The UAE Companies Law, issued under Federal Decree-Law No. (32) of 2021, grants shareholders a fundamental right to seek judicial protection of their interests. Article 166 expressly affirms this right by allowing any shareholder to file a lawsuit before the competent court against the company, its board of directors, or its executive management if they suffer harm resulting from any act in violation of the law. The provision even entitles the shareholder to recover all legal expenses, regardless of whether the judgment is in their favour or not, as long as they provide supporting documentation and the claim is not malicious, defamatory, or intended to harm the company or manipulate its share price. On its face, this text suggests that the legislator intended to give every shareholder, regardless of the size of their holding, the ability to bring a personal claim to safeguard their rights.

However, Article 167 of the same law presents another dimension. It addresses derivative claims brought on behalf of the company against related parties and imposes strict requirements, including that the claimant must hold at least ten percent of the company’s share capital, must submit a formal request to the board of directors before resorting to litigation, and must attach this request to their court filings. This disparity between the two provisions has sparked debate over whether claims under Article 166 are entirely unrestricted or whether the conditions in Article 167 also apply to them.

In a case where Michael Morris and Abdelmajid Alsalous represented one of the parties, a shareholder plaintiff relied on Article 166 to argue that the absence of explicit limitations gave him the right to sue the company and its board regardless of his ownership percentage. The Dubai Court of Cassation adopted a different approach, holding that Articles 166 and 167 must be read together as part of an integrated legislative framework regulating shareholder actions. The Court ruled that the ten-percent ownership requirement also applies to claims brought under Article 166, effectively barring lawsuits from shareholders who own less than this threshold.

This judicial stance reflects a careful balance between protecting individual shareholders and preserving corporate stability. On one hand, Article 166 demonstrates the legislator’s intent to safeguard minority shareholders by granting them the right to claim compensation and recover legal expenses. On the other hand, the Court’s interpretation imposes safeguards to prevent abuse of litigation rights by shareholders who might use lawsuits as leverage against management or as a tool to influence market dynamics. As a result, Article 166 is no longer seen as a carte blanche for any shareholder to initiate proceedings; it is instead subject to conditions designed to ensure the seriousness and legitimacy of claims.

This judgment underscores the crucial role of the UAE judiciary in filling legislative gaps and promoting consistency between statutory provisions. It highlights that legal texts should not be read in isolation but interpreted in light of legislative intent and broader policy considerations. Ultimately, while Article 166 appears to grant broad shareholder rights, the Court’s reasoning confirms that only shareholders meeting the ten-percent ownership threshold may bring such claims, ensuring that shareholder litigation remains a tool of accountability rather than a means of disruption.

If you have questions about this ruling or require guidance on shareholder litigation in the UAE, we would be pleased to assist. Please feel free to reach out to us for further support.