STA Law Firm https://www.stalawfirm.com/en.htmlSTA Law Firm - Court Uncourt (Blog) - UAE Contract LawenCopyright 2024 STA Law Firm All Rights Reserved<![CDATA[Saudi Arabia Civil Transactions law]]> Saudi Arabia Civil Transactions law

The Kingdom of Saudi Arabia (KSA) Civil Transactions Law enacted on 19 June 2023, by Royal Decree M/191, has now been published in the official gazette. It will come into effect 180 days from the date of publication, i.e. around 16 December 2023. The Law with seven chapters and 720 articles is one of the biggest legislative issuances in KSA's history. It is a significant achievement for KSA as, before this new law, Islamic law (Shari'a) got chiefly from the standards of the Holy Qur'an and the Sunnah (prophetic lessons of the Prophet Muhammad) governed agreements in KSA. This codification will significantly affect legally binding relationships in KSA, both broadly and globally. It is definitely a seismic shift for KSA, supported by its Vision 2030, to draw in significant speculation to the country when KSA is likewise in equal carrying out its Regional Headquarters Programme (RHQ). It gives assimilation to the different worldwide treaties and agreements to which KSA is a party, as well as bringing the governance of everyday transactions closer to global best practices.

Main Principal

The broad structure of the Law covers a scope of regions within business transactions to aid in facilitation and investment. The principal gives transparency, efficiency and stability to contemporary business policies in KSA. Besides, they give increasing consistency of legal decisions and potential disputes.

Binding force of contracts

The Law affirms the fundamental components of a binding contract and recognizes that the contract is the law of the parties and that the contracting parties should satisfy what the contract requires of them.  This is like other civil code jurisdictions in the Middle East which recognize that the parties are limited by the terms and conditions of the contract they have concurred.

The Law likewise recognizes that the parties should execute their obligations in accordance with the contract and in a manner that is consistent with the prerequisites of good faith. As indicated by the Law, the contract will not be bound to commit the contracting party to its contents, yet will likewise manage its requirements as per the Law, customs, and justice according to the idea of the commitment.

 

Contract interpretation

consistent with civil codes in other Middle Eastern jurisdictions, the Law tends to the position assuming there is uncertainty and there is space to interpret the contract. The starting position is that if the language of the contract is clear, then it isn't admissible to deviate from it. The parties will consequently be bound by the particulars of their contracts where the language is clear.

In any case, in the event that there is space to interpret the contract, then the common will of the contracting parties should be considered ceaselessly at the literal meaning of the terms, taking into consideration the nature of the managing and the trust and integrity that should exist between the contracting parties as per the custom. Hence, pre-contract correspondence can be considered to track down the common will of the parties in an effort to determine a vagueness. This position is similar to other civil codes in the Middle East and this provision of the Law might assist the parties resolve contract interpretation issues when the language of the contract isn't clear and open to more than one understanding.

Compensation

The Law includes useful provisions for the guidelines of damages where a party is in default or in delay. In accordance with civil codes in other jurisdictions, the Law gives grounds that the parties might agree and fix compensation in advance, stipulating this in the contract. In this manner, as is typical in construction and engineering contracts, the Law likewise addresses liquidated damages as a form of remedy.

These liquidated damages may not fall due or might be decreased in the event that the creditor has not experienced a loss or the agreed compensation was exaggerated or the original obligation was partially performed. KSA has therefore embraced a position similar to Qatar and Kuwait that gives the court or tribunal authority to diminish pre-agreed compensation assuming that specific criteria are fulfilled. The Law clarifies that this is a compulsory provision and hence can't be superseded by the particulars of the contract. At last, the Law sets out the test for the recuperation of compensation and damages, and this should be the compensation that would normally have been predicted at the time of the contract. It is interesting to take note that there is no express reference to "loss of profit" being recoverable. It is not yet clear how this standard on the recovery of damages will be applied by the courts or tribunals determining breach of contract disputes.

Construction contracts

Execution of work is canvassed exhaustively in the Law. This incorporates design and quantity changes, subcontracting, and termination. These provisions should be carefully considered for clients operating in the construction and engineering sector and how they apply to the parties' contracts for work.

Conclusively, the introduction of the Law is a welcomed administrative shift in KSA. It will be a viable method for eliminating vulnerability and theory on contractual development and how key legal risks will be settled in KSA. The codification of these key legal risks ought likewise to give efficiency, familiarity, and greater solace to investors hoping to carry on with work in KSA. The embracing of contemporary strategic policies and the rising transparency reflects KSA's obligation to be at the front line of worldwide business transactions. The retrospective nature of this new law likewise should be considered by all parties. Entities should review and perhaps redraft their existing contractual agreements, all the more so assuming they have any potential issues that issues that remain unsolved after the Effective Date.

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Sat, 16 Dec 2023 00:00:00 GMT
<![CDATA[Subcontract Works under UAE Law]]> Subcontract works under UAE Law

Introduction

Subcontracting is quite popular in today's construction business. Without engaging third parties with diverse experience and capacities to carry out certain aspects of the works, it would almost likely be unmanageable for one contractor to complete a construction project, especially if the project entails a certain level of complexity.

However, from the standpoint of the project owner, it appears more ideal to hire one primary contractor who is accountable for all other subcontractors. Having stated that, it is not unexpected that the major participants in most construction industry are the project owner may it be the employer and client, the actual contractor, and the subcontractor.   

The United Arab Emirates Civil Transactions Code enables the main contractor to subcontract the entire or a portion of the task to a 3rd party without gaining approval from the employer, except as otherwise defined in the agreement or if the implementation of the work is dependent on the contractor's professional efficacy.  

In reality, however, employers are likely to have some control over the principal contractor when it comes to subcontracting the job and selecting subcontractors. The extent to which such control is exercised varies. The contract may limit the extent of subcontracting by forbidding subcontracting the entire scope of work.

This provision is quite prevalent in conventional contract forms; for example, Clause 4.4 of the FIDIC Red Book 1999 stipulates that the Contractor must not outsource the whole Works.  The contract may also require the primary contractor to get the prior agreement of the employer or even the engineer before engaging a potential subcontractor if the employer has not identified that subcontractor.

The subcontractor may be recommended by the employer  or chosen by the primary contractor . The subcontract agreement must be signed by both the primary contractor and the subcontractor in both circumstances. As a result, no explicit contractual relationship exists between the company as well as the subcontractor. As a consequence

A - the subcontractor is not contractually accountable to the employer for late delivery or faulty work; and 

B-  the employer is not contractually obligated to the subcontractor for payment of its subcontract agreement rights.  

Subcontractor's Liability to the Employer

A well-established principle  in UAE law is Privity Contract . In typical situations, because the subcontractor is not a party to a contract with the employer, it has no legal obligations to the  succeeding owners or employers. The construction agreement between the employer and the primary contractor may not impose a duty on the subcontractor unless the latter accepts such duty.

In reality, employers may demand subcontractors to offer a collateral guaranty on which the employer can depend to pursue direct accountability from the subcontractor for faulty  work. As per United Arab Emirates' law, a collateral warranty is valid& enforceable . Pursuant to Article 276 of the Civil Transactions Code, it is considered a unilateral act; hence, the subcontractor is obligated by its provisions according to Article 278.   A collateral warranty would often include provisions for assignment and step-in rights to guarantee that the employer can assign the warranty's responsibilities to other beneficiaries such as succeeding owners or renters.

Whether or not a collateral warranty is issued, the primary contractor is nonetheless accountable to the employer for the subcontractor's performance, pursuant to Article 890(2) of the Civil Transactions Code. In numerous situations, the UAE courts stressed that the primary contractor is contractually accountable for the subcontractor's conduct or defaults even if the subcontractor really carried out the employer's instructions over the course of the project.

Because the aforementioned Article 890(2) does not distinguish between nominated and domestic subcontractors, the prevailing norm is that the primary contractor's obligation remains in force in the event of a nominated subcontractor. However, the principal contractor may have a defense basis by contesting the element of causation, which is required for the creation of contractual liability.

In a famous decision of the Dubai Court of Cassation in case No. 266 of 2008, the court ruled that when the subcontractor is chosen by the employer or its consultants, the employer is accountable for any delay in the execution of the subcontracted component, and the prime contractor is not accountable for any delay penalties if they can establish that the problem was caused by such subcontractor and also that the principal contractor had no involvement in the wait.

Since the court provided no stated threshold for violating the wide norm provided in Article 890, the grounds for this verdict have been disputed . As a result, this disputed decision is viewed as an exception to the general rule that the primary contractor's responsibility continues even when selected subcontractors are engaged.

Nonetheless, in some instances, a principal contractor may depend on the preceding judgment as a defense basis. For this defense to be successful, the prime contractor must correctly prove to the court that it has executed its contractual obligations, along with its supervisory responsibility, and that the postponement or faulty performance couldn't be prevented for causes directly related to the appointed subcontractor's mistake. If the principal contractor has no authority to object to the selected subcontractors, there could be a supporting basis for this defense to succeed.

To limit its risk, the main contractor may demand an indemnification clause in the main contract, often if the contract does not provide for a right to object to nomination. This clause requires the employer to compensate the main contractor against and from the effects of the nomination.

Employer's Liability to the Subcontractor

There is no direct contractual tie between the employer as well as the subcontractor, as demonstrated above. As a result, the employer is under no responsibility to the subcontractor.

Furthermore, Article 891 of the Civil Transactions Code states that the subcontractor may not demand any dues to the main contractor from the employer unless delegated to do so by the main contractor.

As a result, the subcontractor has little choice except to seek payment from the principal contractor. Practical issues arise when a "pay-when-paid" clause is included in the subcontract agreement, which is routinely enforced by primary contractors. Pay-when-paid agreements are legally enforceable in the UAE. A pay-when-paid provision prevents the subcontractor from claiming its dues from the primary contractor until the latter has been paid by the employer. If the subcontractor files a lawsuit against the primary contractor before the latter has been paid, the court may reject the case on the grounds that the claim was filed prematurely.

To mitigate the harshness of "pay-when-paid" clauses, the subcontractor may try to get a direct payment requirement from the client via contract negotiations. In practice, however, employers rarely accept this..

In exceptional instances, the subcontractor may argue that the employer's failure to pay is wholly the responsibility of the primary contractor. For instance, if the primary contractor fails to submit the needed performance bond under the primary contract. In other cases, the subcontractor may allege that the primary contractor is in violation because it did not pursue its claim against the employer. In this regard, it may be prudent for the subcontractor to negotiate a contractual condition requiring the primary contractor to pursue its claims against the employer to the maximum degree possible.

Ultimately, Article 247 of the UAE Civil Transactions Code to halt work if payment is not received maybe  invoked by the  subcontractor . However, this authority must be employed with caution, especially in the absence of a contractual right to cease job performance for nonpayment. A subcontractor must seek legal counsel to guarantee that the right to suspend provided for in Article 247 can be utilized in their specific circumstances.

A number of factors should be considered when determining whether the subcontractor can exercise the suspension right, such as proper notification of the main contractor, successful performance of the subcontractor's primary obligations under the contract, and whether or not the payments are certified.

Conclusion

Subcontracting is legal in the Emirates and is widely used in practice. Standard forms frequently include provisions for limiting the terms of subcontracting. Subcontracting does not establish a direct relation between employers and the subcontractor as  per United Arab Emirates law. As a result, the principal contractor is often held responsible for the successful delivery & performance of subcontracted work.

In some instances, the primary contractor may have reasons to defend itself from liability for nominated subcontractors. Unless there is a direct payment commitment, the subcontractor may not seek compensation from the employer. Pay-when-paid provisions are widespread in the UAE. However, there are ways to restrict the impact of such provisions in each circumstance.

 

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Sat, 10 Jul 2021 01:59:00 GMT
<![CDATA[Duress in Contract Law]]> Duress in Contract Law

In UAE, all legal aspects in regards to contractual related issues are encapsulated under the UAE Civil Code and the UAE Commercial Code. It is difficult to establish between illegitimate and legitimate duress as in regards to commercial contracts, a certain level of duress is expected with an agreement. While the risk of loss is ascertainable and to be accounted for to a certain degree, the scope of the same is to be decided on a case-to-case basis. In general, a threat to break the contract, a threat to committing or refraining from committing from a certain act unless a contract is signed shall generally constitute for causing duress to the signing party. The Civil Code governs all civil rights and obligations available to the parties to a contract. While in regards to certain specific laws applicable, Undue Influence in itself is an abstract concept to prove the same in a lot of cases is difficult. While that is the case, to file for dismissal of a contract on the basis of undue Influence requires the need to have an established contract. It is required that the essential elements of a contract, as stated under the Civil Code, is fulfilled. Article 125 of the Civil Code states the definition of a contract as: 

"A contract is the coming together of an offer made by one of the contracting parties with the acceptance of the other, together with the agreement of then both in such a manner as to determine the effect thereof on the subject matter of the contract and from which results an obligation upon each of them with regard to that which each is bound to do for the other. There may be a coincidence of more than two wills over the creation of the legal effect."

While an offer made by one and acceptance by the other party of that offer is what constitutes a crucial part of the formation of a contract, the dispute in regards to duress generally rises under specific clauses of a contract. This could lead to an undue advantage to the accepting party as while the acceptance of other aspects of the contract may be acceptable, the offeree may insist on having such problematic clauses with the agreement. Undue Influence as a concept would not be implicated within the contract, but due to external factors. In situations such as a father using his undue Influence on wife and kids to sign certain contracts, a boss instructing employees to sign certain agreements duly on the basis of Influence, and other such instances wherein there is leverage to the offering party against the accepting party to accept the same shall be termed as the use of Undue Influence. While an established concept in law, UAE law does not explicitly dictate provisions for the concept.

Under , Part 4 of the Civil Code, provisions have been provided that would denote what Duress would constitute as. Article 176 of the Civil Code defines Duress as: 

"Duress is coercion of a person without the right of so doing to perform an act without his consent. Duress may be forcible or non-forcible, and may be material or moral".

In case of contractual liability, of which the opposite party can be held liable due to duress, it is mandatory as per Article 182 that the victim or his heirs do not enforce the contract after the threat has ceased to exist. Thus, it is pertinent to make sure that the contract is not implemented by the victim unless the threat still exists and can be exercised if the contract is not fulfilled. While the existence of a threat is susceptible to forcing a person to implement a contract, the same is required to be proven to the court. Duress may be in different forms, forcible, non-forcible, material, or moral.

While forcible duress would be one which would entail an imminent threat of grave danger to the victim, a victim's associate, family or friends, or property. A lack of such a threat would classify the duress as non-forcible. Non-forcible duress can usually be classified as undue Influence. 

So, what can be construed in regards to duress implicated by a third party? To provide for an example, if the agent of a company has inculcated the victim into a contract through duress, can the victim hold the company liable for the same?

As per Article 184 of the Civil Code, it is pertinent that the party being constituted as the defendant is knowledgeable of the act committed. It is not possible to implicate a party that is not privy to the nature of the contract made to be held liable for the act. This can be confusing as agency law dictates that the acts of an agent while done on behalf of the principal entity, is to be seen as the work done by the principal entity and not the agent. 

Hence, it is difficult to prove that the principal entity was aware of the circumstances under which the victim has signed the contract, and it is important to have proof relating to the same. It can be noted that in light of contracts being signed, this helps in proving that the principal entity is ultimately responsible for the actions of its agent and hence should as a duty, be aware of the professional scenarios undertaken by its agent.

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Tue, 23 Feb 2021 03:23:00 GMT
<![CDATA[Contracts, Negotiations and Enforcement in the United Arab Emirates: Overview]]> Contracts, Negotiations and Enforcement in the United Arab Emirates: Overview

Question Set:

Formation of contracts

Authority and capacity

Question Body:

  • What are the authority/capacity rules for entering contracts?
  • Answer Body

    Individuals

    UAE Federal Law Number 5 of 1985 on Civil Transactions Law (Civil Code) allows all individuals to enter into agreements unless they are minors, who do not have the right to deal with property and are prohibited from entering into a contract. However, Article 159 of the Civil Code allows minors to handle financial dealings that are for their own benefit and not to their detriment. The Civil Code also allows guardians or tutors to make dispositions on behalf of minors and mentally disabled and insane adults.

    Companies

    Commercial Companies Law Number 2 of 2015 and Commercial Transaction Law Number 18 of 1993 apply to all contracts between two companies. A corporate entity, whether it is a private or public joint stock company, can enter into a contract in its own name, subject to the provisions of its articles of association and the requirements of the Civil Code, the Commercial Companies Law and the Commercial Transactions Law.

    Foreign companies

    Foreign companies established in the UAE can enter into a contract with other companies or individuals in the same way as other public or private companies. A contract entered into by a foreign company is governed by the Civil Code, the Commercial Companies Law and the Commercial Transactions Law. The contract must be in accordance with the provisions of Civil Code unless the context of the agreement suggests otherwise.

    Partnerships

    A partnership company can enter into a contract as a legal person immediately after its formation. Part III of the Civil Code sets out provisions governing contracts entered into by a partnership company, including the rights and obligations of the partners under the contract.

    Limited liability partnerships (LLPs)

    LLPs are capable of entering into contracts as they have legal personality. The LLP partners are liable under the contract up to the value of their shares in the partnership.

    Trustees

    UAE civil law does not recognise the concept of trust and does not explicitly recognise the right for a trustee to enter into a contract in relation to trust property or the trust beneficiary. Foreign trust arrangements will be analysed according to UAE law principles.

    Charities

    UAE law places stringent requirements on the establishment of charities, which requires prior approval by the government. The government must be made aware of all the activities of the charity, including the money it raises. When a charity enters into a new contract, this requires approval of the contract by the government.

    Public bodies and local authorities

    Public institutions and local authorities are subject to the same rules as any other entity in the UAE when entering into a contract with individuals or companies. UAE government entities follow a transparent and fair system for awarding and tendering contracts. Invitations to bid are made public and are accompanied by a set of rules and guidelines that the bidders must follow.

    Agency rules

    An agent under a principal-agent contract can enter into a contract with a third party. The provisions of the contract and the rights and obligations arising out of that contract then devolve to the principal. However, the agent must accurately disclose to the third party their relationship with the principal, unless the third party was already aware of it or it is irrelevant to the third party. If this is not done, the principal is not bound by the contract entered into by the agent.

    Formal legal requirements

    Question Body:

  • What are the essential requirements to create a legally enforceable contract?
  • Answer Body

    The Civil Code governs contracts entered into by two contracting parties in the UAE. Article 125 of the Civil Code defines "contract" as an offer made by one of the contracting party that is accepted by the other, along with an agreement from both parties on the subject matter of the contract, from which results obligations for both parties.

    Under the Civil Code, the first step in forming a contract is the first meeting between the parties, known as an "open session" (Khiyar Al-Majlis), where the parties negotiate and can decide whether to enter into an agreement. Until the end of the first meeting, either party has an option to accept or reject the offer (Article 136, Civil Code). A contract is formed when there is an offer and an acceptance, which are two essential elements for creating a contract under the Civil Code. An expression of intent can be made orally or in writing, or by an act demonstrating the mutual consent of the parties (Article 132, Civil Code). If there is a repetition of the offer before acceptance, the last offer made is the final and valid offer.

    The following are the necessary elements required for making a contract:

    • The parties must agree to the essential elements of the contract.
    • The subject matter of the contract must be:
    • defined or capable of being defined;
    • possible; and
    • permissible under the law, and not against sharia law or public order.
    • There must a lawful purpose for the rights and obligations arising out of the contract.
    • There must be offer and acceptance.
    • There must be consideration.

    A further essential requirement for a valid contract is a place of agreement. Article 142 of the Civil Code suggests that if a contract is made by the parties not in each other's presence, it is deemed to have been made at the place where the offeror learns of the acceptance. However, if the contract was made over the telephone, the contract will be considered to have been made at the time of the Majlis when both the parties were present.

    A contract need only contain the essential elements and the legal conditions and obligations of the parties (Article 141, Civil Code). After completion of the Majlis, the parties can later insert additional details into the contract. Where the parties agree on the essential elements of the contract leaving further conditions to be determined at a later date, and a dispute arises as to those matters, the court will adjudicate in accordance with the nature of the transaction and conduct of the parties throughout the term of the contract (Article 141(2), Civil Code).

    The final and the most important requirement of the contract is the payment of earnest money, which is considered to be the evidence that the contract has become final and irrevocable (unless the agreement is contrary to any provision of the law or any custom) (Article 148, Civil Code).

    Question Body:

  • When are written contracts legally required? Can oral contracts be valid and enforceable?
  • Answer Body

    There are several types of contracts that must be in writing to be valid under the Civil Code, including contracts relating to:

    • Marriage.
    • The sale and purchase of immovable property.
    • The sale and purchase of ships.
    • Partnership.
    • Payments for individuals' support, including medical treatment and education.
    • Gifts.

