible.
2. Where a claim arises out of a criminal offense and the hearing of the penal action is still pending after the lapse of the periods above-mentioned in the preceding clause, the action for damages may still be heard.
3. An action for damages is prescribed in any case after fifteen years from the date on which the prejudicial act was committed.

In January 2022, the Claimant applied to have that decision overturned and the matter was referred to the Dubai Court of Cassation.

Dubai Court of Cassation decision and the principle it clarified

The Dubai Court of Cassation considered that, if the wrongful act constitutes a crime which leads, or may lead, to the initiation of a criminal case alongside the civil case, then limitation of the civil case does not expire until limitation of the criminal case does.

If the two cases are dealt with separately and a claimant chooses the civil route over the criminal route to claim compensation, then the statute of limitations under Article 298 of the Civil Transactions Law is suspended for as long as the right to file, initiate, or proceed with the criminal case remains open.

This suspension continues until either the crime is prescribed or any criminal case filed is resolved by a final judgment.

This is because the existence of the right to file, initiate, or proceed with the criminal case is considered a “lawful excuse” (within the meaning of Article 481 of the UAE Civil Transactions Law[1]) that prevents the affected party from claiming their right to compensation.

That provision states that:

1. Prescription barring the admittance of hearing the case is interrupted whenever there is a lawful excuse barring claim of the right.
2. The period within which the excuse still exists shall not count in the calculation of the prescribed period of prescription.

The Dubai Court of Cassation acknowledged that, where liability for tortious (but not criminal) acts was concerned, the limitation period was short: three years from the date of actual knowledge of both the damage and identity of the responsible party by the affected party.

The effect of this would, in principle, be that the passage of time without a civil action having been filed, amounts to a deemed waiver of the right to be compensated.

However, where a wrongful/tortious act is also a criminal act that can lead to criminal proceedings being commenced concurrent to the civil case, limitation of the civil case will not expire until expiry of limitation to file a criminal case.

Under Articles 20 and 21 of the UAE Criminal Procedure Code, limitation in criminal cases can range from three to twenty years, depending on the type of crime.

This is suspended, pending the outcome of investigative procedures, trials, charges etc.

Where there is more than one defendant, a suspension of the limitation period for one defendant amounts to a suspension on the limitation period for any other defendants.

Applying the above provisions and principles to the present case, the Dubai Court of Cassation considered that the relevant date, from which limitation is to run, is the date of actual knowledge of the wrongful act and its perpetrator.

In this respect, the court clarified that mere suspicion of a crime or of its perpetrator is insufficient for the limitation to start running.

Typically, limitation for a claim arising from a wrongful act is three years, and where the wrongful act constitutes a crime culminating in a criminal case concurrent with the civil case, the limitation for the criminal case is fifteen years.

Here, public funds were involved in the alleged acts and the Public Prosecution sought and obtained an international arrest warrant against the First Defendant through Interpol.

It was found that the Claimant did indeed file its claim within the relevant statutory limitation provisions, and accordingly the Claimant had the right to initiate and proceed with the criminal case, which was still ongoing.

Therefore, because the criminal case was still active, the limitation period of the civil claim against the First Defendant had been suspended and had not expired.

As such, the earlier decision setting aside the judgment for limitation reasons was overturned.

Discussion

Time bars have caused confusion even amongst judicial circles but the Court of Cassation now clarified that the limitation provisions (for wrongful/tortious acts) under Article 298 are suspended, provided the right to file, initiate, or proceed with a criminal case (if the tort amount to a crime) remains live.

In short, the potential for criminal proceedings to be commenced constitutes a lawful excuse under Article 481(1) of the Civil Transactions Law.

It was also made clear that, investigative procedures in criminal matters can and do serve as a temporary halt on the limitation period, whereafter a decision is made by the Public Prosecution on whether to refer the case to the criminal courts or to dismiss it.

The net result of this is that civil courts must suspend prescription of the civil claim until a final judgment is given by the criminal courts or the crime is prescribed

[1] Article 481 of the UAE Civil Transactions Law

1-Prescription barring the admittance of hearing the case is interrupted whenever there is a lawful excuse barring claim of the right.

2-The period within which the excuse still exists shall not count in the calculation of the prescribed period of prescription.