Case studiesCompanies & partners2024
Claim and counterclaim against a company's former owner rejected at first instance
Al Faisal defended a business owner whom a company brought into a debt case, claiming he had taken on its earlier debts when he sold his share. At first instance the court rejected both the claim and the company's counterclaim against him, and held the company and its manager liable instead.
Handled by Faysel Al-Mohannadi
The judgment
- Result
- Claim against our client rejected. The company's counterclaim against him rejected. The company and its manager held jointly liable to the investor instead. Our request for a new court expert was not granted.
- Court
- Investment and Trade Court (first instance)
- Time
- About 3 months, from the claim to the judgment
- What was at stake
- A six-figure claim, plus damages, that the company wanted passed on to him
- Our client
- A business owner who had sold his share in the company
The case
An investor paid a six-figure sum for a share in a new business that a company's manager would set up. Our client never signed the draft company contract. The manager took the money and signed an acknowledgment of the debt. The company's security cheque bounced, and the business never opened.
In 2024 the investor sued the company and its manager. The company had our client brought in: he had once held a share in it and sold it, and the company said the seller had undertaken to bear its earlier debts. It also counterclaimed against him and the manager for whatever it might be ordered to pay.
The firm was instructed for him once the case reached the trial chamber.
What was at stake
At the Investment and Trade Court, a defendant can bring in a third party and counterclaim at the case-management stage, within the formal conditions of Law No. 21 of 2021, Art. 19. A former owner can therefore be drawn into a debt case at short notice.
The court's accounting expert then reported that the former owner and the manager had borrowed the money and promised to set up the business, and the company agreed with the report. Had the court followed it, the former owner could have been held liable for a six-figure claim with damages, and the company could have passed its own liability on to him.
What we did
Took up the defence at the first hearing.We linked the case to the firm and attended the first hearing for our client. The court gave time to reply, then appointed an accounting expert.
Showed in a written memo that the expert's report had gone beyond its mission.Instead of settling the account between the parties and stating the sums due, the report had shared out legal liability, which is for the court to decide.
Challenged the report's validity and asked for a new expert.The memo argued that the report was void, because a court expert must do the work personally (Law No. 16 of 2017 regulating expert work, Art. 17(1)). It asked for another expert or, failing that, for the report to be declared void. The court granted neither.
What the court held
The court admitted both requests in form. It adopted the expert's figures but not the expert's view of who was liable, as a trial court may adopt what it accepts of an expert's work (Court of Cassation ruling No. 285 of 2017).
The investor, who had to prove the obligation (Civil and Commercial Procedure Law, Art. 211), proved payment to the manager, not to the former owner. The contract is the law of the parties (Civil Code Art. 171(1); Court of Cassation ruling No. 91 of 2009), so an unsigned company contract binds no one who did not sign it. The former owner had signed neither the company contract nor the acknowledgment, and had received nothing. His only link was a past share in the company, since sold. The alleged undertaking to bear the earlier debts was not shown to bind him.
So the claim against him was rejected, and with it the counterclaim, which rested on his liability. The company and its manager were held jointly liable to the investor, the company only up to the value of its security cheque. Damages for late payment were added, the claim itself counting as formal notice (Civil Code Arts. 199 and 268; Court of Cassation ruling No. 254 of 2014).
Why this result matters
A past share in a company does not, on its own, make someone liable for money that others received. A court can accept an expert's figures and still decide for itself who is liable.
If you are in a similar position
- Brought in as a former owner? Start with signatures and money: who signed what, and who received the funds.
- Selling a share in a company? Keep the sale contract, and check any clause on earlier debts and whom it binds.
- Attend every meeting with a court expert, and put your key facts to the expert in writing.
Who handled it
Faysel Al-Mohannadilawyer admitted before the Court of Cassation
Brought into a case over a company you have sold or left? Bring the claim papers, your share-sale contract and any expert's report.