    The Tenancy Law Number 26 of 2007 provided that the rights of a tenant or landlord would not be enforceable unless the contract was in writing and registered with the Real Estate and Regulatory Agency (RERA). However, following amendment by Law Number 33 of 2008, the parties now only need to register the contract with RERA.

    A written contract may also be required as evidence to prove a right in court. Specifically, in a sale of property or when a sale is rescinded for a defect, the party must prove that they did not consent to the defect either verbally or by way of written contract (Article 120, Civil Code). For that reason, commercial parties typically require some form of contractual documentation.

    Article 656 of the Civil Code requires contracts entered into by companies to be in writing. However, if such a contract is not written, that does not affect the rights of third parties (see Question 11).

    Oral contracts are permitted under the Civil Code, as long as there is an agreement and acceptance of an offer. However, there are specific rules that a contracting party must consider before entering into an oral contract. For example, a contract can be entered into through certain actions that signify acceptance. Silence of one party can be considered in some situations as acceptance of an offer (Article 135, Civil Code). Similarly, repeated offers before acceptance annul the earlier offers.

    Question Body:

  • Are there language requirements for the validity of contracts? Is translation into the language of your jurisdiction required?
  • Answer Body:

    There is no language requirement for the validity of a contract in UAE. While Arabic is the sole official language of the UAE, English language is the most common and accepted language in international business relations. However, translation into Arabic is recommended. A certified translation of the contract is required by the UAE courts and will prevail in the event of discrepancies between the two versions.

    Question Body:

  • Can contract terms be inferred by the conduct of the parties or incorporated by reference?
  • Answer Body

    The terms of the contract can be explicitly expressed or can be implied or inferred by the conduct of the parties. For example, a contract for the sale of goods may state that every time the buyer sends a purchase order the seller must acknowledge receipt and then send the goods. However, in practice, if the seller has always sent the goods without acknowledging receipt and the buyer has never opposed this, even though the parties agreed to a different procedure, the usual conduct of parties will be inferred to be the contract terms.

    Therefore, if the parties agree on the essential elements of the contract and leave practicalities to be determined at a later stage, the court will adjudicate any related dispute in accordance with the nature of transaction and conduct of parties throughout the term of the contract (Article 141(2), Civil Code).

    Question Body:

  • What mandatory terms can be implied into a contract by law?
  • Answer Body

    A duty to act in good faith is implied into all contracts subject to UAE law, as sharia law emphasises the principles of justice and fairness. A contract must be performed in accordance with its contents, and in a manner consistent with the requirements of good faith (Article 246, Civil Code). This mandatory provision prevents the parties from abusing their contractual rights and requires them to act reasonably.

    Under UAE laws, the law completes the contract. That is, in the absence of a certain disputed clause, the prevalent UAE laws will apply. Therefore, when entering into a contract, it is essential to stipulate key provisions, such as the purpose of the contract, well defined obligations, and any monetary amounts involved.

    Question Body:

  • Are contracts in electronic form (email, web-based or otherwise) legally enforceable?
  • Answer Body

    Electronic contracts are enforceable in the UAE, provided the essential elements of a contract (such as offer, acceptance and consent) can be expressed through electronic communications. Federal Law Number 1 of 2006 concerning Electronic Transactions and Commerce Law (ETCL) regulates all electronic transactions and contracts in the UAE, and allows the use of electronic documents in court. Federal Law Number 36 of 2006 amending the Law of Evidence in Civil and Commercial transactions provides that electronic signatures, records, and documents have similar effects as physical documents (see also Question 12).

    Question Body:

  • How are preliminary agreements used in your jurisdiction?
  • Answer Body

    Memorandums of understanding (MOUs) are used in the UAE. An MOU is generally subject to time constraints. If the purpose of the MOU is not fulfilled within the specified time, the MOU will terminate automatically. Any agreement is valid under the Civil Code if it meets all the relevant requirements (see Question 2).

    An MOU will be legally binding unless it provides otherwise. The parties generally wish that certain provisions of an MOU, but not all, be legally binding. Therefore, the parties must clearly specify which terms of the MOU are binding, and which are not.

    Question Body:

  • Can negotiations become legally binding in any circumstances? What are the principles and rules (if any) on pre-contractual liability?
  • Answer Body

    Parties can walk away from any negotiations without incurring liability. Liability only arises once there is offer and acceptance at the end of the Majlis (see Question 2). Negotiations become legally binding on the signing of a contract by all parties.

    Question Body:

  • Is the concept of "good faith" in negotiations recognised and applied? If so, how?
  • Answer Body

    Good faith is implied into all contracts under the Civil Code. A contract must be performed in accordance with its contents, and in a manner consistent with the requirements of good faith (Article 246, Civil Code). Even if the contract does not expressly provide for reasonable standards of good faith, the parties must perform their obligations in accordance with the law and in good faith.

    In principle, the duty of good faith applies at the negotiation stage. When a party makes a fraudulent statement during negotiations, this will likely render the contract void for lack of mutual consent under Article 246 of the Civil Code. The wronged party can apply to the court for the contract to be cancelled and seek damages. However, in practice, the UAE courts have limited the application of the duty of good faith to the performance of the contract, except when the duty to act in good faith at the negotiation stage is expressly set out in the law applicable to the specific type of contract. For example, in insurance contracts, the insured must disclose all information material to the insurer's evaluation of the risk (Article 1032, Civil Code).

    Formalities for execution

    Question Body:

  • What are the formalities for a validly executed contract?
  • Answer Body

    Companies

    Partnership contracts must be in writing (Article 656, Civil Code), although failure to draft the contract in writing will not affect the rights of third parties. A written contract must be signed by all parties and be marked with a company's seal or stamp.

    Notarisation provides proof of authenticity of the document. Certain contracts must be made in writing and be notarised to be effective. For example, commercial agency agreements must be registered with the Ministry of Economy.

    Agents or representatives of a company can enter into a contract on behalf of the company provided that they have a legalised and certified power of attorney (POA). The POA must be notarised by a public notary in UAE (Article 149 to 156, Civil Code).

    Foreign companies

    A POA given by a foreign entity to their agents must:

    • Be initially notarised by a public notary in the foreign country.
    • Bear the stamp of the Ministry of Foreign Affairs and UAE Embassy in the country concerned.
    • Be translated into Arabic.
    • Bear the stamp of the Ministry of Foreign Affairs in the UAE.

    Individuals

    See Question 1, Individuals and Question 3.

    Electronic signatures

    Question Body:

  • Can contracts and deeds (or equivalent) be validly executed with an electronic signature in your jurisdiction?
  • Answer Body:

    The ETCL governs the use and admissibility of electronic signatures in the UAE courts. The ETCL provides that nothing prevents the use of electronic signatures as evidence in court under the Evidence Law (Federal Law Number 10 of 1992).

    Under the ETCL, the use of and reliance on an electronic signature must be reasonable, which is based on numerous factors including:

    • The nature of the transaction.
    • The existence of previous transactions between the parties using e-signatures.
    • Any evidence of prior breaches involving e-signatures.

    The Federal E-Commerce Authority has set up a secure e-signature platform used to compare the reliability of e-signatures.

    Deeds

    Question Body:

  • When are deeds (or equivalent) required?
  • Answer Body

    A notarised written contract is required for specific types of contracts, including marriage contracts, wills, and contracts for the transfer of immovable property.

    Additionally, a deed is also required when a pledgee assigns their rights, by way of security, to another person. The deed of assignment must be registered with the Land Registry (Article 1418, Civil Code).

    A power of attorney can only be granted by a deed of agency issued by the principal, which specifies the powers of the agent (Article 150, Civil Code) (see Question 16).

    Question Body:

  • What are the legal formalities for a valid deed (or equivalent)?
  • Answer Body

    The formalities for a valid notarised contract/document in the UAE are as follows:

    • The parties must present the original document.
    • The document must be translated into Arabic before being notarised.
    • The signatories or their legal representatives must have legal capacity.
    • The documents presented must not be contrary to UAE laws and must not fall under the notary prohibitions.
    • All the parties to the agreement must be present.
    • The documents must be certified by the relevant foreign authorities of the country of notarisation (if applicable).

    Question Body:

  • What are the legal requirements and formalities for the execution of deeds (or equivalent)?
  • Answer Body

    See Question 14.

    The agents or the representatives of the company can enter into a contract on behalf of a company if they have a legalised and certified POA. The formalities for a POA vary depending on the type of POA (see Question 19).

    Powers of attorney

    Question Body:

  • What are the main types of powers of attorney in your jurisdiction?
  • Answer Body

    There are two main types of POA in the UAE:

    • General POA. This gives very wide powers to the authorised person acting on behalf of the principal.
    • Specific POA. This is often used when an individual provides only limited powers (for a specific matter) to the agent rather than a broad range of powers.

    There are many more specific types of POAs recognised in the UAE that fall under these general types. These include restricted, absolute and conditional powers of attorney.

    Question Body:

  • What are the main transactions when powers of attorney are used?
  • Answer Body

    There are numerous transactions for which a POA can be used in the UAE, including business dealings and transactions, legal representation, real estate transactions, financial matters and so on. The type of POA used depends on the type of transaction. For example, POAs are used to authorise lawyers for legal representation in the courts or for specific organisations to act on behalf of an individual.

    To enter into contracts on behalf of a corporate body, an individual must have a legalised and certified POA.

    Question Body:

  • What are the key provisions in a power of attorney?
  • Answer Body

    One of the key provisions in a POA is the inclusion of the complete details of the principal and the agent, including their passport number and other information.

    The provisions in a POA vary depending on whether it is either general or specific. A general POA includes a broad list of powers granted to the agent, such as managing financial matters, legal representation in courts, managing real estate, entering into contracts and so on.

    The provisions in a specific POA are limited to a particular matter. A specific POA should explicitly specify the acts that the agent is allowed to perform under the POA.

    Question Body:

  • What are the legal requirements and formalities for the execution of a power of attorney?
  • Answer Body

    The following requirements apply to the execution of a POA:

    • The POA must be in Arabic, or legally translated into Arabic if necessary.
    • The principal must sign the POA before a public notary and have it stamped.
    • If the POA is drafted in a foreign country, it must be notarised in that country and attested by the UAE Embassy and Ministry of Foreign Affairs in the country. It must then be attested by the UAE Ministry of Foreign Affairs.
    • If the POA is for legal representation in court, it must be attested by the Ministry of Justice in the relevant Emirate.

    Question Body:

  • Are foreign powers of attorney recognised in your jurisdiction? If so, must a foreign power of attorney comply with legal requirements and formalities to be effective?
  • Answer Body:

    To be recognised in the UAE, a foreign POA must:

    • Be signed before a public notary in the foreign country.
    • Certified (legalised) by the UAE embassy in the foreign country.
    • Stamped by the UAE Ministry of Foreign Affairs.
    • Translated into Arabic and stamped by the UAE Ministry of Justice to certify the translation.

    Notarisation

    Question Body:

  • When is notarisation required for contracts in your jurisdiction?
  • Answer Body

    Notarisation is required for several types of contracts, including marriage contracts, wills, local agency agreements, and contracts for the transfer of immovable property. Notarisation can be obtained from any public notary, including abroad. A document notarised abroad must be certified by the Ministry of Foreign Affairs and the UAE embassy in the relevant country.

    Electronic/online notarisation is allowed in the UAE. Electronic notary services are available in Dubai and Abu Dhabi.

    Question Body:

  • When is apostilling or legalisation required for contracts in your jurisdiction and how is it carried out?
  • Answer Body

    Documents and contracts notarised outside the UAE must be approved by the Ministry of Foreign Affairs or the UAE embassy in the country concerned. The documents must then be certified by the Ministry of Foreign Affairs and by the Ministry of Justice in the UAE.

    The UAE is not party to the HCCH Convention Abolishing the Requirement of Legalisation for Foreign Public Documents 1961 (Apostille Convention).

    Virtual closing and completion

    Question Body:

  • Is virtual closing used and valid in your jurisdiction?
  • Answer Body

    Virtual closing is not used and is not valid under the Civil Code.

    Question Body:

  • What are the key issues in the conduct of completion meetings?
  • Answer Body

    There are no legal requirements relating to the conduct of completion meeting. The parties will sign the preliminary agreement or final agreement. The signatories must submit the necessary identity documents (copy of passport or identification document) and any document proving that they are authorised to sign the agreement.

    Question Set:

    Content of contracts

    Question Body:

  • What are the different types of contractual terms in your jurisdiction? What liability arises for breach of those terms?
  • Answer Body

    All contractual terms and clauses have legal effect, provided that all the parties are aware of the terms and have agreed to them (Article 257, Civil Code).

    Representation

    As a general practice in the UAE, contracts have a representations and warranties clause that allows either party to file a claim if there is any element of misrepresentation during the initial negotiations. In addition, either party can file a civil case for breach of contract and a criminal case for criminal breach of trust under Federal Law Number 3 of 1987 regarding the UAE Penal Code.

    Warranty

    A warranty is a promise from an individual providing a good or service that it will perform the service or supply goods as described in the contract. Under UAE law, every transaction involving the sale of goods carries a warranty that the products are free from defects. A seller must also warrant that goods are free from any encumbrances and charges, and not subject to third-party claims (Article 534, Civil Code). Therefore, the seller must disclose any claim made by a third party.

    The seller's warranty against defects does not apply if the:

    • Seller informed the buyer about the defect before the sale.
    • Buyer bought the goods after becoming aware the defect and agreeing to it.
    • Parties agreed the seller would not be responsible for the defect.
    • Sale was at a public auction.

    (Article 545, Civil Code.)

    Question Set:

    Variation, assignment and waiver

    Question Body:

  • How can the parties vary the contract terms agreed between them?
  • Answer Body

    Consent of the parties is a vital element to any contract under the Civil Code. A contract clause is only valid if both parties have provided mutual consent to the clause (Article 257, Civil Code).

    The parties are not allowed to withdraw from a valid and binding contract or to vary its terms unless they mutually agree to do so or if the court orders this (Article 267, Civil Code). Therefore, the parties can only modify the terms of a contract by mutual consent.

    Question Body:

  • What are the main ways to transfer contractual rights to a third party?
  • Answer Body

    Either or both of the contracting parties can opt for a transfer of rights to a successor in the event of death.

    For an assignment of debt to be valid, there must be consent of the transferor, transferee and creditor (Article 1109(1), Civil Code). For an assignment of contractual rights to be valid and enforceable, the type and quantity of the assigned rights must be certain and identifiable (for example, payment obligations or receivables). Where the assigned right is a sum of money, the amount must be fixed at the time of execution of the assignment agreement.

    The rights under construction contracts can be assigned to a third party, but not the obligations unless the parties expressly agree. The contractor can appoint a subcontractor for the execution of the works (in whole or in part), unless the main contract prohibits subcontracting or the nature of the works requires that they perform the contract in person (Article 890, Civil Code). The subcontractor does not have a direct claim against the employer for anything due to them by the main contractor, unless the contractor refers them to the employer (Article 891, Civil Code).

    Question Body:

  • What are the rules relating to waiver of contractual rights?
  • Answer Body

    Typically, parties have the right to waive their rights under a contract. Contractual rights can be waived under certain circumstances, for example, if the parties mutually terminate the contract. However, there are rights that cannot be waived, such as the legal limitation period to bring a claim (Article 487, Civil Code).

    Question Set:

    Enforcement and remedies

    Question Body:

  • What makes a contract invalid? What are the consequences of misrepresentation and mistake on the enforceability of a contract?
  • Answer Body

    Invalidity

    The direct purpose of a contract must exist, be valid and permitted, and not be contrary to public morals (Article 207, Civil Code). A contract is considered invalid if it:

    • Does not contain a lawful benefit for both parties.
    • Lacks any of the essential elements of a contract (Article 210, Civil Code) (see Question 2).

    If only some of the terms of a contract are void, the entire contract will be void unless the remainder of the contract is severable.

    Misrepresentation

    There is misrepresentation when either of the contracting parties deceives the other by any means, causing that party to provide consent that they would have otherwise not given. Deliberately suppressing a fact is considered misrepresentation under Article 186 of the Civil Code. A deceived party has the right to cancel the contract if the contract was concluded by fraud. The right to cancel a contract due to misrepresentation lapses on the death of the person with the authority to apply for cancellation (Article 192, Civil Code).

    Mistake

    A mistake does not render a contract void unless it relates to the nature of the contract, one of the conditions of its formation, or its object (Articles 193 to 195, Civil Code). A contracting party has the right to rescind the contract if they have made a mistake on a matter of substance (for example, in relation to the object of the contract, the person of the other contracting party or one of their characteristics). However, a mere mistake in an account or in writing the contract will not have any effect on the contract, as such a mistake can be easily rectified when identified.

    Question Body:

  • How can the parties be discharged from performing the contract? On what basis does a party have the right to terminate the contract?
  • Answer Body

    Contracts in the UAE often include clauses on termination, dispute resolution, force majeure, and similar matters. These clauses define the rights and obligations of the parties if they fail to perform the contract or cannot do so due to unwanted and unforeseen events. For example, in the case of force majeure (that is, the occurrence of an unforeseeable event), the general position is that the contracting parties are allowed some leniency in the performance of their contractual obligations, such as delays for delivery, particularly in the construction industry. In the case of impossibility to perform contractual obligations, non-performance can be excused and consideration will not be due for the performance of those obligations (Article 273, Civil Code). Damages for non-performance must be paid by the debtor unless they can show that the impossibility arose from circumstances that are beyond their control (Article 386 of Civil Code).

    The parties can agree that the contract will be terminated in the event of non-performance of a party's contractual obligations.

    In the absence of a termination clause, a contract can be terminated by mutual consent of the parties, by the order of a court, or by the operation of law (Article 267, Civil Code). If one party is not willing to terminate the contract and the other party wishes to terminate, they must compensate the other party for the loss incurred and the loss of opportunity. The Civil Code specifically provides for the procedure for termination of various types of contract as follows:

    • Articles 892 to 896: termination of contracts for work.
    • Articles 919 to 923: termination of employment contracts.
    • Articles 954 to 961: termination of agency contracts.

    Question Body:        

  • What are the key rules on privity of contract and third party rights?
  • Answer Body

    Under the principle of privity of contract, only parties to a contract can be obliged to perform the contract under it and sue under the contract.

    However, there are a few exceptions to privity of contract. Under the Civil Code, contracting parties can add clauses to give specific rights to third parties. If the clauses grant third parties specific powers, these third parties will have contractual rights. However, third parties cannot be held liable for any legal consequences or non-performance of the contract.

    Question Body:

  • What are the main rules relating to excluding and limiting contractual liability?
  • Answer Body

    The parties are free to agree on and exclude/limit contractual remedies. However, contracting parties cannot exclude liability for a harmful act (Article 296, Civil Code).

    Question Body:

  • What are the main remedies available for breach of contract?
  • Answer Body

    The court will decide whether to:

    • Order specific performance.
    • Order that the costs for the object of the contract to be performed by a third party be paid by the breaching party.
    • Cancel the contract and order the breaching party to pay compensation.

    The judge must be satisfied that specific performance is impossible before assessing compensation (Article 386, Civil Code).

    The UAE recognises different forms of damages, including direct damages, loss of profits and loss of opportunities. The contract can specify the amount of compensation/damages payable for breach of contract, although the court has discretion over the amount of damages awarded (see Question 34).

    If the contract is cancelled, the court must ensure that the parties are restored to the position they would have been in had the contract been properly performed (Article 274, Civil Code).

    There are also a few self-help contractual remedies available under the Civil Code, including the following:

    • If the work of a contractor produces a beneficial effect on a property, the contractor has the right to retain the property until full consideration is paid. However, if the work does not produce any benefit, they do not have the right to retain the property pending payment, and if they do so, their right in the property is lost, and they are liable for compensation (Article 879, Civil Code).
    • Amounts due to contractors or engineers who are undertaking the work of constructing, reconstructing or repairing a building have priority rights over the building during a sale. The priority right must be registered at the time of registration of the sale (Article 1527, Civil Code).

    A contracting party must compensate the other for any direct or consequential harm they cause (Article 282, Civil Code). A party that proves that the loss was caused by an external cause such as natural disaster or an unavoidable accident, must compensate the other party in the absence of any contractual provision to the contrary (Articles 292 and 878, Civil Code).

    Further rules on contractual liability include:

    • If several persons have caused a harm, each of them is liable in proportion to the harm caused (Article 291).
    • Compensation is assessed based on the harm suffered by the victim (Article 292).
    • Compensation is given in money, unless the court expressly orders otherwise (Article 295).
    • Any contractual condition excluding liability for a harmful act is void (Article 296).
    • No claim for reimbursement can be heard after the expiration of three years from the date on which the victim became aware of the claim (Article 298).
    • Compensation is payable as diya (blood money) or arsh (damages for personal injury) for harm caused to an individual (Article 299).

