Estoppel and the UAE - "the parties must come with clean hands"

Estoppel is a common doctrine that, in its basic interpretation, binds parties to their original agreement and prevents parties from going back on what was initially promised.

Estoppel is an equitable remedy in common law. It comes in various forms, the four most common being representation, promissory, propriety and convention. Estoppel itself is not a basis of a claim; it is a defence, not a cause in action, and the equitable dicta ‘the parties must come with clean hands’ applies moreover in estoppel matters.

The way estoppel works in practice is that it will grant relief, as a defence to an action, to stop a party from doing a thing.

One of the most notable cases in English Common Law is Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130.

This case concerned a landlord who rented flats to the defendant, but due to the intervention of World War 2, the landlord promised that for the duration of the war, they would halve the rents. There was no express agreement as to how long this position would last. After the war the landlord sought to not only increase the rent, but also charge ‘back rent’ for the period of the war when the rent was reduced. The defendants argued that the new reduced rate would continue for the duration of the lease and would also apply after the end of the war.

The Court ruled, applying the doctrine of estoppel, that the defendant had acted in accordance with the promise made by the landlord and, as such, the landlord is estopped from claiming the full rent for the duration of the war. Rent would, nevertheless, resume at the end of the war at the full rate; it would be just and reasonable since the circumstances that led to the initial promise no longer existed.

High Trees is a case that highlights how estoppel operates and how the courts apply the doctrine. The doctrine is one of a defence or ‘shield’ and not a cause of action or ‘sword’. Furthermore, the ‘come with clean hands’ approach, as applied in High Trees, shows that the courts will consider the root of the promise, in this case, a promise to reduce rent due to war, and once that has been removed, the promise itself is no longer applicable. Thus, the landlord was prevented or estopped from claiming back rent for the period of the war, the subject of the promise, but the defendant was estopped from claiming that the promise continued after the war, as the promise was no longer applicable.

Whilst estoppel is a common law equitable remedy, there is also a provision in the UAE Civil Code that relates to estoppel, albeit not in name.

UAE Application of Estoppel

In a recent 2021 case, the Abu Dhabi Court of First Instance was presented with a claim whereby a main contractor cashed a performance bond that had been provided by the sub-contractor. The sub-contractor filed a claim, arguing that the bond had been cashed unlawfully.

The main contractor argued that the Court had no jurisdiction to hear the claim, because a valid arbitration agreement was agreed between the parties. The sub-contractor argued that the arbitration agreement was invalid because the signatory had no authority to sign the said agreement.

The main contractor contended that the Court should apply the doctrine of estoppel to recognise the validity of the arbitration agreement.

The Court held that, applying estoppel, the arbitration agreement was indeed valid because the parties had duly executed the contract and had therefore accepted the validity of the signatures of the contract and it would be incorrect to dispute that validity at a later date, this is generally considered as estoppel by representation in common law.

The Court found support to the estoppel argument in Article 243 of federal law (5) of UAE Civil Transactions Code, which states, at Art 243(a):

The contract shall apply to the subject matter of the contract and the consideration thereof as soon as the contract is made and shall not depend upon receipt or any other thing, unless the law provides otherwise.

Article 243(b) goes further to state:

With regard to the rights (obligations) arising out of the contract, each of the contracting parties must perform that which he is obliged to do under the contract.

In applying the UAE Civil Code, the Court considered that the sub-contractor had, in fact, relied upon the contract, accepting that a contract initially existed and began performance, only to deny that the contract, especially the arbitration agreement, was not valid due to lack of authority to sign the contract.

The Court rightly ruled that a party cannot rely upon the authority of the signature to execute a contract whilst at the same time deny the agreement to arbitrate after executing the contract.

This case and subsequent judgement has been held to be the first of its kind in the UAE and the first use of the doctrine of estoppel, as is known by Common Law Lawyers. It sounds a cautionary note to those seeking to challenge previous promises or representations.

Whilst estoppel relief is generally considered a common law equitable remedy, it is clear that the courts will be willing to apply that doctrine, in line with the provisions of the UAE Civil Code, albeit in line with the provisions enshrined within UAE Law.