Abu Dhabi Court of Cassation Judgment on Investment Contract Characterization and Compensation for Improvements

Abu Dhabi Court of Cassation Ruling

In the Name of His Highness Sheikh Mohamed bin Zayed Al Nahyan
President of the United Arab Emirates / Ruler of the Emirate of Abu Dhabi

Abu Dhabi Court of Cassation – Commercial Court Division

In the hearing held at the Abu Dhabi Court of Cassation on 8 Sha'ban 1447 AH, corresponding to 27/01/2026 CE,

Presided over by Judge: Abdullah Ali
With the Membership of Judge: Mohamed Hassan
With the Membership of Judge: Dr. Ahmed Hamdeen

Examined the Commercial Cassation Appeal registered under No. 1406-2025 Commercial - Appeal & Cassation - Abu Dhabi - Commercial Main Seat,
Registered on: 30/12/2025
Subject: Cassation Appeal

After hearing the pleadings, reviewing the documents, and following deliberation, the following judgment was rendered:

Grounds

Whereas both cassation appeals have satisfied their formal legal requirements.

And whereas the facts—as apparent from the challenged judgment and the case files—are summarized in that the Appellants in Appeal No. 33/2026 filed Commercial Lawsuit No. 839/2025 before the Abu Dhabi Court of First Instance against the Respondents, seeking a judgment holding them jointly and severally liable to pay them an amount of AED [...] representing the value of constructions, installations, decorations, lost profit, and late-payment legal interest at the rate of 12% from the date of judicial claim until full payment. This was on the grounds that under an investment contract for vacant land with no buildings situated on the second floor owned by the First Respondent, the First Appellant was to erect buildings for [...] which was subsequently modified to [...]. On 23/02/2021, the First Respondent filed a lawsuit claiming rent arrears for the year 2020 despite the total lockdown issued by the State due to the COVID-19 pandemic, resulting in the eviction of the Appellants and the re-leasing of the premises to another entity. Since the Appellants had constructed the existing structures to date and the First Respondent continued to benefit from their revenue while depriving them of utilizing the buildings they erected—which became due to them following eviction from the invested property pursuant to the law granting the tenant the right to compensation for what it constructed—the Appellants engaged a consulting expert who concluded in his report that their total losses amounted to AED [...], prompting them to file this lawsuit. The court appointed a two-member expert panel consisting of an engineering expert and an accounting expert, who carried out their mandate and submitted their report to the case file. On 28/11/2025, the Court of First Instance ruled as follows:

1. Dismissing the lawsuit for lack of standing regarding the Second Respondent.

2. Ordering the First Respondent to pay the Second Appellant an amount of AED 925,700.00 along with statutory interest at the rate of 5% from the date the lawsuit was filed on 12/08/2025 until full settlement.

The First Respondent appealed this judgment under Commercial Appeal No. 1599/2025 Abu Dhabi, and the Appellants also appealed it under Commercial Appeal No. 1613/2025.

Abu Dhabi Commercial Appeal, and on 24/12/2025 the Court of Appeal ruled to accept both appeals in form and dismiss them on the merits, upholding the appealed judgment. [...] – A Sole Proprietorship LLC challenged this ruling by way of cassation under Appeal No. 1406/2025 registered on 30/12/2025, and the Respondents filed their reply memorandum. Furthermore, [...] and [...] challenged the ruling by the same method under Appeal No. 33/2026 registered on 13/01/2026. When both appeals were presented to this court in chambers, the court deemed them worthy of consideration, scheduled a hearing for them, and ordered the consolidation of the subsequent appeal with the prior one for a single judgment to be rendered.