    Question Body:

  • Are clauses setting out a fixed or ascertainable amount of compensation/damages valid in your jurisdiction? Are these clauses subject to any limitation?
  • Answer Body

    Parties can agree on the amount of compensation payable under certain circumstances or for breach of contractual terms (Article 390, Civil Code). The court has the power to alter such clauses if it considers that they are not proportional to the loss suffered.

    Question Set:

    Enforcement and cross-border issues

    Choice of law

    Question Body:

  • Is a choice of foreign law in a contract upheld by the local courts?
  • Answer Body

    The Civil Code recognises choice of foreign law clauses. A foreign law will not be applied if its principles are contrary to sharia law or public morals (Article 23, Civil Code). If it is established that a foreign law is applicable, its provisions will apply except for private international law rules. UAE law will apply if the foreign governing law refers to UAE law as the governing law of the contract.

    However, the UAE courts ordinarily apply UAE law despite any reference to a foreign law in the contract. In a recent judgment, the Abu Dhabi Court of Appeal applied UAE law, on the basis of public order, to an agreement that was to be governed by English law.

    Jurisdiction

    Question Body:

  • Is a choice of foreign jurisdiction in a contract upheld by the local courts?
  • Answer Body

    Article 257 of the Civil Code suggests that if all parties agree to a foreign jurisdiction, the court of that jurisdiction will have the authority to resolve disputes between the parties.

    The UAE courts have jurisdiction to hear actions filed against both:

    • UAE nationals.
    • Foreign persons having a domicile or a place of residence in the UAE.

    Enforcement of foreign judgments

    Question Body:

  • How are foreign judgments recognised and enforced in your jurisdiction?
  • Answer Body

    The following requirements must be met for a foreign judgment be recognised in the UAE:

    • The UAE courts must not have jurisdiction over the substantive dispute in relation to which the foreign judgment was obtained.
    • The judgment must have been issued by a competent court under the law of the foreign country.
    • The parties must have been properly represented and attended the hearings, or have assigned their representative to attend the hearing.
    • The order or the decision must be final.
    • The order or decision must not conflict with a decision or an order issued by an UAE court, and not contrary to UAE rules of morality or public.

    The UAE is a signatory to bilateral legal and judicial co-operation treaties with several countries (for example, India, France, Afghanistan, Pakistan, Egypt, Jordan, Nigeria, Morocco, Iran, and the UK). The conditions and procedure to enforce foreign judgments are specified in these treaties. For example:

    • Under the Riyadh Arab Agreement for Judicial Cooperation 1983, the judgment creditor must make a formal request to the competent court where enforcement is sought. The enforcement process starts after approval of the request.
    • Under the GCC Convention for the Execution of Judgments, Delegations and Judicial Notifications 1996, the enforcement procedure is governed by the law of the country where the judgment is executed. The judgment creditor must produce the judgment, a certificate declaring the judgment to be final, and other documents confirming that the defendant was properly notified (for ex parte judgments).
    • Under the Convention on Judicial Assistance, Recognition and Enforcement of Judgments in Civil and Commercial Matters between the UAE and France 1992, an application for the recognition and enforcement of a foreign judgment must be submitted to the competent court of first instance in accordance with Article 235 of the UAE Civil Procedures Code.

    In the absence of a treaty, the UAE Civil Procedures Code will apply. The UAE courts take into consideration the principle of reciprocity to enforce a foreign judgment. The applicant must request an execution order from the court of first instance, which will assess whether the conditions listed above are met.

     

     

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    Mon, 16 Nov 2020 12:00:00 GMT
    <![CDATA[Challenging Expert Appointment in the UAE]]> Challenging Expert Appointment in the UAE

    The appointment of an expert in UAE (United Arab Emirates) can be challenged on the basis that the expert failed to carry out his duties in an impartial manner or without prejudice to either one of the parties. The expert appointed has to at all times exercise impartiality towards the parties in a dispute and has to act independently. An expert is defined as any legal person who practices the profession of expertise and is registered on the list recorded in the experts' register in the Ministry of Justice of UAE under the Federal Law Number 7/2012 on the Regulation of Expertise before the Judicial Authorities (the "Law"). The expert appointed has to at all times exercise impartiality towards the parties in a dispute and has to act independently. There are certain conditions that the expert has to abide by at all times, and any failure of the expert in performing these duties shall render the expert's decision to be challenged. These conditions that the expert has to conform to have been mandated under Article 11 of the Law and have been outlined below:  

  • The expert is to practice his profession with utmost honesty, sincerity and accuracy. It is to be practiced in a manner that is prudent whilst preserving its dignity and consideration. It is also imperative for an expert to take into account the principles and traditions of the profession in accordance with the Charter which lays down the set of rules and regulations governing the work of the expert;
  • The expert shall be banked upon to handle the task entrusted to him personally and independently;
  • The expert shall not indulge in any disclosure of information pertaining to his professional expertise work or anything that he may have accessed by virtue of his work of expertise;
  • Neither the expert nor any one of his relatives (up to the fourth degree of kinship) are to have any personal interest either directly or indirectly in any business related to the subject of the case or the subject of his expertise;
  • The employer of the expert shall not be a party to the dispute being considered by the expert;
  • The expert should not accept any work of expertise in a dispute for which he has already been asked for consultancy or where he has been briefed on the documents related to the dispute by any party to the conflict;
  • He has to update and develop his skills in the field of specialization in which he is licensed to practice the expertise;
  • He has to associate his name, registration number and the name of the office through which he works in all publications, correspondences, certificates and reports signed by him;
  • Maintain a special register where data of expertise work performed by him shall be recorded;
  • Maintain a true copy of the reports prepared by him till the adjudication of a conclusive judgment regarding the case subjected to his work of expertise and
  • The expert has to notify the Ministry of Justice of his address and any modification that might occur within a month of the respective modification. Any amendment or modification to the license data will also have to be notified to the Ministry within a month of the said notification.
  • In order to challenge the appointment of an expert, a committee shall be set up by a decision of the Minister of the Ministry of Justice, known as the "Experts Affairs Committee" and this committee shall be competent in reviewing complaints and reports related to the experts. The committee shall be equipped to take any necessary action in accordance with the procedure as specified by the Law and also in accordance with implementing regulations and decisions of the committee. The name of the expert can be struck off from the list upon a decision of the committee in case he loses a requirement of his registration, if he is convicted of a felony or misdemeanor inclusive of a breach of trust/honor and if he is incompetent or unable to perform his work any longer due of his health condition based on the report of the competent medical committee (Article 23 of the Law). The Public Prosecution shall notify the committee of the penal cases filed against the experts and of the judgments convicting them and the committee shall in furtherance of this notify the expert and the party for which he works of the complaint filed against him. The expert shall have a time period of 15 days to respond from the date of receiving such notification. Accordingly, the complaint, along with the expert's response, shall be submitted to the committee upon which a decision can be rendered to dismiss it or refer it further to the investigation.

    Federal Law number 10/1992 on Evidence in Civil and Commercial Transactions (Evidence Law) authorizes the court for the appointment of one or more experts where it deems fit in matters related to a dispute. Whenever deemed to be necessary, the court is authorized to deputize one or more experts from amongst the State employees or from the experts registered on the list to give their advice in matters related to the dispute concerned (Article 69 of the Evidence Law). If either of the parties to the legal dispute is not content with the appointment of the expert or the legal action, then they may lodge a complaint against the estimate within a prescribed time period of 8 days of it being announced. Such a complaint shall be carried forward with a deposition of a written report with the court's record clerk which shall result in the order of estimation not being carried out. However, the said complaint shall be ruled on by another judge or another circuit upon hearing the statements of complainants and the ruling rendered in such matter shall be final and irrevocable (Article 91 of the Evidence Law).

    In case the parties are not content with the appointment of an expert then the parties to a dispute shall have the right to apply for dismissal if such an expert based on the conditions mandated in Article 77 of the Evidence Law. Such conditions include the scenario where the parties may apply for removal of the expert if it appears that he is incapable of performing his assignment without bias. If it is shown that the expert is a relative or in-law to either of the parties in the legal action up to the fourth degree, then the expert's appointment may be challenged. He should also not be a trustee or guardian, be working for any of the litigants or be appointed as an attorney for either party in his personal work. If the expert or his wife is involved in an existing dispute with any of the parties in the lawsuit, unless such dispute has arisen after the appointment of the expert for the purpose of having him dismissed, then the expert's appointment holds ground for being contested. The appeal for dismissal of the expert shall be made by appearing before the court within a time period of one week of the date of his appointment if the order has been issued in the presence of the party who applies for such dismissal. If such an order has been issued in his absence, then the appeal for dismissal shall be submitted within the next week following the service of the order upon him. The right to appeal for dismissal shall not elapse on the basis of reasons arising after such time has been given or if the litigant has produced a proof that he has no knowledge of such reasons except after the lapse of the time given. The reports of the expert can be challenged by the court where the court decides not to follow such report provided that the judge specifically provides reasons for such decision.

     

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    Sun, 13 Sep 2020 11:15:00 GMT
    <![CDATA[Liquidated Damages upon Contract Termination]]> Liquidated Damages upon Contract Termination

    Liquidated damages while not present in every contract, there will arise occasions where liquidated damages are mentioned within contracts and provide necessary assurance and security. There are numerous benefits, though also some drawbacks to this type of clause. The method of awarding damages also differs around the world depending on the type of legal system in place within a jurisdiction and nation.

    Common Law and Civil Law nations have differing ideas when it comes to this topic. In this piece, we will look into the concept of liquidated damages to summarise what the implications are across a few jurisdictions.

    Common Law Jurisdictions

    Common law was first introduced in England in the King's Court following the Norman Conquest around the 11 century. The system spread across the globe and throughout the British Empire. Many of these nations still adopt the common law legal system to this day to varying extents.

    Case laws hold a significant sway in court cases though the concept of binding precedence. Further to this, judges play an active role in effecting and evolving the legal system throughout the nation. This is all possible due to the fact it is not codified.

    Under common law, liquidated damages receive a level of scrutiny. Often, the damages will not be awarded if they are present in the contract as a form of punishment. The reason for this is so that one party cannot take advantage of the other by introducing a clause which would likely come to pass. Often, a party with greater power in a situation such as a company, could abuse an ordinary individual in this way. However, liquidated damages are not simply ignored; this acts as more of a caution than anything else.

    There are two crucial aspects of the clause which must be analysed and conditions are required before it can be upheld. These are as follows: -

  • The value of the damages should reflect the damages caused;
  • The act mentioned in the clause should not be a certainty. If it certain or highly likely to occur, the clause is considered as one party taking advantage of the other.
  • One particular case from the United Kingdom, England, was that of Office of Fair Trading v Abbey National plc and Others [2009] UKSC 6. In this case, an issue arose when an individual wished to take an overdraft from their bank. Certain charges were imposed upon the individual, and the Office of Fair Trading (OFT) wished to look into the fairness of the charges.

    A decision was reached by the Supreme Court in which it was stated that a banking entity would not be in a position to impose penalties on their customers in their contracts. However, in this particular case, the 'fine' could be considered more as a charge for a service that a punishment to the client. This fact thus made the charge fair.

    Another case from the UK which had a similar result was that of Cavendish Square Holding BV v Talal El Makdessi [2015] UKSC 67; this is a leading contract case law in the nation. In the case, an agreement was entered between the two parties in which Cavendish would purchase a significant share in a leading Middle Eastern marketing company. The contract between them included two specific clauses which stated the following:

    • If certain clauses of the contract were breached, Mr Makdessi would no longer be liable to receive the two final payments promised;
    • Mr Makdessi would also be liable to sell his remaining shares at a rate far below their true value and the value agreed for the initial shares.

    A breach did occur, though Mr Makdessi stated in his defence that the clauses were unfair and being utilised as a penalty. If the court found this to be the case, the clauses would not stand. However, in the final judgement in the Court of Appeal (the Supreme Court in this case), held that the clauses were not penalties. They did not go against the EU directive, Unfair Terms in Consumer Contracts Directive 93/13/EEC.

    While the EU consists of a number of nations that do not use the common law system, the law still applies across the UK and also EU countries.

    The US is also a common law nation and their key regulation on the matter is the Uniform Commercial Code. This code was first published in 1952 and has been adopted across the nation in whole or in part depending on the specific jurisdictions. Section 2-781 subsection 1 states that liquidated damages are permissible in sales contracts so long as the value of the damages are fair. They should have a similar value to the actual damages that arise. Further to this, they should be unforeseeable damages.

    Altogether, these are largely the same as the United Kingdom's approach.

    Civil Law Systems

    The other predominant legal system found throughout the world and perhaps the more common of these two. Civil law was the roman legal system and was used across their empire in an attempt to unify the people under a singular method of judgement. Today it is found in its purest form across the continent of Europe, and further across the world it is either used or altered in different ways.

    This system is codified and thus is not limited by prior case laws. Statues are used by judges to identify issues and arrive at conclusions.

    In general, civil law nations are far more open to the concept of liquidated damages. These are seen as adding certainty to a contract and accounting for different eventualities. One of the best examples of this is found in the French Civil Code. This code was established in 1804.

    Article 1226 of the code concerns clause pénale which is a form of liquidated damages. These can be used to ensure specific performance from the parties to the contract. While it often ensures performance, another use is to provide compensation in the event of a breach.

    These clauses are generally accepted in France and other civil law jurisdictions. However, in the case of excessive penalties, a court may order the fines to receive a reduction. As per article 1230 of the code, the party must be aware of the clause and specific punishment in the case of a breach.

    The UAE is another civil law jurisdiction and it holds much the same position as the French. The Civil Transaction Law (Federal Law Number 5 of 1985) considers this under Article 390. Herein, it is stated that parties to a contract may pre-determine the compensation in case of a breach. However, subsection 2 states that a judge may order a party to alter the amount to a reasonable level if this is deemed necessary and there may exist no clause within the contract to counter this.

    The clause is used to a considerable degree in construction contracts, this makes them all the more useful in the UAE which is known for its considerable real estate and construction industries.

    Japan follows suite in this respect, though it also takes things a step further. Under the Japanese Civil Code, Article 420-1, three specific points are made. These are as follows:

  • Parties may agree upon punishments in the case of a contract breach. These cannot receive adjustment whether they are an increase or decrease, from the courts;
  • The clause shall not prevent any party from demanding further in the case of an issue arising that is not stated in the contract, nor shall it prevent the right to cancel the contract;
  • Any penalties mentioned within a contract are considered liquidated damages.
  • In a way, the Japanese system is quite the opposite of the common law idea, and it goes beyond even many other civil law jurisdiction.

    Conclusion

    The concept of liquidated damages are handled differently depending on the legal system of a nation. There a few constants across the majority of countries regardless of this though which include the idea of fairness and protecting the interests of the parties. However, the common law system found in the likes of the UK and the US is generally not the friendliest when it comes to any form of penalty clause in a contract due to the potential issues that may occur. These include the abusing of power by those in the more powerful position.

    Japan is the most extreme in their support of the idea of liquidated damages, as even the court cannot force alterations to such contract clauses. Whether the system is good or bad is for no one to say. Both sides have their advantages and disadvantages. Considering the differences in the two types of legal systems, either argument has its merits.

     

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    Wed, 15 Jan 2020 12:26:00 GMT
    <![CDATA[Loan Settlement with Banks, Travel Bans and other Implications]]> Do you have outstanding bank loans and credit card payments?

    "Some debts are fun when you are acquiring them, but none are fun when you set about retiring them."

    Often, unexpected events can astound an individual in an array of ways like a change in employment, personal emergency, etc., which may rapidly throw the individual off track. Consequently, in the long run, one may "default" in payment of credit card bills or loans. Bank settlements in today's times can be monotonous as well as painstaking. The jocundity of swiping your credit card whilst forestalling the incapacity to repay the same or default in repayment of loan could lead to drastic and harsh scenarios such as the bank imposing travel bans or resorting to severe legal action including cheque bounce and civil cases filed for recovery. How does one sleep peacefully at night with the scare of such legal action hovering in his mind whilst staying perturbed about negotiating with banking sharks as well as obdurate debt recovery agents?

    Matters that involve corporate defaulters or wilful absconders will face legal consequences that include prosecution, court claims and other legal remedies banks and/or their lawyers in Dubai or overseas may choose to initiate. Further, Interpol red alert is also a consequence of such default. Additionally, there are also cases where individuals are unable to return to Dubai on account of domestic/family emergencies, untimely loss of employment being communicated while they are in their home country, or where an employee is undergoing medical treatment for a long time. The so-called "unintentional defaulters" desire to settle their claims with banks and wish to return to the United Arab Emirates (UAE) to secure their future and work in the country.

    Naturally, every lender is suspicious and it is valid for loan specialists independent of whether it is an individual, an association, a foundation or a sovereign government. The Oxford Dictionary meaning of "default" signifies the inability to pay, act, not meet cash calls, and so forth.

    Limited understanding of the UAE laws and regulations, lack of language or procedural knowledge, inexperience in negotiating skills, unreasonable and untimely pressures from collection agents, coupled with lack of security deter or prevent the unintentional defaulters from settling their matters in a timely manner. It is vital to be conversant with the local laws, understanding your legal rights, obtaining the proper set of settlement documents, knowledge of penalty and interest charges that can be imposed, the return of security documents, grasping the precise process besides ensuring fair negotiations as they are all very important in such process. A default is also overlooked by a bank as serious and grave offence which often compromises communication between the parties leading to a dead-lock, thereby preventing the defaulter from re-entering the UAE. 

    Dishonour of cheques and travel ban?

    In most situations of default in loan and credit card payments, one simply hands over blank signed cheques as a guarantee to the banks and/or their agents for quick imbursement of loans or acquiring a credit card, which now is the trump card held against the debtor in a bank settlement by the bank. These cheques are used by the creditors as a weapon against the debtors by bounding the cheque and proceeding towards immediate criminal complaints followed by a travel ban.

    In addition to criminal action, the banks may additionally evaluate and opt for other remedies such as civil claim or consider other steps that their counsels may deem expedient in the best interest of their client, the bank.

    That said, it is imperative to understand that in line with a criminal order being Decision Number (1) of 2017 (Emirate of Dubai), Decision Number (119) of 2019 by the UAE Chief of Public Prosecution (for United Arab Emirates) as well as Decision Number (2) of 2018 (Emirate of Ras al Khaimah), cheques amounting up to AED 200,000 (UAE Dirhams two hundred thousand) can be subject to a jail term towards any cheque bounce or for small claims which is upon the discretion of the Prosecutor to forward the matter to the courts of UAE or not. Banks can, however, present these claims before the authorities, wherein the defaulters will be subject to a fine (without undergoing any court order or prosecution).

    The events which may constitute a default in loan agreement includes, but is not limited to:

    • Evasion of judicial judgement;
    • Bankruptcy or insolvency proceedings against the borrower;
    • Significantly opposing change;
    • Breach of warranties, covenants and representations;
    • Force majeure.

    General Clauses in Loan Agreement

    Certain clauses that are generally integrated within a loan agreement include:

  • Waiver: This is where the lender agrees to waive the breach or the event which gives rise to the occurrence of a default;
  • Forbearance: This is where the banks concur not to announce an occasion of default to practice any cures;
  • Negotiate through an expert…

    It is in difficult situations like these wherein banking experts specializing in bank negotiation and loan settlements come in the picture. Yes in a land of expats there are multiple changes in one's living standards and financial situations which at times leads to default in loan, but does not make someone a wilful defaulter.

    Specialized lawyers in bank settlements will examine the situation along with the facts post which shall represent you before the disturbing debt recovery agents and the respective loan recovery bank associates. Having a specialized lawyer in UAE shall give the debtor a consolidated chance to have a flexible payment plan or a concession on your interest amount at times along with the principle and shall provide you the cushion to plan your finances.

    A bank settlement expert helps to mentally secure the debtors for the outstanding amount, who are now post their involvement looking forward to a logical loan settlement rather than chasing a defaulter.  The services provided by the banking lawyers shall include drafting and responding to legal notices, corresponding via telephone, email and letters with the creditors and banks, as well as attending settlement meeting on behalf of the creditor.  

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    Tue, 05 Nov 2019 12:23:00 GMT
    <![CDATA[E-contracts in Dubai and the UAE]]> E-contracts in UAE

    Introduction

    In today's modern E-world, it should come as no surprise that businesses prefer communicating officially online. From arranging meetings to agreeing on legally binding contracts, this trend of electronic business is fast growing. This trend of communicating through emails and applications led to the formation of 'electronic contracts'.  E-contracts are treated in the same way as a written or oral contract, even though they are formed online. These contracts can be formed via emails or special computer programs or electronic agents that are programmed for this specific matter. This article is tailored to discuss the concept of e-contracts in the United Arab Emirates (UAE).

