Prior to discussing misrepresentation it is important to understand the structure of the legal system in the UAE.1
UAE LEGAL SYSTEM
The UAE shares a similar civil law structure to many other Arab countries. After the formation of the federation in 1971, the UAE looked towards Egypt for the drafting of its major codes. Egyptian legal experts thus heavily influenced the legislative process in the UAE and, even today, many years after the formation of the federation, UAE courts still look to Egyptian authorities for guidance in matters that are unclear under UAE laws. As in all civil law jurisdictions, the UAE is governed by several statutory codes, which regulate the civil and commercial relationships between natural and legal persons doing business in the UAE.
DEFINITION AND INTERPRETATION
Misrepresentation in the UAE is governed by Federal Law No 5 of 1985 in respect of the Civil Transactions Law (Civil Code).
Articles 185-192 of the Civil Code define the concept of misrepresentation, set out its purpose, and provide for its terms and conditions.
Articles 185-186 of the Civil Code define misrepresentation as follows:
‘Article 185: Misrepresentation is when one of the two contracting parties deceives the other by fraudulent means by word or act which leads the other to consent to what he would not otherwise have consented to.
Article 186: Deliberate silence concerning a fact or set of circumstances shall be deemed to be a misrepresentation if it is proved that the person misled thereby would not have made the contract had he been aware of that fact or set of circumstances.’
Accordingly, misrepresentation or deception implies the existence of fraudulent means, which has led to the consent of the other party to enter into a transaction. UAE law does not recognise negligent misrepresentation. To the contrary, as Articles 185-186 confirm, there must be an intention, deliberate action or inaction to deceive by fraudulent means. The victim of misrepresentation therefore bears the burden of proof in establishing that:
- they were deceived by the misrepresentation; and
- that the deception was intentional.
This brings into issue the way in which the concept of fraudulent means is viewed in the context of professionals. Simply stated, there are no fraudulent means unless the instance is so serious that it goes beyond what a reasonable, experienced professional, would expect. In practice, professionals tend to have a limited and restricted interpretation of fraudulent means.
LEGAL CONSEQUENCES OF MISREPRESENTATION
Article 187 of the Civil Code sets out the legal consequences of misrepresentation under UAE Law:
‘If one of the contracting parties makes a misrepresentation to the other and it transpires that the contract was concluded with gross unfairness (lésion – emphasis added), the person so misled may cancel the contract.’
Article 187 demonstrates that the Civil Code views misrepresentation as a defect to the consent of the contracting parties. In instances where misrepresentation is established by the victim, the element of consent is vitiated or defected. Consent, capacity of the contracting parties, the subject of the contract and its cause, are the essential elements of the contract and its pillars, and when one of these elements is deemed defective or missing, the contract collapses and accordingly the contract can be terminated or nullified, depending on which essential element is defaulting. Misrepresentation under UAE law serves as grounds for termination.2 However, misrepresentation, on its own, is not grounds for compensation as it is not deemed a breach of contract.
Article 187 of the Civil Code indicates that UAE Law interprets ‘misrepresentation’ and ‘lésion – gross unfairness’ conjunctively and cumulatively. This is supported by Court of Cassation rulings, which have held that ‘gross unfairness’ transpires when the actual value of the subject of the contract and the price paid for it by the purchaser, is exorbitantly unbalanced.3 Based on this, to terminate an agreement, both ‘misrepresentation’ and ‘lésion – gross unfairness’ should exist cumulatively and conjunctively. Put simply, the two concepts should be used in conjunction and not separately. This is somewhat unique to the UAE as in many other civil law jurisdictions, such as France, Lebanon and Egypt, the two concepts can be applied separately and both can result in termination or nullification of the agreement or contract. In this respect, UAE law has set a high threshold for a finding of misrepresentation.
EVIDENCE OF CONSENT
Any actions on the part of the victim of misrepresentation that evidence their continued performance of the contract and their consent, set aside the right of the victim from claiming termination of the contract based on misrepresentation.
Article 192 of the UAE Civil Code provides that:
‘The right to cancel for misrepresentation and gross unfairness shall lapse on the death of the person having the right to apply for the cancellation or upon a dealing made in the subject matter of the contract in whole or in part in such a way that implies consent, or if the property is destroyed while in the possession of the person who would otherwise have such right, or if he consumes it, damages it or increases it.’
The fact that the victim of misrepresentation, by their own actions, continued dealing with the other party to the contract or continued to conduct affairs with the misrepresenting party on the basis of the contract to which the fraudulent means has lead, extinguishes their right to invoke any claims on the grounds of misrepresentation.
By Karim Nassif, partner, Habib Al Mulla & Co.
- Please see ‘Litigating in the UAE: Initial Guidance’, IHL176, pp1-5 (by Karim Nassif and Gordon Blanke).
- In other civil law countries, such as France or Lebanon, misrepresentation serves as a ground for nullification of the contract or agreement.
- See Dubai Court of Cassation petition no 201 for the year 2004, judgment 15/01/2005; and Dubai Court of Cassation petition no 156 for the year 2004, judgment 03/04/2004.