First: Appeal No. 1406/2025

Whereas the Appellant challenges the contested judgment on the first ground of cassation, alleging violation of the law, error in application, deficiency in reasoning, flawed inference, and contradiction with established documentary evidence, by upholding the trial court's judgment and dismissing the Appellant's plea of lack of subject-matter and jurisdictional competence to examine the dispute, on the basis that jurisdiction belongs to the Rental Dispute Settlement Committee. This is because the relationship governing the parties is a tenancy established by an authenticated lease agreement submitted by the Respondents before the Court of First Instance dated 01/09/2017 for five years ending on 30/11/2022, in exchange for the Second Respondent leasing from the Appellant the property [...] located on the second floor in addition to the rooftop seating area with a total area of 640 square meters, against payment of rent as follows: AED 651,457.00 for the first year, AED 651,457.00 for the second year, AED 684,030 for the third year, AED 684,030.00 for the fourth year, and AED 718,232.00 for the fifth year. The Appellant had approved the lease, provided, and fitted out the area and utilities, and it was agreed that the Second Respondent would only carry out its specialized fittings consisting of internal decorations and fit-outs according to approved blueprints. The tenancy continued until the Second Respondent breached its contractual obligations, prompting the Appellant to resort to the Rental Dispute Settlement Committee and register Execution No. 204/2021 seeking eviction and payment of rent. The Respondent's objection to execution was dismissed, and its appeal was likewise dismissed. Everything erected by the Second Respondent consisted merely of decorations serving its specific business activity and did not constitute construction works. Therefore, the leased property was the primary purpose of the lease according to the intent of the contracting parties, making the relationship a tenancy rather than an investment contract, and jurisdiction belongs to the Rental Dispute Settlement Committee rather than the court. The contested judgment’s departure from this view and dismissal of the jurisdictional objection tainted it with error requiring cassation.

Whereas this argument is unfounded; it is established that the criterion in characterizing contracts and according them their legal description is the common intention directed by the parties at the time of agreement. Ascertaining this intention falls within the sole authority of the trial court, provided it relies on supporting grounds and evidence leading thereto and correctly applies the law, whereafter such intention may not be re-debated before the Court of Cassation to impute error to the judgment. It is also established that an investment contract is a usufruct contract wherein the lessee undertakes to exploit the leased property by erecting buildings thereon at its own expense or modifying/adding to existing structures and exploiting them, with the structures reverting to the owner or usufructuary at the end of the investment contract. In contrast, a lease under Article 742 of the Civil Transactions Law is the lessor granting the lessee the intended usufruct of the leased property for a specified period against a known consideration. Review of the agreement and the expert report reveals that the subject property was not prepared for use, as the Respondents erected constructions to render it fit for purpose, including metallic structures, sandwich panels, ceramics, concrete, blockwork, handrails, aluminum, electrical, plumbing, drainage, water works, and decorations necessary to prepare the premises. These works involved permanent fixed installations for investment purposes rather than ordinary tenancy, demonstrating the parties' intention to conclude an investment contract. Therefore, jurisdiction is vested in the Commercial Court rather than the Rental Dispute Settlement Committee, and the contested judgment's dismissal of the jurisdictional plea is legally sound.

reached this conclusion and dismissed the plea of lack of subject-matter and jurisdictional competence, it arrived at the correct legal outcome, rendering the challenge on this ground devoid of merit.

Whereas the Appellant further challenges the contested judgment on its second ground, citing breach of law, erroneous application, inadequate reasoning, flawed inference, violation of the right of defense, and contradiction of documentary evidence, because it upheld the appealed judgment without dismissing the lawsuit for want of proof under Article 768(2) of the Civil Transactions Law, and for failing to dismiss it due to the Respondents' contractual breach in not paying agreed rent. The Appellant argues that the agreement stipulated the Second Respondent would only carry out its specialized fittings and interior decorations according to approved blueprints for its personal benefit, thus precluding any recourse against the Appellant for expenses incurred for its commercial activity. Furthermore, the Respondents' default compelled the Appellant to initiate criminal, rental, and enforcement proceedings, precluding any entitlement to compensation. The contested judgment's award ordering payment was therefore flawed and warrants cassation.