    UAE Legislation

    How an E-contract is formed:

    The UAE, to keep up with this trend of E-contracts, has its law now governing the same. Firstly, as per the UAE Federal Law Number (5) of 1985 with regards to the Civil Code, Article 125, a contract is formed when there is an offer made by one contracting party and acceptance provided by another contracting party so as far as the parties intend to create such a contract. So, in essence, there needs to be three elements:

    • Offer
    • Consideration
    • Intent

    With regards to E-contracts, the law remains the same as Article 132 of the UAE Civil Code, states that intention can either be in writing or just verbal; both of which does not allow or prohibit this being carried out electronically.

    How an  E-contract is valid:

    The Electronic Transactions and Commerce Law Number 2 of 2002 was brought about to govern electronic transactions; E-contracts fall under this bracket. Chapter III, Article 13 states that it is permissible for offer, acceptance, and intention to be carried out electronically for the contract to still be valid (Article 13(1)) and that the validity of the contract in question should not be subjected to a dispute based on such a formation (Article 13(2)).

    Article 14 further speaks to the above by adding and extending that if a contract is formed through an automated electronic medium (Automated Medium) such as electronic information systems that are programmed to perform such tasks, then such a contract would still be legally binding despite there being no communication between real people. Furthermore, it states that if a contract is formed via an Automated Medium with a natural person, it will be valid only if that person knows that the other party he/she is contracting with is an Automated Medium (Article 14(2)).

    Electronic signatures

    It is common knowledge that for a contract to be valid, all parties involved must sign the contract indicating their consent and approval. Similarly, E-Contracts may require e-signatures. As per Chapter I of the Electronic Transactions and Commerce Law Number 2 of 2002, an electronic signature is defined as a signature containing letters, symbols, numbers, voice, or processing systems in an Electronic Form. Additionally, this must be connected to electronic communication and stamped with the intention of authentication. An E-signature can be carried out in the following ways:

    • By clicking a button and agreeing to the terms and conditions as seen in applications, software, updates, etc.;
    • Typing his or her legal name in a box at the end of a contract indicating their intention;
    • Using cryptographic signatures – a concept similar to that of a bank PIN or a PIN-protected document;
    • XML based signature, which is commonly used. This requires digitally recorded fingerprints.

    Article 10 of Chapter I further reinstates that an e-signature is as reliable and equivalent to a hand signature, just as long as the parties are fully knowledgeable about their actions. However, reliance on these signatures must be reasonable. There is a list of factors to be considered with regard to the reasonableness of the reliability of e-signatures. For instance, the parties who rely on the signature must take reasonable steps to verify the identity of the signatory. They should check for any evidence that indicates that the contracting party has been rejected due to the e-signatures. If the parties have contracted before, it is their duty to verify that the contract is performed in a similar manner. In addition to these factors, any other factor relevant to the contract, and the circumstances surrounding it must be taken into consideration.

    Do the UAE Courts acknowledge E-contract as admissible evidence?

    Federal Law Number (10) of 1992 On Evidence in Civil and Commercial Transactions regulate and govern evidence in the UAE. Article 17, Section 1, which was added by the Federal Law No. (36) of 2006 dated 9 October 2006 widens the definition of the electronic signature by stating that any symbols, signs or letters which have unique characteristics which would allow persons to distinguish it from regular symbols, signs or letters would be considered as e-signatures. It further goes on to state that Sending, receiving, shifting, or storing of signs, symbols, inscriptions, pictures or voices, or any other information of any nature made via Informational Technology Medium shall be considered as an electronic document (Section 2). It is to be noted that an e-signature is to have the same ethnicity as the definitions contained in this legislation (Section 3(1)) and that electronic documents and records (as well as scripts) are to have the same authenticity as defined for the official and customary inscriptions and documents (Section 4(2)).

    Thus, an electronic document cannot be rejected on the ground that it is electronic. There need to be specific requirements to negate the validity of such a document to reject it. For instance, the authenticity of the information source, the credibility of the method used to secure the information, the trustworthiness of the presenting, saving and sending process, and the legitimacy of the identity of the author who serves/produces the information.

    Prohibited subjects of E-contract

    Although the trend of E-contracts is widespread and still growing, specific categories of contracts are not acceptable in electronic copy due to the threat of misuse of such documents and/or the vulnerability of the content. Following categories of contracts are generally not acceptable in electronic copy:

    • Documents associated with personal issues, such as marriage, divorce, child adoption, etc.;
    • Wills and trusts;
    • Deeds of title to immovable property;
    • Any transaction which involves purchase, sale or lease (for the term exceeding ten years), or any other disposition of immovable property;
    • Registration of any rights related to immovable property;
    • Any document which is required to be attested before the Notary Republic;
    • Any other document which is exempt by the provision of the law.

    What the courts have to say:

    The courts in UAE have always been strict about the validity of any contract. When it comes to E-contracts their outlook is still the same. As the validity of the contract makes it binding, it is inherently prudent that the contract is formed correctly. For instance, Dubai Court of Cassation 35, 2008 held that electronic records and documents hold the weight of its physical counterpart so as long as it is authentic. Furthermore, with evidence, the Dubai Court of Cassation (Matter 277 of 2009 and decided on 13 December 2009) held that e-signature is acceptable as evidence even if it is not in its original form. This is generally the case as courts accept e-signatures to be valid unless proven otherwise (Dubai Court of Cassation passed a similar decision (Matter 241 of 2007 and decided on 28 January 2008)).

    DIFC authority

    In the Dubai International Financial Center (DIFC), matters relating to electronic transactions are now governed by the new DIFC Law Number (2) of 2017. As per this new law, any contract cannot be deemed invalid solely on the ground that it is in an electronic form (Part 3, Section 10 (13)). The validity of these e-contracts can be found in Part 4 sections 15 and 16 which follows the same principle as the UAE Federal laws. Section 19 states that any contract made via Automated System cannot be denied its validity or enforceability on the sole ground that there is a lack of personal involvement by parties.

    With regards to the signatures being in electronic form, Part 5(22) of the Law states that an electronic signature is held valid if the e-sign used is appropriate for the document generated and it has proved to satisfy the required functions without further evidence. E-signatures are considered admissible evidence in the DIFC as well (Section 24).

    On the whole, the rules and regulations governing E-contracts in the DIFC free-zone seem to mirror and uphold the laws across UAE. In general, the contract, electronic or not, is valid and binding so as long as it is signed appropriately by permitted authorities who possess the necessary understanding.

    Overall, it appears that regulations in DIFC free-zone are similar to those across the UAE: electronic contracts are valid and legally enforceable, an electronic signature is recognized as an equivalent to a hand-written signature and is legally binding.

    Conclusion

    In the ultimate analysis, electronic contracts in the UAE are recognized by both local UAE law and DIFC free-zone law. As mentioned above there are three components governing any contract: offer, acceptance, and intention. So as far as these three components are upheld with accordance with the necessary legal requirements a contract will be deemed valid and binding regardless of the contract being electronic or not. Therefore, if parties through electronic communication have come to an agreement and formed an electronic contract, such contract will be considered as a valid and enforceable agreement that parties will have to adhere. Overall, the area of e-commerce is growing, and the legal system shall develop together with it to be able to manage current uncertainties and face future challenges. 

     

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    Sat, 12 Oct 2019 11:14:00 GMT
    <![CDATA[Tenancy Law of Abu Dhabi and its Amendments]]> TENANCY LAW OF ABU DHABI AND ITS AMENDMENTS (Updated October 2019)

    (This article was updated on 7 October 2019)

    Tenancy Law is one of the most important aspects of societies' life by means of which individuals' rights and duties are determined. Besides, it also sets a guiding principle for interactions among individuals in general and for resolving disputes thereof in particular. Tenancy law is considered to be the backbone of every individual's daily life as it is a tool regulating tenants' and landlords' (collectively referred to as Parties) transactions through tenancy executed contract. Further, tenancy law has been amended from time to time to bring it in line with current circumstances in addition to the market and social demands thereof. 

    In this article, our team of lawyers in Abu Dhabi seek to accentuate the tenancy law of Abu Dhabi; its latest amendments and further regulations setting out the obligations of the landlords and tenants per terms of the law.

    Tenancy law was not exclusively set out in single legislation or act in the emirate of Abu Dhabi. However, we may say that it is a group of laws regulating the rental relation between the Parties either for residential, commercial or industrial purposes by means of establishing certain mechanisms. It also outlines all procedural steps surrounding these collaborations between the contractual parties as well as setting out the penalty for going against the rules already laid down.

    In 2006, Abu Dhabi Law Number 20 was issued to regulate the relation between landlord and tenant on matters such as increasing rental prices and evicting the tenant from the property. Before the amended Law Number 4 of 2010, landlords could not demand tenants to vacate the rented property upon expiration of their tenancy contract. However, circumstances have changed after the below amendments.

    The main amendments to the law number 20 of 2006 (the Tenancy Law) include the following:

  • Abu Dhabi law number 4 of 2010;
  • This law entitled the landlord to seek eviction of the tenant from the property upon expiration of their tenancy contract and further the landlord may also refuse renewal of the contract. A rent cap of 5% was applicable; however, tenants were subject to a 5% increase in rent upon renewal of the contract without previous intimation to the tenant. This 5% cap is removed due to further amendments.

    • Head of Judicial Department Resolution Number 10 of 2010 on Lease Dispute Resolution Committees and the applicable procedures before such committees 
    Under the provisions of law, a Dispute Resolution Committees (the Committee) will be formed, where the committee will be chaired by a judge. The Committee will have the power to urgently resolve the matter arising out of the lease relationship between the landlord and the tenant and to settle temporary procedures submitted by either party. The Arabic Language will be used before the Committee, and the Committee will hear the claims and defenses of litigants, witnesses, and any other person, who is ignorant of the Arabic language through an interpreter.
    • Abu Dhabi Executive Council number 4 of 2011 on rules and procedures of registration of tenancy contracts in the emirate of Abu Dhabi:

    Abu Dhabi Executive Council number 4 of 2011 introduced rules and procedures for landlords to register their tenancy contracts at the Abu Dhabi Municipality (the ADM).  The resolution introduced a system upon which the ADM establishes and keeps a registry of tenancy contracts including all data related to the leased property which is known as the ADM's tawtheeq system. Besides, all tenancy contracts existing or entered between the parties after the implementation of this resolution shall be registered at the ADM. The tenancy contracts must be in English and Arabic or only Arabic language while registering it with the Tawtheeq registry system of the ADM.

    Considering the above provisions, the ADM, shall only consider tenancy contracts registered under the provisions of this resolution, any transaction requiring a tenancy contract shall not be accepted and shall be dismissed if the contract is not registered in the tawtheeq registry system of the ADM. The resolution applies to all residential, commercial units and industrial units.

    • Administrative Resolution Number 12 of 2012 on Controls of Occupancy of Housing Units in the Emirate of Abu Dhabi;
    Housing property is defined under the law as the property, or any part thereof prepared for the lease and use it as domicile that provides a person with residence, living, basic daily life needs including a bathroom, kitchen and at least one bedroom. Also, the Resolution prohibits the occupancy of one housing unit by two families. 
    • Administrative Resolution Number 13 of 2012, on Executive Resolution Law 1 of 2011 on Regulation of occupancy of Housing Units and use of property allocated for citizens in Emirate of Abu Dhabi: 
    The Resolution does not allow the following buildings to be rented out:
  • Buildings built in farms and manors; 
  • Public housings and other additional housing units; 
  • Public housing that has been demolished and rebuilt upon a license issued by the government; 
  • Housing units built on residential lands that have been licensed upon the owner's request for special social causes
    • Abu Dhabi Executive Council Decision issued law number 32 issued in 2012:

    This Executive Council Decision removed the rent cap of 5% and granted landlords the liberty to raise the price as per the market rates for their interest. However, the Tenancy Law also provides for rules concerning notice periods required in case the landlord seeks to evict the tenant or seeks to raise rental amount or any modifications in the contract. The landlords must notify the tenant by giving two months notice by issuing an evacuation/eviction Notice or a prior note stating the proposed modification in the contract and indicating the specific alteration the landlord desires to apply. For commercial properties, the notice period is deemed to be of minimum 3 months. It is pertinent to note that in case the landlord does not serve an eviction or rent increment notice during the above course of time before renewal, the contract shall be deemed to be automatically renewed with the same price and same terms.

    • President of the Executive Council's Resolution Number 32 of 2012 on Premises Lease Contracts: 

    The Resolution mentions that the annual increment of the rental specified in the lease contract as mentioned under Article 16 of Law Number 20 of 2006, shall not exceed five percent (5%), provided that the rental should be evaluated as of 10 November 2013 as agreed between both the parties. 

    • Administrative Resolution Number 97 of 2012, on Mechanism of Registration of Lease Contract in the Emirate of Abu Dhabi: 

    The Administrative Resolution Number 97 of 2012 has laid down the provisions concerning the mechanism related to the registration of lease contract in Abu Dhabi. The Resolution authorizes the Abu Dhabi Municipality to prepare a special record to register lease contracts which must contain the data related to the property used for residential, commercial, or industrial purposes as well as the records of the occupants for the residential property plus the landlord and tenant's data. The Municipality will also prepare a unified manual on procedures required for registration and can amend it when it deems necessary. The Municipality is also authorized to collect registration fees of lease contracts subject to the following: 

    • In the case of replacement of the tenant in the same land premises, the current contract shall terminate, and both the parties shall make a new contract upon the payment of fees; 

    • Registration fees for the property and units should be made in one payment as follows: 

  • AED 1,000 per building on one lot of land and AED 5,000 per lease unit; 
  • AED 1,000 for all villas built on one lot of land and AED 5,000 per lease unit. 
  • • The prevailing lease contracts made before the issuance of this Resolution shall be exempted from the registration fees where their fees are to be only collected upon renewal.

    • Abu Dhabi Council Resolution Number 13 of 2016 on housing fee:

    The Abu Dhabi Council issued a Resolution Number 13 of 2016 in February 2016 whereby the Municipality will charge a 3% housing fee on an annual rent. The fee will be charged on all the housing units in Abu Dhabi. Also, the responsibility to pay the housing fee will be on the tenants and will not be considered as services charge which is payable to owners of the building. 

    • jAbu Dhabi Council Resolution Number 14 of 2016 on Lease Agreements of Premises concerning the reintroduction of the annual rental cap of 5%: 

    The Tenancy law introduced a 5% rental cap on the lease agreement, however, the cap was abolished on 9 November 2013, but the cap has again been reinstated under the Abu Dhabi Council Resolution Number 14 of 2016 with an effect from 13 December 2016. Under the Council resolution, both the parties can fix the rent for the lease term, upon agreement, however, if the rent is not decided then the landlord has the authority to increase the rent annually.  

    • Tenancy Law amendment of 20 November 2017: 

    The resolution states that the decision of the Abu Dhabi Rental Disputes settlement committee will be final and binding upon the parties if the claim amount in the dispute is below AED 50,000 (UAE Dirham fifty thousand). However, if the claim amount exceeds AED 50,000 (UAE Dirham fifty thousand), the parties can file for an appeal in the Court of Appeal within 15 days starting from the next day of judgment or from the next day of judgment notification, if the judgment is an absent judgment. 

    Additionally, the parties also have the right to file an appeal before the Court of Cassation within 30 days from the next day of the appeal judgment or from the next day of judgment notification if the judgment is an absent judgment, subjected that the claim amount exceeds AED 300,000 (UAE Dirham three hundred thousand). 

      Key Notes:

    1.      Tenancy Period:

    • The lease contract shall be valid to the end of the period specified in the contract and the period may be renewed for additional period/s as agreed between the parties.
    • If the contract term expires and the tenant keeps making use of the leased premises without objection from the landlord, then the contract shall be deemed to renewed for the same period and same conditions. 
    • If either party wishes not to renew the contract; or to adjust the conditions, such party shall notify the other party in writing, two months prior to its termination for residential properties and two months prior to termination of the contract for commercial industrial or professional properties. 
    • The landlord may not ask the tenant to vacate the leased property on the basis of the expiration of the period before 9th November 2012 (specified date), and this date may be renewed upon a decision of the president of the Executive Council as he may deem appropriate.
    • The committee has the right to decide on vacating the leased premises before the date specified if the occupation of the leased property by the tenant causes gross damage to the landlord provided that the tenant has made use of such premises for not less than two (2) years. In such case, the landlord shall not grant more than six (6) months to vacate the leased property date of resolution of the Committee. 
    • Upon the decision of President of the Executive Council, rules and procedures on registration of lease contracts related to property existed in the Emirate shall be developed.

    2.      The following procedures must be adhered to:

    •          Ensure that the landlord has registered his property at ADM by reviewing the registration certificate.
    •          Seek the tenancy contract for your review. Examine all terms and conditions especially those pertaining to tenancy period, rental amount, maintenance and other fees.  

    Eventually, it should be noted that in case a dispute occurs between the landlord i.e. owner or real estate/property management company and the tenant, it would not be possible to submit dispute application to the Rent Dispute Settlement Committee unless the tenancy contract is registered with ADM tawtheeq system. Accordingly, it is advisable to make sure that the tenancy contract is signed and registered. To state in précise, the Tenancy Law is a security for the rights of both the parties whether the party is the landlord (owner/ property management company) or the tenant. 

    • Abu Dhabi Executive Council Decision issued law number 32 issued in 2012:

    This Executive Council Decision removed the rent cap of 5% and grants landlords the liberty to raise the price as per the market rates for their interest. However, the Tenancy Law also provides for rules concerning notice periods required in case the landlord seeks to evict the tenant or seeks to raise rental amount or any modifications in the contract. The landlords must notify the tenant by giving two months notice by issuing an evacuation/eviction Notice or a prior note stating the proposed modification in the contract and indicating the specific alteration the landlord desires to apply. For commercial properties, the notice period is deemed to be of minimum 3 months. It is pertinent to note that in case the landlord does not serve an eviction or rent increment notice during the above course of time before renewal, the contract shall be deemed to be automatically renewed with the same price and same terms.

    • Abu Dhabi Law Number 13 of 2017 regulating Court Fees in the Emirate of Abu Dhabi:

     

    For litigating disputes between Landlord and Tenant (2018 and 2019), the above law applies which provides that the court fees payable by a party is set at 5% of the annual rent or; AED 40,000 whichever is lower. Also, the earlier law provied that landlords cannot increase the annual rent by more than 5%, (Law Number 14 of 2016, referred above) but now, Landlord must issue a two months written notice (for residential) and three months written notice (for commercial properties). In terms of procedures to be followed before Abu Dhabi Lease Dispute Settlment Centre, Law Number 25 of 2018 issued by Abu Dhabi Judicial Department applies. 

    Read our extensive guide on Abu Dhabi Property Law here.

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    Mon, 07 Oct 2019 12:52:00 GMT
    <![CDATA[A Guide to Abu Dhabi Oil and Gas]]> A Guide to Abu Dhabi Oil and Gas 

    Abu Dhabi, the capital of the United Arab Emirates, witnessed a massive average of 2.86 mill barrels of oil, in the first half of 2018, itself. Call it fate? No, Abu Dhabi is the only economy in the United Arab Emirate that has petroleum possessions in its womb. This womb is precious for the development of, not only the emirate but also the country, in all. Abu Dhabi has maintained its position in the list of Organisation of Petroleum Exporting Countries (the OPEC), to be the fourth-ranked when it comes to the production of crude oil. Abu Dhabi reserves a whopping 95% of UAE's proven petroleum reserves.

    It was only in 1939 that UAE signed its first oil concession agreement, which covered the whole of Abu Dhabi, including both onshore and offshore. Subsequently, multiple contracts were entered by other emirates in the UAE.

    Legal Framework:

    The Constitution of UAE makes explicit provisions that the natural wealth and resources belong to the public and that they are the public property whose 'community' has the full right to harness it in the best of the great and general interest of the economy. In consonance of the UAE Constitution, the Abu Dhabi Laws have also applied similar primary regulations for its oil and gas industry.

