Delay to register off-plan unit is no excuse for cancelling SPA: Dubai Court

A delay in developer’s failure to register “off-plan” units with the Dubai Land Department (DLD) is unlikely to be a reason anymore for investors, seeking cancellation of the sales and purchase agreements (SPAs) and demanding a full refund.

Clyde & Co, a law firm, said in an update, it has succeeded in nullifying DIAC (Dubai International Arbitration Centre) arbitral awards relating to Article 3 of Law 13 of 2008 regulating the Interim Real Estate Register in the Emirate of Dubai.

The Dubai Court of Cassation, in its judgement, held that disputes concerning the legal consequences of late registration of an off-plan sale pursuant to the law cannot be validly submitted to arbitration, it said.

“Following the Dubai Court of Cassation's final judgments, if arbitral awards have been rendered in similar matters or arbitral proceedings are ongoing involving reliance on Article 3 of the law for termination of an SPA or of another disposition subject to registration, developers have reasonable grounds to argue that the award should be nullified, or to challenge the jurisdiction of the Tribunal in ongoing arbitral proceedings.”

The law firm said it had acted for a major property developer in defending arbitration proceedings commenced against the developer by a group of investors, who had purchased a several off-plan properties from the developer. Due to the financial downturn, they decided to arbitrate with a view to terminating the respective SPAs and obtaining a full refund.

And for termination of their contract, the investors sought to rely on the alleged breach of Article 3 of the Law, which required property developers to register SPAs for off-plan sales with the DLD within 60 days of the date of publication of the Law, or by the deadline of October 30, 2008.

In this case, however, the developer had registered the SPAs in April 2009, much after the deadline, as the DLD had been accepting late registrations if a developer submitted sufficient reasons and evidence as to why it had not complied with the deadline.

The Arbitral Tribunal rendered three awards (one in favour of each of the investors) concluding that, inter alia, the SPAs were invalid because they had not been registered before October 30, 2008.

The developer challenged the enforcement of the awards before the Dubai Courts of First Instance, Appeal and Cassation. Despite the above arguments, the lower courts refused to set aside the awards.

On appeal and final consideration of the issues, the Dubai Court of Cassation agreed with the arguments and overturned the judgments of the lower courts, stating: “Disputes concerning Article 3 are matters of ‘public order’ (public policy) and that, accordingly, such disputes cannot be submitted to arbitration.”

The new decision is likely to have a far-reaching impact on arbitration.

“This is somehow puzzling and I would need to read the Arabic judgment. However if the translation is correct, this might negatively impact the arbitration,” a UAE-based legal expert said on conditions of anonymity.

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