Whereas this argument is devoid of merit; Article 768 of the Civil Transactions Law provides: "(1) If the lessee, with the lessor's permission, makes constructions or repairs for the benefit or maintenance of the leased property, he may claim from the lessor what he spent to the customary extent, even if the right of recourse was not expressly stipulated. (2) However, if what the lessee erected was for his personal benefit, he shall have no right of recourse against the lessor unless agreed otherwise." Article 784(1) of the same law provides: "(1) The lessee must return the leased property upon the expiration of the lease in the condition in which he received it, save for any destruction or deterioration not attributable to his fault." Article 785 provides: "If the lessee erects a building or planting in the leased property, even with the lessor's permission, the lessor upon expiration of the lease may either demand demolition/removal or retain what was created at its value as assessed for demolition if demolition would harm the property..." This indicates that when constructions are made with the lessor's consent for the property's benefit, the lessee has the right of recourse for expenses incurred. The trial court holds sovereign authority to comprehend the facts, evaluate evidence and expert reports, and is not obliged to independently rebut every argument if the record contains sufficient grounds supporting its conviction. The record established that the parties entered into an investment agreement, the Respondents erected structures (decorations, metallic frame, etc.) with the owner's consent for the benefit of the premises, and the investment contract was judicially terminated prior to its expiration. Thus, the Respondents have the right of recourse for the value of those constructions. The court-appointed expert assessed the value of the completed construction, mechanical, electrical, and fire systems at AED 925,700.00. Consequently, the appellate court did not err in awarding this amount, nor is there any obligation on the court to appoint a new expert where the existing report is sufficient.

falls within the discretion of the trial court and is not an absolute right of litigants once the court finds sufficient evidence in the record. The objections were adequately addressed by the expert, and the challenged judgment was rendered in accordance with the law, requiring the dismissal of Appeal No. 1406/2025.

Second: Appeal No. 33/2026

Whereas the Appellants in their three grounds of cassation argue violation of law, erroneous application, deficiency in reasoning, and violation of the right of defense, because the judgment awarded them compensation solely for physical constructions established on the land as per the expert report, without accounting for other damages caused by the termination of the investment agreement due to an external cause beyond their control (the COVID-19 pandemic). They claim compensation for the enrichment of the First Respondent through the enhanced investment value, commercial reputation, and goodwill built over the investment period prior to the pandemic. They assert that the advisory expert report evaluated total compensation at AED 9,162,280.50, incorporating structural works, contractor fees, and 35 years of investment value/goodwill, whereas the court-appointed expert only calculated physical fittings. They argue the appellate court erred by ignoring this substantial defense and refusing to appoint a referee expert panel.

Whereas this argument is devoid of merit; the assessment of damages and consideration of surrounding circumstances is a matter of fact within the independent discretion of the trial court, provided it identifies elements of damage and entitlement based on the record, with no review by the Court of Cassation. The trial court is free to evaluate expert reports, and reliance thereon implies the dismissal of contradictory claims. Appointing another expert is a discretionary judicial power rather than an obligatory right. As established in the first appeal, the Appellants were entitled to recover the value of physical improvements constructed on the property following termination.

by judicial decree, and the court-appointed expert evaluated their value at AED 925,700.00, which the court ordered the First Respondent to pay to the First Appellant as compensatory relief for actual losses incurred. The Appellants failed to substantiate any further damage resulting from any fault attributable to the First Respondent, rendering their claim unfounded. Commercial reputation and consultancy/contractor fees were elements utilized by the Appellants while operating their business prior to their judicial eviction caused by their own contractual breach; thus, the First Respondent cannot be held liable for damages flowing from such eviction. Regarding the prospective 35-year investment enhancement claimed in the advisory report, the court-appointed expert established that this was an unsubstantiated speculative assumption, especially given the Second Appellant's eviction in March 2021 for non-payment of rent. Hence, the findings of the advisory report were unreliable. As the trial court possessed sufficient basis to form its judgment and properly restricted damages to the proven value of improvements, its decision was sound in law, and this appeal must be dismissed.

Operative Verdict

The Court ruled:

To dismiss both Cassation Appeals No. 1406/2025 and No. 33/2026, ordering each appellant to bear their respective court fees and expenses, offsetting attorney fees, and confiscating the security deposit in both appeals.