    Abu Dhabi's Supreme Petroleum Council (the SPC):

    The SPC is the supreme and the sole governing body, which is conferred with the responsibility of the oil and gas industry in the emirate of Abu Dhabi. Since, its establishment, SPC has taken over the varied duties for the board of directors (the BOD) of Abu Dhabi National Oil Company (the ADNOC). It has moreover, assumed the functions of the new department for petroleum in the Abu Dhabi government. SPC runs with the below purposes:

    • Formulation and overseeing of the implements of the emirate's petroleum policy
    • Following up with the said implementations across various regions of the industry
    • Ensuring that the goals and aims are established and accomplished
    • Promulgation of the regulations in the field of petroleum in the emirate
    • Ensuring its implementation and enforcement
    • Responsibility of fixing the fiscal framework via its secretariat
    • Overseeing the tax and royalty collection and assessment
    • Issuance of decisions apparent for the management of ADNOC, and other petroleum companies as well

    The ruling body of the emirate is the chairperson of SPC and is conclusive of other nine (9) members which comprise of the prominent members of the ruling family, etc.

    The Abu Dhabi Law Number 9 of 1978:

    The primary piece of legislation overseeing the petroleum operations in the emirate is Abu Dhabi Law Number 8 of 1978 (the Oil and Gas Law) concerning the Conservation of Petroleum Resources. Even though this law is drafted when all is said in done terms, it forces exclusive expectations on the business, specifically requiring the utilisation of 'the most proficient and scientific strategies' and the utilisation of materials and types of machinery that fit in with global benchmarks, including as respects wellbeing and effectiveness.

    The Oil and Gas Law covers all phases of upstream oil and gas operations. The development requires earlier consent and permission, including the accommodation of nitty-gritty examinations and specialized and monetary assessments and evaluations. All exploration activities require pre-established approvals, and any information acquired must be submitted to the SPC, together with interpretations of the data.

    The law additionally contains special arrangements and provisions controlling the upstream, downstream and midstream operations, completing, revising and relinquishment of wells, including the procedure for acquiring consent, least models to be met and revealing commitments.

    On production, an administrator must submit month to month production reports for each production, including daily rates, proportions, wellhead weight, dregs and water content and the API gravity of oil created. Examinations must be led to reservoir behaviour. Administrators should likewise direct oil-recuperation tasks, including gas, water or steam infusion assuming actually and monetarily legitimised to keep up a generation with the approvals of the SPC and to record month to month reports in regard of those exercises.

    Truces (treaties)

    The UAE consented to the New York Arbitration Convention on the Recognition and Enforcement of Foreign Arbitral Awards on 21 August 2006. Abu Dhabi government-owned organisations frequently necessitate that agreements to which they are a party, especially if the spot of execution is inside the emirate, are represented by Abu Dhabi Law with debates being liable to the assertion in Abu Dhabi.

    The UAE has marked reciprocal arrangements with more than 50 nations, including China, France, Germany, Italy, South Korea and the United Kingdom, most of the whose international oil organizations (IOCs) or national oil organizations (NOCs) have put resources into the emirate's oil division.

    Licensing for Oil

    Unrefined petroleum concessions in Abu Dhabi are allowed by the SPC, for the benefit of the emirate. Even though there is no endorsed structure or model suite of oil concession agreements in Abu Dhabi, the latest concessions have embraced the accompanying structure:

    • an interest for the concession being referred to is conceded by the SPC looking for the benefit of the emirate to IOCs or NOCs with the same being so allowed to such organizations not surpassing 40 per cent in the total, with the parity being held by ADNOC;
    • the concession agreement gives that partaking companies are qualified for lifting their participating interest portion of crude petroleum created from the concession during its term and to trade that raw petroleum from the emirate;
    • ADNOC and different holders of concessionary rights consent to a joint venture arrangement, in which they consent to harness the concession together and set out concurred administration structures;
    • ADNOC and different holders of concession rights designate an operating organization to work the concession for their benefit on a non-benefit making premise. The operating organization is ordinarily an organization incorporated for this reason by the leader of Abu Dhabi
    • IOCs consent to boost innovation move to ADNOC and the working organization according to ace innovation understandings and to offer help to them as per labour supply agreements; and
    • IOCs consent to help different Abu Dhabi establishments, for example, the Petroleum Institute and the Masdar Institute, and to aid the preparation of UAE nationals.

    The SPC expects that the entity that is involved with the concession agreement is the parent organization of the gathering or that the parent organization ensures the accountability of the commitments of the significant element.

    Licensing in Gas:

    The Abu Dhabi Oil and Gas law vests in the emirate, the ownership of the resources found or to be found and awards to ADNOC the privilege to adventure and use all such gas either alone or in association with others, insofar as ADNOC's responsibility for a task is at any rate 51 per cent. Global investments in creating gas assets, along these lines, happens as per field section concurrences with ADNOC with the joint venture being paid an expense by ADNOC for gas delivered.

    Likewise, international investments in handling and moving the oil and gas concessions happen according to joint ventures, with ADNOC keeping up greater part possession and the venture being paid a process and transport charges. As on account of oil concessions, outside accomplices are relied upon to boost innovation move to ADNOC and the working organization according to innovation bolster understandings, to offer help to them as per labour supply agreements and to help different Abu Dhabi establishments, for example, the Petroleum Institute and the Masdar Institute, and to aid the preparation of UAE nationals.

    The harnessing, handling and transportation of the emirate's gas assets stay subject to the locale of the SPC, and any understandings require the earlier endorsement of the SPC.

    The Oil and Gas Law entitles oil organizations working in the emirate to utilize gas delivered by them for their oil operations, including to create control, to lift oil from repositories, to keep up reservoir pressure and as a component of upgraded oil recuperation activities. The Gas Law was altered in 2014 to permit ADNOC to charge oil organizations for the utilization of such gas. Subject to the abovementioned, the Gas Law requires all oil organizations working in the emirate to convey to ADNOC gas so delivered by them.

    By and by, ADNOC coordinates that gas be conveyed to Abu Dhabi Gas Industries Ltd or GASCO, a working organization occupied with the extraction of flammable gas fluids from related and petroleum gas, whose investors are ADNOC (68 percent), Royal Dutch Shell plc (15 percent), Total SA (15 percent) and Partex Gas Corporation (2 percent).

    To know more about Abu Dhabi Oil and Gas and to understand the Oil and Gas industry in the UAE, read our bespoke publication published by our team of lawyers in Abu Dhabi. To read and access this guide, Click here 

     

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    Mon, 07 Oct 2019 12:49:00 GMT
    <![CDATA[Lights, Camera, Taxation!]]> Bollywood Deals: Music Meets Dance

    Who isn't a fan of Dilwale Dulhaniya Le Jayenge? The lens takes us to the romance set in the mountains of Switzerland to a typical wedding household in India with dance, music, drama, and emotion. Bollywood is one of the most prolific centers of film production in the world. It dramatically affects Indian society and culture from the past few decades and has influenced day to day life and culture in India from fashion trends to choreography of dance numbers, where it has been the most significant media outlet. In regards to ticket deals, Bollywood offers approximately 3.6 billion tickets yearly over the globe, contrasted with Hollywood's 2.6 billion tickets sold.

    Thousands of movies are signed each year, and it is essential to understand the contractual obligations to follow in the industry. The industry consistently goes into agreements under numerous types of unfulfilled promises from oral communications, casual correspondence, and draft contracts communicated through production and frequently stay unsigned. These unsigned arrangements refer to as "soft contracts"  are sustained by a theoretical risk of legal requirement combined with some prospect of reputational risk. The Indian film industry has been social relationship driven, under which the game plans and claims were either oral or insufficiently reported, and the debates settle without going into litigation or court.

     In the last couple of years, the Indian film industry has woken up to the requirement for composed contracts and security of Intellectual Property (the IP) rights. The need emerged because the Indian film industry saw a change in outlook in its structure in the recent period. After it was agreed the "industry status" in 2000 by the Government of India, the next years saw the movies accepting subsidizing from the banks, and Indian corporates, for example, Sahara, Reliance gathering, Mahindra and foreign studios, Warner Bros., Twentieth Century Fox and so forth. The banks, Indian enterprises, and remote financial specialists demanded composed contracts with the producers and required the producers to have legal agreements with the cast also, including a proper chain of title documentation. With the expansion in commercialization openings, the abilities that delayed to sign even a one-page contract until mid-2000 began introducing nitty gritty composed arrangements to safeguard their commercialization rights, e.g., marketing rights. On the one hand, however, the development of this industry has been spectacular, then again, the breath-taking universe of Bollywood has seen a surge of cases for breach of the agreement.

    In the past, legal contracts in Bollywood were pretty straightforward. The producers drafted a standard one-page contract stating the music rights for the record studios and one with the wholesaler for appropriation to the silver screen. More critical than the paper was the customary handshake, as no one was comfortable by prosecuting anybody or taking each other to court. The contented course of action crumbled with the happening of home review innovation, when there was a whirlwind of the prosecution to decide if the rights to the video were vested with the maker or the merchant. Today, things are getting more intricate with incomes from music deals, including screenings on planes and luxury ships.  Bollywood is marking a more significant number of agreements recently. Exploiting the rights of a film incorporates transforming it into a computer game, promoting garments associated with cinema, remix and copying the music, etc. The extent of the agreement can be as restricted as expected under the circumstances, while for those purchasing the rights, it is tied in with arranging terms that are as expansive based as would be prudent. For example, famous Indian actor Akshay Kumar has a clause that he won't be working on Sundays. Famous Indian actors have clauses in their legal contracts according to their ease. The famous Bollywood song "Khaike Paan Banaraswala" from the movie Don in 1978 claimed against the maker of the similar title, Don in 2006. The new Don had acquired the rights from Nariman Films, the makers of the first film, under a composed contract and joined the tunes in a different version.

    The Bombay High Court held that the agreement between the makers of the first movie and the offended party (and Kalyanji) was an agreement of administration and along these lines, the rights were with the maker and not the authors. The maker had the legitimate and appropriate power to cut out any part or entire of the reasons in the melodies to the litigants, and in this manner, the agreement between them was substantial. As partners in the filmmaking and appropriation process go into a few composed contracts to record their legitimate and business understanding, the scholarly debate emerges out of non-execution of legally binding commitments or non-payment of sums. Under the Indian Contract Act, 1872 (the ICA), one cannot mainly implement all agreements, and courts don't allow break orders for particular execution. In Indian, the courts cannot principally uphold the individual contracts administrations.

    India churns out over 1,100 films a year, more than any other country across the globe. Anupam Kher, famous Indian actor, and writer were one of the few skilled actors when he entered the film industry thirty-two (32) years ago, and that most of his 450 films did not even have scripts and with producers would have a casual talk and informally discuss the movie. They would only get paid after it was in the cinemas as there was the trust circle around the industry. However, times are changing, and actors are well informed about signing formal contracts. As investors in the filmmaking and dissemination process enter a few legally obliged contracts to record their right and business understanding, the lawfully binding question emerge out of non-execution of authoritative commitments or non-payment of the agreed amount.

    On the other hand, considering the non-performance, it is hard to look for a quick court order for a particular execution of the agreement, as under Indian law, we cannot mainly implement all arrangements. Courts don't allow interval orders for specific performance, and one cannot perform the contracts for individual administrations. Henceforward, if the desired person does not give concurred dates or if he does not convey the music on time, then the only remedy available would be in the form of damages. In case the parties to such agreements have agreed that arbitration shall settle the disputes arising out of the contracts, the parties can still approach the court for specific interim measures. Section (9) of the Indian Arbitration Act, 1996 sets out specific situations where individuals may contact the court for specific of provisional measures. The court was of the opinion that this authority of the Court might be practised even before an arbitrator has been arranged, overruling the prior position that the court can exercise power if demand for mediation has been available. The judge may concede such as interim measures of protection as may appear to the judge to be fair and just. The parties seeking the judge should need to establish prima facie and a comfort zone. For instance, if a satellite merchant has secured satellite circulation rights and does not pay the maker in a timely fashion, then the filmmaker may approach the court to seek an interim injunction.

    Indian Contract Act, 1872

    Without the ICA, it would have been hard to exchange or carry out any business movement in the corporate world. According to the ICA, an 'agreement' is a statement enforceable by law.  A 'declaration' signifies 'a guarantee or an arrangement of guarantees' framing consideration for each other. A statement comprises of an 'offer' and its 'acknowledgement.' The target of the Contract Act is to guarantee that the rights and commitments emerging out of an agreement are acknowledged and that the remedies are made accessible to the breach of rights individuals.

    Hollywood Deals

    Similarly, Hollywood regularly enters into promises under any backed up legal document. Oral correspondence, virtual communication, draft agreements, etc. negotiated between makers and production often remain unsigned and carry a threat of reputational liability. Decreasing formalization in agreements lessens its enforceability, which enhances adaptability and making it flexible with the terms to change contract terms at the party's expense of execution. Increasing formalization builds enforceability, which reduces flexibility by distinguishing an arrangement of conditions in which a nonterminating party can debilitate a legal course of action in light of a threatened withdrawal. Unformalized contracts or as known as 'soft contracts' are the preferred option among the industry as it achieves the same probable outcome with lower cost. Making a film requires a lot of funding, and the capital prerequisites have a tendency to be high, the chances of the movie being a success are thin, and the contracting dangers are remarkable. These variables give the premise to distinguishing the monetary justification behind Hollywood's particular contracting practices. 'The Motion Picture Association of the United States of America reported that in 2007, major studio films had an average production and distribution costs of US Dollars106.6 million.'  It takes a long time to create a movie, from the script writing to its release at the box office. At different points, parties must make what institutional financial experts call particular investments in the undertaking project that is, investments that have a lower value or no value in any alternative use-before having any authentic information as to the similarly commercial outcome. The high risk of business failure joined with the chance of uncertainty with the constant speculation and the disaggregated structure of the film business, represents what the Hollywood press calls the 'waiting game.'

    Exposure to conventional thinking and business-law practices show that parties favor formal enforceable contracts over oral communications or other casual interchanges that are uncertainly enforceable. Hollywood seems, by all accounts, to be a particular case: parties in high-stakes exchanges routinely select moderate levels of legally binding contracts that leave the enforceability of the parties' responsibilities misty. Lawfully enforceable agreements give the most proficient administration component at whatever point any elective instrument, from formal contract to transactional exchange, can't autonomously accomplish an unrivalled expected result net of detail and requirement costs.

    Validity of Soft Agreements

    In India, it is only under certain circumstances where an unsigned agreement is considered to be valid. An example of the same is the case of Union of India v. Rallia Ram [AIR 1963 SC 1685] wherein the agreement in question was an arbitration agreement which was not signed. It was assumed that a valid contract existed between the two parties, but the arbitration agreement which has been reduced to writing was not signed by either party, the same being the subject matter of the consideration. The Supreme Court, in these circumstanced held that this unsigned agreement would be considered valid. In the United States, can an unsigned agreement still be considered a contract? Yes, it can be, for the purpose of statute of limitation as held in the case of Blanchard & associates v Lupin Pharmaceuticals, Inc and Lupin, Ltd., 7th Circuit Court of Appeal, No. 17-1903 dated 20 August 2018. In this case, Judge Sykes while quoting Illinois Supreme Court confirmed that a contract would be counted as a "written" contract even if the same is unsigned. The same was to be considered for the purpose of statute of limitation. Blanchard wished to bring a claim for breach of contract, and the question was whether it survived the limitation period. It was held that the ten-year limitation period applied to the engagement letter between the parties even though it had not been signed.

    Indubitably, whether or not a soft contract is valid depends on the surrounding circumstances and additional evidence.

    What if Indian filmmakers desire to shoot a film in Dubai or the United Arab Emirates?

    Filiming in Dubai

    Hollywood as well as Bollywood have increasingly shown interest in filming in Dubai and across the UAE. From nail-biting stunts to sci-fi blockbusters and from scaling the world's tallest tower in Dubai to shooting epic scenes in sand dunes, filmmakers have realised that shooting in Dubai adds immense production value to the film besides making them really exotic. 

    The Dubai Government vide Executive Council Decision Number 16 issued in 2012 established the Dubai Film and TV Commission (the DTFC) which has the sole authority to issue film shooting permits in the Emirate of Dubai. The DTFC works along side other government and semi-government entities including the Dubai Municipality, the General Directorate of Residency and Foreign Affairs, the Roads and Transport Authority, in addition to owners of specific location(s). As a pre-condition, any individual or corporate entity is required to appoint a UAE-licensed production company to obtain shooting permit. Likewise, permits are also required for any film recording in public or government controlled areas, or for filming in Dubai across any private locations (indoor as well as outdoor).

    Having worked on multifarious Bollywood events in Dubai, STA's team of media and entertainment lawyers have worked and acted for mjor as well as independent motion picture studios based across India and MENA region, broadcast and cable television networks in addition to companies engaged in pre and post production works. New Bollywood film entrants desiring to enter Dubai or United Arab Emirates must fully understand the legal nuances when it comes to prevailing media laws and regulations, corporate structuring, mandatory shareholding distribution and types of licenses issued, understanding the key roles of different authorities (such as Department of Tourism and Commerce Marketing in Dubai, Department of Culture and Tourism in Abu Dhabi), visa requirements and working hours, types of no objection certificates required for holding events, ticketing, dealings with recording studios and internet streaming services, booking stadium(s) for events besides understanding copyrights and intellectual property and associated rights.

    Filiming in Abu Dhabi

    For instance, the Abu Dhabi Film Commission (the ADFC) in the UAE offers a thirty percent (30%) cash back rebate on film and television productions (these include TV series and commercials) and other formats including documentaries and short movies shot within the city of Abu Dhabi. There is however a formal requirement that production company must hold a valid media zone authority trade license. Prior approval from National Media Council and/or the ADFC approval must be sought prior to obtaining an interim certficiate for any pre-production works. Finally, applicants must obtain the final certificate from ADFC on the total amount of rebate that applicant is eligible for. Applicants who obtain Abu Dhabi public funding are excluded from applying for any rebates. There is also a formal requirement of giving ADFC a credit at the end credits or end of movie/series in all cases on all formats and prints of the film, documentary or series (as the case ma be) in the form and manner prescribed by ADFC. Similarly, there are various types of permits that be obtained for shooting in Abu Dhabi, like the aerial permit, private location permit, offshore permit, etc. Additionally, there are regulations governing the import of film equipments in Abu dhabi where temporary import license is granted upon completing the application process.

    Bollywood Films Shot Abroad - The Tax Aspect   India's decision to reduce the corporate tax rate earlier this week has been welcomed by both - domestic as well as international investors. The reduction in tax rate which is among Asia's lowest prevailing tax rates and many consider it as a boon that may boost economic growth and reforms.   Bollywood has for long preferred shooting Indian films overseas for a multitude of reasons. For such overseas shooting, payments are made in foreign exchange to various overseas service providers. In Yash Raj Films Pvt. Ltd, Mumbai Vs The Income Tax Officer, Mumbai (ITA 2113/Mum/2009), the Income Tax officer sought an explanation from the tax payer as to why no tax at source was deducted from payments made to overseas service providers. In response, the assessee (or; taxpayer) contended that payments made to overseas service providers were in fact profits of overseas companies that had no permanent establishment in India and accordingly no tax was required to be deducted at source. To this effect, the assesse placed reliance on Article 7 of the relevant Double Tax Avoidance Agreement. Additionally, the assessee also submitted that the services provided by overseas companies were not technical services and consequently there was no need to make any application under section 195 (2) of the Income Tax Act, 1961.   Interestingly, the same decision referred to the case of UPS SCS (Asia Ltd.) (2012) 18 Taxmann 302 (Mum) wherein it was held that any services provided in nature of freight and logistics, customs clearance, warehousing and pickup services outside India, such services constituted 'fees for technical services'.    In the present case, Yash Raj Films had sought services in the nature of arranging of extras, arranging police and security, arranging location restoration(s), providing services of local line producer, location manager, etc. Based on a careful review of nature of services provided by overseas services providers and further referring to various court decision, the final decision was made in the favor of assessee and the appeal was dismissed.    In Endemol India P. Ltd. In re (No.4) (2014) 361 ITR 658/99 DTR 397/222 Taxman 67/266 CTR 142 (AAR), the applicant (an Indian resident entity) engaged services of a foreign service provider for providing certain line production services including a line provider, local crew for stunt services, transportation, etc. The anchor and participants of the television show were appointed and paid by the broadcaster and were not the responsibility of overseas service provider. It was held that the payments made by the applicant to overseas service provider fell within the purview of section 194 (c) of the Income Tax Act and would not be taxable without permanent establishment in India. Accordingly, the payment by applicant to overseas service provider would not require any withholding under section 195 of the Income Tax Act.   The Income Tax Tribunal in India and the Authority for Advance Rulings have long been of the opinion that the fees paid to line producers towards their services should not be considered as fees towards technical services and accordingly, Indian film producers should not withhold taxes on same. That said, and as noted above, the fine print in the agreement between the parties and their intent inadvertently becomes the bone of contention which may result in or set a tone for possible future litigation. Such fees should be considered from the service tax perspective wherein the nature of services should instead be considered.    Hollywood Films Shot in India   With the rapid growth of Bollywood and its reach to the masses around the globe, the Indian Government is making efforts to promote India as a destination for film music concerts, due to which there have been various successful Hollywood movies  being shot in India. Hence income of foreign producers should not be taxed in India in conditions wherein their operations are confined to shooting a film in India for the transmission of the same out of the country. The laws for taxation towards foreign artists are covered under Article 17 of Tax Treaties (Taxation of Entertainers and Sportspersons) Wherein income under by these actors from personal activities such as performances, events, etc. should be taxable in India. In case the income from the performance of an actor accrues not the actor but to another entity, then in that case too, the income should be taxable in India under Article 17(2). Foreign crew, included the team and staff behind the scene, such as technicians, make-up artist, etc. and hence, there are certain factors to be considered such as:-   • Nature of services provided • The legal form of entity • Period of stay in India • Relevant Tax Treaty provisions   Based on the above, the foreign film producers/studios are required to undertake Indian tax compliances (such as withholding tax on payments), and contractual arrangements should be structured appropriately to avoid/ mitigate tax risks.   Film incentives    The Government of various countries do offer numerous incentives and grants in order to encourage shooting in that country. Generally, the issue that may arise with regards to the tax treatment of such subsidies/grants, in essence, is whether these need to be considered as an income, or reduced from the production cost of the film. The cost of production has to be reduced by the incentive and subsidiary received by the film producers under any scheme of the Government. Considering service tax in the present situation, any incentive or subsidiary disbursed by the Government cannot be considered to be a part of taxable services, unless the value of such services is directly affected by the subsidiaries and grants.     Post-production fees    With the rapid growth in the film industry and its use of technology, there are various post-production works such as virtual effect (commonly referred to as VFX), wherein the services are outsourced from foreign companies, and a fee is provided to such companies by the film producers. Subsequently, the issue arises as to whether the fees provided for these services shall be considered as fees towards technical services, and whether the same shall be subjected to the relevant tax treaty or respective domestic tax laws? Hence, it would depend upon the service provided, contractual documentation, and the relevant tax treaty with regards to the provision of the same towards technical services.  

    Conclusion

    Bollywood films have progressively broken records on the box office accumulating millions of dollars, which have additionally influenced both multinational organizations and Indian companies to invest in Bollywood films.  The Indian film industry has been social relationship-driven, under which the movies and arrangements were either oral or inadequately recorded, and the debate settles without going into mediation or litigation. It implies the absence of an appropriate chain of title documentation is promoting individual rights for the agreed parties. However, recently, the Indian film industry has woken up to the need for formal contracts to mention their powers and duties expressly.

     

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    Sun, 22 Sep 2019 07:34:00 GMT
    <![CDATA[Contract Law and Termination for Convenience Clause]]> The Legality of Termination for Convenience Clauses

    Under the global laws for international contracts and agreements, it is highly significant to identify the clauses which put forth the concept of termination for convenience. In general terms, it may sound that, via this clause, either party can conveniently step out from the agreement, without the liability for justifying their actions. This is when the termination for inconvenience clause comes into play.

    Of course, there are numerous reasons where an entity, who is a party to the contract, terminate the same, for reasons like poor performance, delay, unable to meet specific standards, etc. The doubt remains the same, whether a party who has the right to terminate, will base on what applicable law for termination of the contract.

    Terminating a contractual relationship is a rigid and tough task to come forth. In the event, that the agreement contains express terms for termination, the contract can be terminated by the said clause. The clause for terminating an agreement for convenience creates an empathy that the contractual obligations and relations are coming to a closure where a party is allowed to end the terms without the accountability of a cause for such termination. This is a mechanism put to use when the parties involved want to avoid costly legal scenarios.

    The Termination for Convenience clause is popular in the construction contracts. But it is crucial to take note that these clauses can be unclear and constructed on ambiguous terms. It is the right and duty of the parties to make sure that the clause is clear as well as unambiguous and establishing terms on how the clause is applied and further liability.

    In the UAE, majority of the contracts contain the clause for the right to termination for convenience, generally without a restriction, though a fee may apply for early termination. The party is allowed to terminate the agreement at any given moment. It may be with or without notice or without considering proving that certain breach on the contractual terms has occurred. Bearing in mind, the current industry scenario and the market conditions, there are possibilities as commercial reasons why the contract gets terminated and why the party who receives the notice is feeling distressed.

    • Monde Petroleum SA vs Western Zagros Limited [2016] EWHC 1472 (Comm)

    A contract governed by English laws may quickly dismiss an instinct for claiming the termination under convenience failed to be done in good faith. The concept of good faith is far developed in English Law cases where it is relevant to the prevalence of the right where a contract is terminated for convenience. In the case of Monde Petroleum SA vs Western Zagros Limited [2016] EWHC 1472 (Comm), where it was held that English law would not make an implication for the duty of acting in good faith for terminating the contract when no contractual duty is in existence. So, under English law, it gives the party a right to terminate the contract for convenience in the absence of the requirement of good faith.

    • Atos IT Solutions and Services GMBH vs Sapient Canada Inc., 2018 ONCA 374 (CanLII)

    An Ontario Court of Appeal Judgement where the question of determining the damages when the contract was terminated for convenience. The court held that the termination clause did not expressly provide for the payment of the last milestone to be due only if it was not paid already.

    Termination without proving default can be a tedious job but of significant benefit. To make it operative, the clause has to be drafted clearly with the circumstances for its invocation, the measurement of its compensation, etc. it can cost high for litigation if the contracting parties fail to include what they actually intended and draft the clause appropriately.

    • Centre for Maritime and Industrial Safety Technology Ltd vs Ineos Manufacturing Scotland Ltd [2014] CSOH 5

    In this case, the court got into considering the termination or convenience clause which stated that the services "performed till the date of termination and other substantiated associated direct costs". Finally, the contractor was held to be entitled to payments of all the works up till the date of termination.

    • Basetec Services Pty Ltd vs Leighton Contractors Pty Ltd (No 6) [2016] FCA 1534

    The court in Basetec vs Leighton applied the same approach where it was confirmed that the object and intention of the clause for termination for convenience are to "identify the amounts which may be recovered by the Contractor".

    • Good Faith under UAE law

    Good Faith is differently applied under the UAE law. Under Article 246 of the Civil Code of the UAE, "The contract must be performed by its contents, and a manner consistent with the requirements of good faith."

    Additionally, Article 106 states that there can be no unlawful exercise of the rights, which includes intentionally infringing of other person's rights and violating the rules of Sharia Law and public order. It can be seen that these two Articles if read together, may deter the right to terminate for convenience where there is no good faith.

    Finally, it comes down to the issue of establishing as to what constitutes good faith. Good faith is described as an obligation to act with honesty and in a cooperative manner. In the Monde Petroleum case, the contract was terminated right before the completion of the object of the contract. It was conflicted, whether it constituted good faith. Under English law, it will allow the party to go ahead with the breaking of the contract, but there is a different answer under the UAE Law.

    Further, the difference between the English and UAE law is the extent of the freedom awarded to the parties to negotiate the situation regarding good faith. UAE law offers that the parities have to abide by the terms of the contract under good faith as imposed by Article 246.

    UAE law imposes strict compliance of good faith when terminating the contract. There is uncertainty on unilateral termination of contracts in UAE.

    • Law under UAE Civil Transactions Code

    Termination of contracts can be done via either of the following ways:

  • the parties' agreement;
  • a judgement of the court
  • by law.
  • Article 267 of the Civil Transactions Law in the UAE:

    "If the contract is valid and binding, it shall not be permissible for either of the contracting parties to withdraw, change or terminate the contract save by mutual consent, an order of the court, or under a provision of the law"

    • Drafting the Termination for Convenience clauses

    Clarity on the drafting language of the clause is important when it comes to the damages payable for termination of the contract for convenience. Given the fact that the exercise of the clause does not require a default to be in place, it is only fair that compensation is awarded to the aggrieved party.

    • Limitations on the ability to Terminate for Convenience

    The termination for convenience is one which cannot be exercised in bad faith. There are certain limitations when this clause is existing in a contract. It is implied that the parties who enter in a contract, do so, in good faith and intention of fair dealing.

    To take an example, where a client terminates the contract when the work is 90% complete to avoid paying him. This is bad faith. Also, it is apparent to note that a customer cannot terminate the agreement to terminate before completing the object of the contract.

    Second example would be, terminating the contract to award the remaining work to someone else. This can be an act of bad faith on the part of the party terminating the contract.

    Points to remember when drafting the termination for convenience clause

  • Terminating the contract on the agreement can take place before or after the contract is entered upon. But, when the parties are at dispute and at the path of breaking the contract, it becomes difficult to agree on terms, leave alone the mutual termination of the agreement.
  • An employer can, by notice make it obligatory to the contractor to remedy the default within a substantial period.
  • The similarly worded provisions in the contract do not allow the automatic termination of the agreement. The clause providing for the termination should state that termination shall occur automatically and not court order or further notice is required.
  • Article 271 of the UAE Civil Code specifically provides that the agreement would be terminated without the need for judicial order on non-performance unless it is agreed between the parties.
    • Dubai Court of Cassation Judgment 187 of 1999

    It was held that, to terminate a contract that is binding, the claimant who seeks the termination should not have neglected the obligations on his part under the agreement and the breach by the respondent must be due to the neglect instead of failing to exercise a legal right. This is in pursuance to Article 243 (2) of the Civil Code, where it is stated that each contracting parties should perform what has obliged him to do.

    • Dubai Court of Cassation Judgment 313 of 2007

    For determining the legality of the termination for convenience clause, the courts relied on Article 218 (1) and (2) where it was held that a contract is "non-binding with regard to one or both of the contracting parties, despite the validity and effectiveness thereof, if such party is given the right to cancel it without the consent of the other or without the order of the court, pursuant to Article 218 of the Civil Code." If these Articles are read together, there is a strong possibility that the court may invalidate the termination for convenience clause.

    • Dubai Court of Cassation Judgement 440 of 2016

    It was held that neither of the contracting parties might revoke, rescind or modify the agreement except by mutual consent as mentioned in Article 257 of the Civil Law. Further, it provided that the agreement has to sufficiently satisfy good faith requirements under Article 246 of the Code.

    Conclusion

    Hence, before employing the case of terminating the contract for convenience, the party intending to terminate should check for possible deficiency in the other party's work as assigned under the contract. In case a deficiency is evident, the party must give a notice disclaiming an opportunity to remedy the deficiency for offsetting the repair costs. The party must give a valid and substantial reason for the default because it will be further difficult to prove the basis for the termination in the court. 

     

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    Mon, 15 Jul 2019 01:16:00 GMT
    <![CDATA[EPC vs Design-Build Delivery: English Law Vs GCC Law]]> Differences between EPC and Design-Build delivery- English Law compared with GCC

    Any manufacturing company primarily delves on the basics of production efficiency, innovation, cost management and time to market which are the critical factors for achieving a competitive advantage. The company needs to achieve its business strategy, and thus a brief mode of delivery is required for delivering capital projects. When a strategically best method of delivery is chosen for capital construction projects, the companies can guarantee successful business goals anticipated for the project.

    The economy sustains on various project delivery methods that are available on hand for them, but the problematic part arises about choosing the appropriate and strategized method for the same. It must be dependent on various factors ranging from budgets, schedule, cash flows, complexity in the projects, risk mitigation and hedging, the team composition and the goals designated for the project.

    The generational and traditional way of doing it is by retaining the already available engineering and project management resources. Nevertheless, owing to the specific market-based issues related to monetary and competition, several units tend to decrease their in-house capacities and in turn, go for a selection of specific project delivery method.

    Primarily, a project delivery method is a configuration of roles, relationships, responsibilities, and sequences on a project. It is a strategy utilized by an agent or the proprietor which helps in the corporation and financing design, construction, activities and support administrations for a structure or office by entering into agreements with at least one substances or gatherings. It is essential to choose a delivery method that best meets the unique needs of each owner and their project.

    The fundamental decisions that an owner must take into account are that what kind sort of task conveyance strategy to utilize, what will be the obtainment technique and what will the contract be like. The Project delivery process generally involves an owner, designer and a builder.

    The conveyance strategy might be a combination or hybrid of numerous conveyance techniques. Each delivery techniques builds up various connections among the parties included and, in this way, extraordinary dimensions of hazard.

    Project Delivery Methods:

    The Engineer-Procure-Construct (EPC)

    It is a project delivery method that has risen as a favored choice for some industrial entities and is beginning to pick up support in the manufacturing business. With an EPC contract, the proprietor has a solitary purpose of contact for the venture. Under the model, the EPC firm handles the design plan, obtains all hardware and development materials, and construction services for turnkey conveyance of the office, for the most part at a single amount cost.

    The EPC procedure begins with a reconstruction effort that includes some first-hand planning and designing to characterize the scope, timeline, and expenses of the venture. Approval is regularly overseen specifically by the customer or through a different validation firm to guarantee this basic action is conveyed effectively.

    The EPC firm develops project scope and estimates. The timeline for the project and the budgeting are known before the task enters detail structure or development stages. All plan and development degree and spending dangers are passed to the contractual worker.

    The EPC model adjusts colleagues for ideal venture execution. The EPC display decreases venture dangers for the proprietor, conveys unsurprising outcomes, and augments the adequacy of capital arranging.

    Design-Build

    As of years, design-build has been gaining momentum as a favored method. As an increasingly clear conveyance strategy for proprietors, it additionally limits risks. A conceptual plan for a project is developed by an owner who then solicits bids from a joint venture of architects and engineers and builders for the design and construction of the project.

    The DB project delivery model is appropriate for assembling customers that require quick tract venture conveyance and need a single point of contact. The temporary worker and originators are enlisted by the proprietor to convey a total task.

    The owner selects a design-build firm from pre-qualified companies that have submitted designs and prices based on the project requirements. The DB firms retain their architects, engineers, and other consultants. The owner provides the user requirement specifications, materials of construction, and the specifications for the manufacturing equipment. The Design-build contracts are typically lump sum and based on the design that accurately meets the owner's specifications.

    It is employed to decrease the project delivery schedule. DB is typically practiced for architecturally-driven designs. This concept typically occurs in improved communication among the design team and a larger degree of responsibility. While this is a complicated delivery method, the compressed schedule and value engineering approach often result in cost savings for the owner.

    Design-Bid-Build

    Design-bid-build relates to the subsequent phases of this project delivery method, which sometimes is called "traditional." The contract documents are developed by the owner with an architect or an engineer which comprises of a various set of blueprints and a detailed specification.

    Construction Management at Risk

    At the point when proprietors need a characterized culmination date and value, the development the executives in danger may be the favored task conveyance technique. Amid the venture plan, a development administrator goes about as an expert to the proprietor.

    Multi-Prime

    In multi-prime, the undertaking is separated into three phases– design, engineering, and construction. While actualizing MP, the proprietor frames separate contracts with the experts heading the different phases of the undertaking. Every one of these classes of contractual workers may direct crafted by subcontractors, for example, a general contractor who manages carpenters and framers.

    Integrated Project Delivery

    Coordinated venture conveyance is the best in class conveyance strategy in development with an accentuation on cooperation and joint effort. While actualizing IPD, the essential objective of the incorporated strategy is to spread obligation, duty, and hazard (and rewards) among the partners in a construction job.

    Comparing English Law with GCC

    The International Federation for Consulting Engineers (Fédération Internationale des Ingénieurs-Conseils) (FIDIC) is commonly employed in the UK as well as in the GCC. FIDIC is commonly used on UK projects, particularly the EPC/Turnkey Contract (The Silver Book) and is often used in process plant/complex engineering projects in the United Kingdom.

    The International Federation of Consulting Engineers (FIDIC), Joint Contracts Tribunal (JCT) and New Engineering Contract (NEC) contract suites have specific design and build options that can be modified to support the type of procurement entirely or by way of partial design liability being passed to contractors. The construction industry in the GCC adopts and follows international best practices for construction contracts governed by GCC law or implemented in the GCC. These contracts are heavily modeled after FIDIC forms of contracts.

    Also, the lump-sum turnkey contract is the dominant procurement model in the GCC market. Whether upstream or downstream, the vast majority of the GCC's oil and gas sector projects are delivered through engineering, procurement, and construction (EPC) contracts.

    Petrofac was recently awarded the $580m EPC contract for a GCC project. Petrofac's Middle East portfolio includes the Upper Zakum oil field project in the UAE, the Sohar refinery improvement project in Oman, and the Petro Rabigh Phase II project in Saudi Arabia.

    Design-and-build is touted as the contracting technique for the future, killing debate and hurrying the plan and development process. It is relatively new in the Middle East, but as we see more of this method, the roles and responsibility of the contractor will become more evident. The client needs to ensure the right contractor is used, with enough experience and resources to enable them to complete the project to the quality required. The building criteria must be very clearly laid out ahead of appointing the contractor, as the client may lose design control once a fee has been agreed upon.

    Design and build contracts have been utilized effectively for quite a few years outside of the Middle East yet were not ordinarily drilled in the Middle East until 2012.  whereas, 2013 and 2014 have seen employers from different projects adopting this procurement route. Realizing the advantages of this procurement route, more and more employers are adopting Design and Build for their projects.

    Already predominant in Europe and many parts of Asia, it eliminates the separate responsibilities for the designer and the contractor, since the designer is a partner, a subcontractor or an employee of the contractor.

    With the designer getting imposed with the risk, more complex projects soon became attractive in the UK, and the companies were looking for a one-stop shop approach. The Company may have avoided the design development risk, but still retains the risk of delay for the other reasons, so the potential disputes remain.

    In the case of Midland Expressway vs. Carillion Construction, the M6 toll road construction was based on a design-build contract, where the entire responsibility for the design was given to the contractor. Disputes regarding claims for payments and share of the discounts to be received were ascended followed by adjudication and then litigations.

    This judgment started with an intrigued tone, and the courts held that there was no doubt at considerable expense to the parties involved, thereby design and build does not prevent claims arising. It does not prevent contractors from making claims for extra time and money where there is a lag.

    The company may think that he is setting all the design jeopardy on the contractor but, if significant modifications are notified during construction (which is the case for many projects), this risk stays with the organization.

    Differences between EPC and Design-Build Delivery

    EPC and Design-Build Delivery have both existed as mainstream delivery methods for decades. In both cases, the partner has a point of contact. In both cases, the company is responsible for the design, and the contractor takes on more risk than a traditional design-bid-build delivery. However, several essential differences differentiate the two:

    Active Participant:

    An EPC project results in a turnkey facility. The EPC contractor heads the working of the project facility.

    A design-build contract finishes off comparatively to configuration offer form contracts, with the proprietor and its development director or fashioner playing a functioning job in punching out the office.

    The design-builder is held by the proprietor from the get-go in the life of the undertaking and, now and again, before the structure has been created by any means.

    Design-build is used to limit dangers for the venture proprietor and to decrease the conveyance plan by covering the structure stage and development period of an undertaking."DB with its single point duty conveys the clearest legally binding solutions for the customers in light of the fact that the DB contractual worker will be in charge of the majority of the work on the undertaking, paying little heed to the idea of the blame."

    It answers the client's wishes for a single point of responsibility in an attempt to reduce risks and overall costs.

    These contractors are usually handed little more than performance requirements varying, whereas most design-build configuration assemble contracts give probably some plan detail in the connecting reports.

    EPC equivalent of the "structure help" or "quick track" plan construct forms is not available.By and by, this mirrors the proprietor's increasingly negligible contribution in the EPC configuration process.

    There is no EPC likeness the "structure help" or "quick track" plan construct forms. By and by, this mirrors the proprietor's progressively negligible association in the EPC configuration process.

    Risk-taking:

    Most contracts transfer far more risk to the contractor in EPC. The risk is not shared between the owner and the design-builder, but just the contractor has to face the responsibilities and the liabilities.

    Design-build contracts will, in general, take either a customary plan offer form way to deal with questions like obscure site conditions or to share that chance between the proprietor and the structure manufacturer. In contrast, it is not uncommon for EPC contracts to shift these risks entirely to the EPC contractor.

    Project Delivery Processes:

    The delivery of the project via Design-build is in two phases with:

  • Phase I including budgeting and development and pre-construction services and the negotiation of the contract price for Phase II; and
  • Phase II including final design, construction, and commissioning.
  • The EPC project process involves

  • Initiating the Project
  • Preparations like setting up of the project organization and Procurement procedure
  • Phase I Project Development
  • Phase II Project Implementation
  • Phase III Project Follow up and (f) Decision Making.
  • Understanding the differences between these two seem quite similar design processes is a crucial step when assessing which delivery system is right for the project.

    ]]>
    Tue, 26 Mar 2019 04:44:00 GMT
    <![CDATA[Project Financing: GCC Overview]]> Examining Project Financing issues and Regulations

    Introduction

    Driving through Dubai one is inundated with the view of cranes and construction sites, however, if a closer look is taken it becomes increasingly more evident that many, if not most of these sites are inactive and the buildings are left skeletons of the creations that they were meant to be. Project financing in the GCC region has seen a rapid dive in recent times, and the feeling of the effects is throughout the GCC.

    Due to a concerted drop in the oil prices, there was a resultant shortfall in government revenues and budget deficits across the region. The GCC region is suffering a reported two hundred and seventy billion dollars (USD) project finance gap. However, the region has announced a slew of infrastructure programmes, and this can be attributed to external sources keeping the funding tap open to infrastructure projects. With governments taking a cautious approach and only focusing on critical projects.

    The value of UAE projects awarded rose by 15.1. Percent, quarter-on-quarter in the first half of 2016. Bahrain and Kuwait reported increases of 77.1 percent and 242.2 percent in projects awarded during the first quarter, on a quarter-on-quarter basis, while Oman and Bahrain saw yearly increases in projects. Saudi Arabia and Oman saw the sharpest quarterly falls of 42.9 percent, 45.7 percent, and 48.2 percent respectively, in value terms, while for GCC as a whole the value of project awards contracted by 14.8 percent quarter-on-quarter and 45.6 percent on a year-on-year basis.

    Lower oil prices have been a significant constraint on the amount of funding available to GCC governments to finance capital and infrastructure projects, forcing them to look at alternate solutions.

    Asian and European export credit agencies are increasingly providing funding or finance guarantees to help their contractors secure projects. An example of this was the USD 2.9 Billion LNG import and regasification terminal in Kuwait awarded to a consortium led by South Korea's Hyundai Engineering and Construction.

    The project finance market in the GCC region conceals several challenges. These challenges include the drop in oil prices, the tightening fiscal positions across the region causing delays to protect, rationalization or even cancellations of projects.

    It is against this backdrop, increasing capital requirements stemming from Basel III implementation are affecting regional banks' ability to support projects with longer tenors. Also, liquidity pressures linked to lower oil prices persist in some markets while in others they arise intermittently. "Banks in the GCC region traditionally operate with high levels of capital, but we expect Basel III to make a significantly less amount of capital available for project finance," says Micheal Wilkins, managing director of infrastructure ratings at S&P Global.

    Filling the funding gap

    In order to bridge the gap in the funding, there has been an evident trend emerging throughout the region. The first trend is the increasing presence of large international banks, specifically from Asia. This increase is having a significant positive effect on the market. These international banks have many years of experience engaging in global project finance deals and come with large balance sheets, and they are adding an extra dimension to the regional funding landscape. 

    The contribution of non-regional lenders has been elevated to new heights due to various 'push' and 'pull' factors. Negative interest rates in Japan, for example, have contributed to a large-scale push by the country's banks to seek better returns overseas. Three Japanese banks topped a Thomson Reuters global league table for bookrunners on principal underwriters for project financing by value in 2016.

    The bank that came out on top was Mitsubishi UFJ Financial Group (MUFG), such a bank has had a stable presence in the region for over the past few decades. The bank provides that project finance is an asset class that the bank has extensive knowledge in, this knowledge is inclusive of all risks associated with project finance. In the GCC mainly, the expertise of this bank has seen it lead on some of the regions' most significant project and infrastructure deals of recent years. An example of this is the financing of Abu Dhabi's largest solar plant, a 1.17-gigawatt facility located in Sweihan, which included $650m raised from local and international banks, MUFG was the lead arranger for the loan.

    Another trend is the innovative new financing methods, which include a growing role for regional capital markets by opening up new funding options for project finance participants.

    Regional project finance market

    There have been many delays and re-tender of projects in the GCC region in recent times, and this has meant that some bigger project finance markets have offered less stability than they did in the past. 

    The proposal is that local bank funding across the region will become more expensive. This proposal reflects slow growth in deposits in some markets as well as higher capital requirements, which will force many institutions to be more selective when it comes to their balance sheet allocations. As a result of this, space is opening up for capital market financing for project and infrastructure finance.

    Mr. Jennings from S&P Global stated that "we are seeing more avenues open up for other investors coming into the market who are comfortable taking on longer terms asset risk. Indeed, there is much interest, particularly in the GCC, for debt capital market and institutional investors and we have seen different pockets of liquidity open up in that regard.

    Market bonds' bounce

    There are much-needed work and procedures to be implemented before alternative financing mechanisms reach a meaningful scale. Across the GCC region, local currency debt markets are mostly undeveloped. Also, research shows that bank loans accounted for about 90% of total corporate and infrastructure financing over the first eight months of 2016, up from about 74% in 2013.

    In order to address some of the challenges, regional banks are turning to samurai or kangaroo bonds to raise debt at a lower rate and to diversify their liabilities. These funds were lent back to corporates involved in project finance deals.

    Although the immediate financing gap may be severe, the new trends cumulatively bode well for the region's project finance aspirations. GCC markets are currently adapting to the environment in which they find themselves. If over time, a more extensive range of banking institutions, coupled with a more diverse array of funding sources, begins to address the project finance gap, the outcome can only be positive for all concerned.

    Mr. Jennings went on further to state that, "a project finance market of the size and scale of the Middle East does not work with just one or two big lenders. You need a good number of primary banks and also secondary interested parties, including debt and institutional investors."

    The Basel III Accord

    The Basel iii Accord was formed to strengthen the regulation, supervision, and risk of the banking sector. The Basel Committee is the regulatory body responsible for the Basel iii Accord and is the primal global standard-setter for the prudential regulation of banks and provides a forum for cooperation on banking supervisory matters.

    GCC Banks position for Basel III

    The Basel III aims to absorb financial shocks, enhance risk management and improve banks' transparency. The banks in the GCC region already mostly conform to the Basel II. The new framework requires increased and better-quality capital, liquidity standards, a new leverage ratio, and capital buffers to be absorbed in tumultuous periods. Other drives include:

  • A greater focus on stress testing;
  • The analysis of risks related to capital market activities; and
  • More rigid requirements for systemically important banks.
  • For regional banks, the higher capital requirements provided for by the Basel III Accord will leave many regional lenders with less room to support project finance deals.

    Chiradeep Ghosh from Bahrain's Security and Investment Company stated, "in terms of Basel III implementation, Saudi Arabia is doing quite well. We estimate that the average core Tier 1 capital ratio for Saudi banks in 17.5%. So Saudi lenders are well placed to continue engaging with finance deals. Global standards well capitalize Even UAE banks; we estimate that their average core Tier 1 capital ratio is about 14%."

    Reasons why projects fail

    Generally, construction projects fail due to lack of proper planning. However, there are other reasons for such failure, the dividing of which can be into causes related to owners and causes related to contractors.

    Causes related to owners:

  • Scope issues;
  • Communication issues;
  • Determining load lead items;
  • An inexperienced or under-qualified project team;
  • Poor estimates;
  • The relationship between project budgets and plan;
  • Incomplete designs;
  • Lack of risk management;
  • Unrealistic schedules.
  • Causes related to contractors:

  • Scope creep and gold plating;
  • Poor estimates;
  • Turnover;
  • Resource shortages and an inexperienced or unqualified project team;
  • Unfavorable contracts;
  • Lack of support from senior management;
  • Design issues;
  • Coordination issues;
  • An overly aggressive schedule; and
  • Lack of risk management to address unplanned conditions.
  • ]]>
    Wed, 31 Oct 2018 12:00:00 GMT
    <![CDATA[Contract Law and Laws Governing Exclusion Clauses in the UAE]]> Exclusion Clauses in the UAE

    The Importance of Contracts and Exclusion Clauses

    Contracts are vital documents at all levels of society. Whether in business or everyday life, contracts are formed all the time from the most straightforward dealings between individuals to the most complex business deals. There may be occasions wherein one of these is formed orally only, though this primarily occurs between ordinary individuals.

    Now in the case of more substantial contracts, negotiations can be a lengthy and intense process, with all parties involved looking to place themselves in the optimal positions. These negotiations are vitally important to them as they may stand for the duration of the deal and so clauses will be in place for every foreseeable eventuality.

    There can be many types of clauses possible within a contract including the power of scale clauses, acceleration clauses, integration clauses and more. One of the most vital and prevalent forms is the exclusion clause.

    Exclusion clauses, or exemption clauses as they are also known, exist to exempt a specific party from specific responsibilities should particular criteria be met. There are a few different forms of this clause which have different consequences, and they are as follows:

  • True exclusion – This clause considers a potential breach of the contract that may occur, and excludes the party that may be negatively impacted by liability;
  • Limitation – Limits the amount that can be claimed by a party for a breach of contract. This limitation is regardless of the loss;
  • Time Limitation – Places a time limit in which a claim is required to come forward. Should this time limit be elapsed, the request will then be void.
  • Of course, exclusion clauses must be agreed upon by both parties as they can potentially lead to highly beneficial exemptions for a party. Often the decided upon exclusions favor one part more than the other, likely the party writing the contract, and so the matter can be one of high complexity and generally requires both parties to be willing and fully informed. Following are the UAE regulations regarding Exclusion clauses.

    UAE Civil Code

    The UAE Civil Code governs all issues concerned with contracts within the UAE. It is a substantial piece of legislation, though exemption or exclusion clauses receive little explicit mention within it. Generally, though, the one area which widely uses exclusion clauses is in insurance. Federal Law Number 6 of 2007 (amended by Federal Law Number 3 of 2018) is the insurance law of the UAE, and Article 28 (2) states that any exemptions stated in an insurance policy require writing in bold and a different color to the rest of the text. The entity obtaining the insurance must also acknowledge the clause for it to take effect.

    Should these conditions be met in an insurance contract, then Article 1028 of the Civil Code must be taken into account. This Article is under Chapter 3 of the Code, which concerns contracts of insurance. Here are mentioned the five conditions that will result in elements of the agreement being void:

  • The situation providing for the forfeiture of the right to insurance on account of a breach of the laws unless such violation constitutes a deliberate felony or misdemeanor;
  • The condition providing for the forfeiture of the insured's right due to his delay in notifying the authorities that have to be informed, or in producing documents, if it appears that the delay was for an acceptable excuse;
  • Any printed condition relating to cases involving nullity of the contract, or forfeiture of the insured's right not shown in a precise manner;
  • The arbitration condition included in the printed general terms of the policy and not as an exclusive agreement distinct from there;
  • Any arbitrary state, the breach thereof appears that it has no bearing on the occurrence against the insurance of the event.
  • Should all of the conditions of the insurance regulations be met and avoidance of the voiding conditions stated within the Civil Code occur, then any exclusion clauses will hold weight.

    The Dubai Court of Cassation dealt with a case (27, 2009) on this very matter, and within it, they confirmed therein that the condition of having the exemption stand out was a requirement, and this was to avoid 'confusion or obscurity.' The policy must also contain a statement referring to it, and as long as this occurs, requirements for a signature on the specific clause of the contract won't be needed. Instead, the overall name for the policy will be sufficient.

    However, beyond insurance, there is little explicitly mentioned for any other sectors. Therefore, to understand the general principles, areas of the Civil Code that are not expressly related to exclusion clauses must be looked to get something of an idea of what to expect.

    In general, within the UAE, almost any contract clauses are permitted unless expressly prohibited by the law; this is so long as all the involved parties agree to the provisions. As such, if the parties agree to an exclusion clause, it will likely stand up in court. There would probably be a limit to this though as if the advantage provided to one party is too significant, and perhaps there was an element of coercion in the signing of the contract, the court may restrict them.

    The Civil Code specifies what is considered to be a void or valid contract. A valid contract as defined in Article 209 states:

  • A deal is valid if legal in its essence and characterization, issued by a qualified person, having an object that can be governed by the contract and a current, correct and licit cause, validly specified and not subject to avoid the condition.
  • As seen here, there is nothing specifically against exclusion clauses. Article 210 mentions the elements of a contract that would cause it to become void. These are:

  • A void contract is the illicit one, whether by origin or description; this may be because of a defect in one of its constitutive elements, its object, purpose or the form imposed by law for its valid formation. This contract shall not affect, and ratification cannot occur;
  • Every interested party is entitled to invoke the invalidity, and the judge to decide it ex officio;
  • Hearing an action in nullity may not occur after the lapse of fifteen years as of the conclusion of the contract, but every interested person may, at any time, raise a plea in avoidance of the deal.
  • Similar to the valid contract point, there is nothing here that outright restricts or disallows for exemption clauses.

    A specified area in which the clauses and conditionality are stated to be allowed in Article 219. In this section, it provides that contracts that are liable to be canceled may have conditions that shall exist for the duration of the agreement.

    The Current State of Exclusion Clauses in the UAE

    There is no legislation specifically in place that covers these types of clauses, and even the mention is relatively minimal. The UAE Civil Code covers all areas of contracts and is an in-depth item of regulation. However, as previously mentioned, it is stated within the law that almost any clauses within a contract are acceptable, so long as both parties are willing and in the appropriate legal capacity to sign the contract.

    In time, regulations on this may become more solidified specific. For the time being though, so long as the exclusion clauses used do not violate any laws they are acceptable.

    In this way, the law allows for great freedom between the parties and has helped to build the many business deals and contracts within the UAE. It could, however, make any potential court cases more complicated and difficult than they need to be.

    ]]>
    Sat, 08 Sep 2018 03:28:00 GMT
    <![CDATA[Law Surrounding Mortgages in the Emirate of Abu Dhabi]]> The Enforcement of Mortgages in Abu Dhabi

    Mortgages- The Basics

    Mortgages are a type of loan banks provide for those looking to purchase a property. The purchasing of a property is a highly important part of the modern world, with everyone potentially being under that umbrella, from the most prominent businesses purchasing for new projects to the average individual buying a first time house. The mortgage itself is a long-term source of finance, and can often be for significant amounts of money. As such, high levels of regulation are usually in place in most jurisdictions.

    Dubai currently has the Law Number 13 of 2008- The Real-Estate Law, though there are plans to introduce new legislation on the matter. However, this law was specifically only for the Emirate of Dubai, and in some ways, this is understandable. Dubai is the business heart of the country, and the real estate market there is valued in the tens of billions of Dirhams. Dubai also has the highest population in the country by some margin, and so the real estate sector would require the most monitoring and regulation. However, this does not mean that States such as Abu Dhabi can ignore or rely on laws that explicitly implemented for different purposes. As if in response to this very idea, it was in 2015 that Abu Dhabi enacted a new law to cover mortgages and similar such issues.

    Real Estate Law- AUH

    The Abu Dhabi Law Number 3 of 2015, the Real Estate Regulatory Law (AUH Real Estate Law) came into existence three years ago with the aim of providing regulations and legislation on various matters. These include escrow law, interim register, mortgage process and more. The law covers a wide variety of areas, though the sectors most affected by it would likely be the real estate market.

    In the case of Abu Dhabi real estate, the law was notably first used in a lawsuit in 2017 which related to a mortgage payment, though this will be brought up slightly later.

    One of the critical areas that will make those in the real estate sector happy will be the changes to the mortgage regulations, or rather the introduction of rules specific to the matter. Before this laws introduction, the issue relied on the Abu Dhabi Municipality practices and the Federal Law Number 5 of 1985 concerning the UAE Civil Code (the Civil Code). While these laws have, until recently been used in Abu Dhabi, and have gotten the job done, they are still not specific enough to mortgages due to them not being produced with mortgages in mind as one of the critical elements, and so there will likely be questionable decisions made.

    The introduction of the Civil Code would theoretically lead to a more consistent and dependable system. As is the case with anything involving money, consistency and dependability are a crucial factor and are often sought after as they provide comfort to those who will be depending on them. Consumer confidence would likely correlate directly with these key points, and so it may be seen that the simple change of introducing an express law can impact the entire sector as a whole. The bill is relatively new at this stage though, and so more time will be required before the true extent of people's opinions will become clear, though it is looking promising.

    The Impact

    In many ways, the changes are an overhaul of the previously used methods, and there are new regulations and requirements which require observation. A briefly mentioned yet potentially impactful section of the law is the fact that there are now definitions for many phrases. Descriptions are supplied in most legislation and allow for clarity not only when reading through it, but also it gives parties with details of the law even when they are not going through any legal disputes, and can help to avoid any conflicts from arising.

    One of the significant changes concerned licensing of entities that partake in real estate related practices. Before the laws arrival, a license was not a necessity, though it is now a requirement, with specific repercussions in place for those found to be in violation. Article 5 (1) states that it shall not be permissible for any developer, realtor, realtor's employee, auctioneer or director of Owners Union, evaluator or surveyor or one who identifies in such a capacity, to practice these professions without first obtaining a license. Article 5 (5) also states that these permits will require renewal annually.

    A register will also arise as stated in Article 4. The record aims to gather all of the information, data, and documents related to:

  • The Licensees;
  •  Account trustees and agreements of project's guarantee account;
  • Permissions of real estate development project marketing; and
  • Any other data or documents deemed necessary by the Department shall also become a requirement.
  • There are many further points discussed throughout the legislation. However, a significant point which brought up later and which shall now be looked at more closely is the matter of mortgage insurance.

    Abu Dhabi Summary Court Decision Number 288 of 2017

    Mortgage insurance is also defined and mentioned in Article 1, and the definition is as follows:

    "A contract by which the creditor acquires a real right or contractual utility on the mortgaged property allocated for the repayment of the debt and by such right or utility such creditor may have precedence over ordinary creditors or other creditors following him in rank."

    The Abu Dhabi Summary Court Decision Number 288 of 2017 was the first case in which the Civil Code was brought up. In this case, the claimant was a bank, and they filed the claim against two clients. These clients had taken mortgages and purchased properties, though they were unable to make a payment, and as such, the bank was requesting from the court to be able to sell the properties to reclaim the money lost by them.

    The simple legal point that was used to back up this claim was Articles 53 (1) and (2) which states the following:

  • The mortgagee of mortgage insurance or his designated or non-designated successor may proceed with the execution procedures on the mortgaged property and sell said property by auction if the debt is unpaid upon maturity or any conditions requiring the expiry of the term before maturity materialized;
  • Before commencement of the execution procedures on the mortgaged property and applying to the judge of summary justice for the seizure on mortgaged property and sale thereof by auction, the mortgagee shall send a written warning to the mortgagor and the guarantor, if any, by registered mail. Within this should be contained the acknowledgment of receipt informing him of the prejudice and requiring him to pay the debt and other entitlements within no less than 30 days as of the date of warning.
  • Section 1 of this Article states when cases may arise, and it would seem a highly logical approach. However, Section 2 ensures that the mortgagee's treatment is fair. Property purchase is a big deal, and there can be a lot riding on it, and so an opportunity is given to the party to attempt to get their situation in check or provide an explanation of what the issue is.

    What this allows for is a fair system and fair judgments and case outcomes to be the norm in failure to pay situations, as there are often two sides to every story.

    Article 54 of the law concerns resolving cases concerning failing mortgage payments. This Article states that:

    "Subject to the provisions of Clause 2 of the preceding Article of this Law (Article 53), if the mortgagor or the guarantor thereof or their designated or non-designated successor defaulted in payment of debt. The judge of summary justice should issue, upon the request of the mortgagee, a resolution on the sale of the property in mortgage by auction by the procedures applicable to the competent court".

    What this Article shows is that there is a level of variance that may be possible within the law, and this is up to the discretion of the Judge in the case. One of the ways a Judge may change Article 53 (2) is by allowing for 60 days rather than 30 to let the mortgagee make the payments.

    Is this Law Bettering the System?

    The changes the law has made and the regulations it has now set in stone are mostly positive. They will allow for not only professionals in the real estate sector but also regular people looking to obtain mortgages, to have confidence in the legal implications of this activity.

    Wish to learn more about Abu Dhabi Property Laws? Click here to read our bespoke Abu Dhabi Real Estate Guide presented by our team of lawyers in Abu Dhabi. 

    ]]>
    Wed, 05 Sep 2018 01:31:00 GMT
    <![CDATA[A Guide on the Mining Industry in UAE]]> The Mining Industry in the United Arab Emirates

    The mining industry has for centuries been the driving force behind economies. Whether it is the mining of minerals or metals or precious stones, each mining industry plays a crucial role in the economic activities of many states globally. This principle is no different from the United Arab Emirates, and although the region's economic uprising was mostly dependent on the finding of oil, the mining industry in the region is fast growing and becoming a highly profitable contributor to the country's GDP. In the United Arab Emirates, the list of minerals mined in the area is lengthy and ranges from copper and gypsum mines to the extraction of metals and precious stones. With the boom in the technological advancements in the UAE, the establishment took place, of the fact that the country applies the most advanced technologies and the best scientific methods in the mining industry. These methods have ultimately confirmed the variety and abundance of minerals available in many of the different Emirates.

    The industry in the country is attracting many international companies who are successfully investing in this economic sector. This industry not only includes the process of mining the minerals but as it states that in the UAE the exports of products of mining as both raw materials and as finished goods is steadily increasing. The infrastructure within the UAE is a haven for the mining industry with port facilities and land transport facilities functioning optimally.  For this Article and under the UAE legislation, the utilization of the acts of quarrying and mining will be interchangeable. 

    Mining/Quarrying Law

    There are limited laws specific to any of the Emirates regulating mining in the United Arab Emirates;  the Federal Laws governing all mining and quarrying activities in the region as a whole. These regulations include:

    Federal Environment Law;

  • Federal Cabinet Resolution Number 20 of 2008 (Quarries and Crushers Regulations);
  • Federal Ministerial Resolution Number 492 of 2008 (Quarries and Crushers Environmental Guidelines);
  • Federal Ministerial Resolution Number 110 of 2010 (Quarries and Crushers Regulations).
  • When an entity within the UAE wishes to carry out mining activities within the region, such an object must obtain an environmental license from the relevant local authority. Concerning this license, there are specific guidelines to which these entities must comply. In addition to the instructions, the regulation also provides for the application of penalties in the event of any breach. The obligations provided for by the guidelines and the determination by specific circumstances and facts of each case, but some of these include:
  • Article 15 of Federal Cabinet Resolution Number 20 of 2008, this piece of legislation states that any person or entity, by act or omission, causes damage to the environment; as a result of violating the provisions of this resolution shall have the responsibility to pay all necessary costs for the repairing or eliminating the damages and any consequential indemnities.
  • Article 16 of Federal Cabinet Resolution Number 20 of 2008, this piece of legislation further clarifies the indemnification of the environmental damage as per Article 15 to include, injuries that affect the environment itself and prevent or reduce the lawful use thereof, temporarily or permanently, or impair its economic or aesthetic value;
  • Federal Ministerial Resolution Number 110 of 2010, this piece of legislation provides for the quarry rehabilitation or restoration process. Article 13 of this Law provides that quarry operators must perform progressive improvement as they extract their sites. This provision entails that reconstruction shall be done sequentially within a reasonable time after extraction of quarry resources is complete. As the removal of one area of the pit or quarry, completion of rehabilitation must be in the areas where the quarry reserves have been stopped or exhausted. It further provides how such reconstruction is beneficial:
    • It reduces the open spaces within a pit/quarry;
    • It reduces potential soil erosion; and
    • It reduces double-handling or soil/waste materials.

     

     

     

    Ministerial Order 110 of 2010

    In Article 3 of the Ministerial Order 110 of 2010 provides the guidelines for quarrying, this provision offers guidelines for drilling, quarry blasting, material handling, and hauling in site. Article 5 of the Order provides the general requirements. This provision states that all mining/quarry operators must submit the production and operations data to the competent local authority and the technical division of the ministry of environment and water. Click here to read more.

     

    ]]>
    Tue, 28 Aug 2018 11:54:00 GMT
    <![CDATA[Contract Law and Position of Third Parties]]> Contractual relations are relations we enter into every day of our lives, whether express or implied, whether formally or informally. When people go to the grocery store, at the check-out counter, they enter into a contractual relationship with the store. They accept the obligation to pay the relevant amount to the store in exchange for the store agreeing to provide quality produce. This transaction is what we consider an informal contractual relationship. On the other hand, we have formal contractual relations; it is here that written contracts with expressed terms and provisions are necessary. However, contractual requirements and obligations of two parties are seldom affecting only those parties. If one considers the instance of a motor vehicle accident, prior to such an accident, the individual drivers have both acquired motor vehicle insurance, in particular third-party insurance, this contractual relationship between the insurance company and the insured person has no bearing on the third party involved in the accident until such time as an accident takes place. Thus, such third party then becomes a beneficiary of the contractual relationship between two other persons.

    In the instance of this concept, the United Arab Emirates Civil Code Article 125, defines a contract as follows; the making of an offer by one of the contracting parties with the acknowledgment and acceptance of the other. This agreement is together with the recognition of them both in a manner that determines the effect of the subject matter of the contract and from which results in the creation of obligations upon each of them concerning that which each party is bound to do for the other. Within the UAE, there also exists the doctrine of privity of contracts, this principle entails that the rights and obligations associated with an agreement arise only between the parties to the contract and are only enforceable between those such parties, and no third party may exercise such rights or obligations.

    According to Article 129 of the Civil Code the elements that need to be present for the bringing about of a contract are: -

  • That the two parties to the agreement should agree upon the essential contractual elements;
  • The reason and subject of the agreement must be something which is capable of being dealt in and possible and defined and allowed; and
  • There needs to be a lawful purpose for the obligations arising out of the contract.
  • The abovementioned goes hand-in-hand with the doctrine of privity, the basis of this principle is on the premise that only the parties who contracted have accepted the terms, conditions, and responsibilities stipulated in the contract. According to the Doctrine of Privity, an agreement cannot confer rights or impose obligations arising in connection with it to any person who is not a party to the deal. According to Article 141 of the Civil Code, a contract may only come into existence when there is an agreement between the two parties to the contract concerning the essential elements of the obligation. Article 151 of the Civil Code also states that if a person makes a commitment on his own and for his account, then he shall be bound by the provisions of it to the exclusion of other persons.

    An example of the doctrine of privity would be, the case of Dunlop Pneumatic Tyre Company Ltd v Selfridge, [1915] UKHL 1 (26 April 1915), [1915] AC 847 Dunlop sued Selfridge on the premise that the imposition of the promise between Dew and Selfridge was possible as Dew were acting as Dunlop's agent. The action failed because Dunlop had provided no consideration for the promise of Selfridge, for the presentation of the payment by Dew. These two abovementioned cases are both consistent with the view that the claimants could not sue because they had not provided any consideration for the defendant's promise.

    Contracts to which the doctrine applies

    Subcontractors

    In the United Arab Emirates, in pursuance of Article 891 of the UAE Civil Code, "a sub-contractor shall not have a claim concerning the employer for an amount due to him from the main contractor unless he has made an assignment to him against the employer."

    The Court of Cassation (457 Judicial Year 24) in a decision dated 20 April 2005 held as under:

    "The result of articles 891 and 892 of the Civil Code is that the liability of the main contractor remains in place as against the employer, and there is no direct contractual relationship between the employer and the sub-contractor. Thus, the contract between the main contractor and the sub-contractor defines the rights and responsibilities of each of them towards the other, and the employer may not rely on it unless the original contract provides to the contrary."

    Sub-contracting has become an essential aspect of the construction industry in the UAE, with more complex and specialized projects, it is incomprehensible for one company to have the capabilities to complete the entire task. In this instance one could consider the incompatibility of a situation where the main contractor of a project, being the sole contractor would need to maintain and pay an enormous workforce, with an extensive range of capabilities and specializations to work on such project, this is ultimately economically unsustainable.

    The use of sub-contractors has aided the reduction of project costs in the industry dramatically, such use of sub-contractors also has the advantage of sharing the project risks between the contractor and sub-contractor. The UAE recognizes the benefits and need of such sub-contracting, the law goes as far as allowing the main contractor to sub-contract the whole of the works. This sub-contracting of the whole of the works is possible, unless: -

  •  The construction contract contains a provision to the contrary; or
  • Where the selection of the contractor is due to his specific personal qualities.
  • In the context of subcontracts, which is ultimately a contract between the main contractor and a subcontractor, this means that the employer of the main contractor will be a third party to this subcontract and will thus have no rights or obligations concerning this subcontract.

    This concept brings with it questions for its applicability in the construction industry. The nature of such projects coupled with an employers' desire to be in control of certain aspects of the project has created a need for new regulation in which the employer does retain some rights in respect of the subcontract. Such reasons include the requirement for the subcontractor to provide the employer with certain warranties in connection with the work that is carried out directly to the employer, or the employer retains to the right to assign to him of the subcontractors should the main contract be terminated.

    The Court of Cassation (Case 499 of 2002 decided on 25 September 2002) has in its judgment outlined the following:

    "The work of a subcontractor - the contractor is obligated to execute his/her works in compliance with the conditions and specifications that are stated in the contract, i.e. his/her responsibility for fixing any defects caused in violation to the professional ethics. In return, the original contractor is obligated to pay the outstanding allowances of the work. Each of them has the right to retain part of the work or allowances until they get their outstanding payment. They may agree in advance that the original contractor may retain a certain amount of the allowances until the subcontractor fulfills his/her commitments. This is considered an application of the right of retention (Articles (414 - 419) of the Civil Transactions Law). The original contractor is the one who delays delivery, not the subcontractor, which deprives the original contractor of the right of retention."

    Heirs

    There is a legislative provision found in Section 3(2) of the Civil Code which provides that the heirs, beneficiaries, and successors of the contracting parties of that specific contract are included in the ambit of the contract. Article 250 of this Section states that the effects of the agreement shall extend to the contracting parties and their general successors without prejudice to the rules relating to inheritance, unless it appears from the contract or the nature of the transaction or from the provisions of the law that the effects were not to extend to a general successor. 

    Article 254(1) of the Civil Code states that it shall be allowed for a contracting party to contract in his name imposing a condition that rights in the contract are to create a benefit to a third party if he has a personal interest, whether moral or material, in the performance stated in the agreement. Article 254(2) goes further in that it provides for a direct right afforded to the third party against the Undertaker for the performance of that contractual provision, enabling him to demand the execution thereof, unless there is an agreement to the contrary. Article 254(3) then provides for the enforcement of such condition in that either the contracting party providing the provision may demand the performance thereof, unless there is a contractual provision which states that the beneficiary alone has such right.

    Article 256 of the Civil Code provides the following in respect of beneficiaries to contracts by providing for a condition in favor of a third party. It states that it shall be permissible for the recipient to be a future person or future body, and the beneficiary may also be a person or entity not specified at the making of the contract if such beneficiary is ascertainable at the time the agreement is to be given effect to following the condition.

    Agreements to which a third party has a claim

    According to Article 252 of the Civil Code, there are some exceptions to the general rule provided by the doctrine of privity, following this law, a contract may confer a right on a third party. However, such an agreement may not impose an obligation upon a third party.

    Bank guarantee

    Another instance in which a third party may become involved in the contractual obligations of another is in the specific form of a bank guarantee. Concerning Article 411 of the Commercial Transaction Law Number 18 of 1993, "a bank guarantee is a commitment issued by a bank to settle the customer's debt to a third party following the conditions agreed and included in the guarantee, which may be for a definite or indefinite term."

    Article 414 of the Commercial Transaction Law Number 18 of 1993 provides that a letter of guarantee is an undertaking issued by a bank (the guarantor) at the request of its customer (the person making the order) to pay unconditionally and without restrictions, a certain specified or determinable sum to another person (the beneficiary). In this regard, the recipient is a third party to the contract between the bank and its customer.

    Dubai Court of Cassation (Case number 284 of 2007 decided on 12 February 2008) relying on Articles 411, Article 412, Article 413, and 414 of Commercial Transactions Law discussed the role of the bank when dealing with bank guarantees, it reads:

    "The bank will not be regarded, in respect of its obligation under the bank guarantee, as being the proxy of its customer.  Rather, it will have an obligation as a principal.  The obligation of the bank that issues the letter of guarantee is separate from the obligation of the guaranteed debtor, in the sense that it is separate from any other relationship apart from the relationship between the bank and the beneficiary, as is the case in respect of a documentary credit.  That is to say, the obligation of the bank that issues the guarantee does not follow the obligation of the debtor with regard to its validity or nullity, because the bank is always bound by the letter whatever be the status of the guaranteed account holder, and whatever may happen to the relationship between the guaranteed account holder and the beneficiary under the letter."

    Documentary credit

    Under Chapter 4 of the Commercial Transaction Law, Number 18 of 1993, documentary credit involves the rights of third parties into the contracts of another. Article 428 of this Law provides that this agreement is a contract according to which a bank opens a credit at the request of its customer (the person ordering the opening of the loan) within the limits of a specified amount and for a definite term in favor of another person (the beneficiary). This agreement is against the security of documents represented goods transported or intended for carriage. This chapter states further that a documentary credit contract is deemed to be independent of the contract which caused the opening of the credit, and the bank shall remain a stranger to such an agreement.

    Discharging the debt of another

    Article 333 of the Civil Code provides for another exception in that another person takes care of the liability of another person concerning a previous agreement. This Article states that should a person discharge the obligations of a third party upon such third parties directions, such person shall have a right of recourse against the person s directing him for what he has performed on his behalf, this person will take the position of the original oblige in his right to claim against the obligor. 

    However, this Article does provide a limitation to such position in Article 334, such Article states that should the person discharge the relevant obligations of the third party, without the necessary directions, there will be no right of recourse concerning the obligor for the discharge, unless the following circumstances are present, namely those found in Article 325. This Article states that if pledger dischargers the debt of a third party to release his property pledged by way of security for such debt, he shall have a right of recourse against the debtor for the money he has paid.

    Dubai Court of Cassation (Case 163 of 2007 decided on 11 September 2007) held as under:

    "It is settled law in the precedents of this court under the provisions of Articles 325 and 334 of the Civil Code. Whoever pays the debt of another without being ordered by him to do so is not entitled to have recourse against the debtor for what he has paid, unless he has been compelled by necessity to discharge the debt.  In that latter event, the payer will be regarded as the proxy of the debtor in payment of the debt.  The assessment of the circumstance of necessity is a matter of fact within the independent jurisdiction of the trial court, provided that its assessment is sound and based on matters proved in the papers."

    Third party insurance law

    The provisions for third party insurance, which provides a beneficial right to third parties concerning an agreement between the insurer and the insuree is another exception to the application of the doctrine. In the United Arab Emirates, such authority is the Unified Motor Vehicle Insurance Policy Against Third Party Liability issued according to the Regulation of Unifying Motor Vehicle Insurance Policies according to Insurance Authority Board of Directors' Decision Number (25) of 2016. This provision provides that the entering into of any policy as per the law was to cover liability towards a third party. Thus, the entering into of this policy or agreement was for the benefit of an unspecified third, additional party.

    Criticism of the Doctrine of Privity

    Objections that have developed at the doctrine of privity are that it failed to give effect to the expressed wishes of the parties and could lead to results regarded as fundamentally unjust and parties that should have benefited according to the contract did not receive what was intended. Due to a large number of exceptions to this rule, the law has mainly become complicated, and ultimately the doctrine has become commercially inconvenient.

    ]]>
    Mon, 13 Aug 2018 01:02:00 GMT
    <![CDATA[Abu Dhabi Global Markets: Civil Court ]]> ADGM Civil Court Proceedings

    Abu Dhabi Global Markets (ADGM) located in the capital of UAE in the city center of Abu Dhabi is an international financial center for local, regional and international organizations. ADGM is a channel that connects UAE with the world with its essential hub for global commerce. ADGM has three independent authorities; ADGM Courts, Registration Authority, and the Financial Services Regulatory Authority (FSRA) that ensure that businesses run within the framework of international practices that are recognized by major financial centers across the world.

    The ADGM, or Abu Dhabi Global Market, is a relatively new free zone, having been established in 2013, and is located on Al Maryah Island. This particular free zone was set up as an international financial center and is fast becoming a vital element of the city's long-term plans, interacting and connecting with International Financial Centers around the globe. ADGM has given life through Federal Decree Number 15 of 2013, under which Article 1 states the establishment of a financial free zone in Abu Dhabi. Following three authorities are responsible for managing the open region and all the companies within:

  • The Financial Service Regulatory Authority (FSRA)
  • The Registration Authority
  • And the ADGM Courts
  • ADGM Law

    Having three independent authorities within the free zone allows for each to concentrate on the legislation under their area of expertise. The law here comes in three levels. At the highest level is the Federal Legislation of the UAE. These are laws from the federal level that act within the free zone and govern some aspects of the activities therein. These include:

  • The UAE Constitution
  • Federal Law Number 8 of 2004, which allows for the setting up of a financial free zone anywhere within the country, and unbinds them from all commercial and civil laws, though it does not exempt them from the countries criminal law
  • Decree Number 15 of 2013/Cabinet Resolution Number 4 of 2013, both of which are responsible for the establishment of the ADGM
  • Cabinet Resolution Number 28 of 2007, which implemented regulations of Federal Law Number 8 of 2004 concerning financial free zones
  • After the Federal Laws of the UAE, there is the Abu Dhabi Legislation, which is:

  • Law Number 4 of 2013, which sets out the governance, legislative and regulatory framework and activities to be carried out in ADGM
  • Beyond these, the rest of the laws under the decision of internal authorities of the ADGM, and include:

  • ADGM Courts Regulations and Rules, enacted on 11 December 2015
  • ADGM Courts Procedures promulgated on 30 May 2016
  • Arbitration Regulations, passed on 17 December 2015
  • Commercial Regulations, adopted 3 March 2015
  • FSRA Regulations and Rules
  • Civil Proceedings within the ADGM

    To begin with, the ADGM has two courts. These are the courts of the first instance, and the court of appeal. There are many elements of similarity with this system and the one used in the UK as will be seen through the civil procedure rules. Some of these similarities include the way the claimant initiates the case, the way in which the defense accepts or denies allegations, and the concept of case management. These are not all of the similarities, and while the elements will not be the same, there are apparent similarities

    The ADGM court procedure rules, which were implemented in May of 2016 and amended in December of 2017, govern the issue of Civil Proceeding within the free zone, and also the matter of evidence and how the court handles. Their regulations are highly in depth, and the entire system within the ADGM adequately organized.

    Part 5 of the rules states that the proceeding begins on the date entered on the claim form, which is to the defense on the request of the claimant. The claimant files the application in the court, who then proceed to question the claim form. The claim form must contain within it what the claimant seeks and should include any particulars and practice directions of the case.

    Part 6 of the rules concern the response of the defense party. The party must come forward with defense within 28 days of the service of the initial claim.  If the defendant fails to reach the deadline, the claimant party may move for a default judgment, which is touched on under Section 39 of the rules. Section 49 relates to the content of the defense response. Within this should be included what elements of the claim the defense chooses to admit, deny and which they cannot accept to or deny but would require the claimant to prove. If the argument fails to do the above mentioned for an activity, they shall be considered to be admitting to it.

    Section 50allows for the defense party to make counterclaims in regards to the case, though they must first mention this to the courts. This counterclaim needn't be directed at the claimant party, though it must be related to the overall issue at hand.

    The parties and individuals present in the litigation are under the rules of Part 7 of the manual. It is also feasible for the courts to provide Summary Judgements on cases brought before them if they feel:

    • The claimant has no real chances of success
    • The defense doesn't have a prospect of defending the claim
    • Or if they think there is no reason for the case to be disposed of at trial

    While the situation is going through the court system, there is an element of case management, which is under Part 12 of the civil procedure rules. Case management is when the court itself takes part in managing some aspects of the case, usually to ensure the trial runs smoothly and the appropriate directions are into consideration. The idea behind this is that the situation becomes more transparent in this way, and there is less wastage of the courts time and money.

    One of how the courts may manage a case is under Section 1 of part 12, which states that is a court decision to do so, they may issue a directions questionnaire to the parties on a specific area of the case. Placing time deadlines upon them to have to have those completed, and Section 4 states that should a party choose not to follow these instructions, the court may take what steps it deems necessary to deal with the issue.

    On top of this, the court sends out a pre-trial checklist to the parties and a date by which the parties should complete the list. It will allow the court to obtain the information they deem necessary before a trial, thus allowing them to make appropriate preparations and be up to date. With this information in hand, the court can accurately decide deadlines for the litigation.

    The Law of Evidence in the ADGM

    The law relating to evidence is the same as the court procedure law and is in Part 14 of the rules. According to the law, the courts have a reasonable degree of control over evidence. They will likely see all of the evidence of the trial before its start, and this is because the parties may request it as part of the pre-trial checklist. It provides the court with a great deal of control over the trial, as they can then choose when specific evidence is required, and they can also decide to exclude evidence from being presented, even if that evidence would have otherwise been admissible.

    About witnesses, the rules set out the basic principles. Once again, the court can decide which witnesses can stand to provide testimony. So long as the court approves a witness, they can be brought forward to prove any fact that requires evidence via oral testimony as mentioned under Section 93 of the Court Procedure Rules. On top of this, as per Section 93 Subsection 4, witness testimony may be given through video chats or other such similar services.

    Parties can use affidavits separately or alongside witness testimony. They are under Section 104 of the rules, and in Section 105, it is clear that the only authorized bodies that may take affidavits are:

    • A notary public by Section 221 of the regulations
    • A Judge of the court
    • The Registrar
    • A lawyer
    • A court officer appointed to perform the duty by a registrar

    The use of photographic evidence, models or plans is not allowed in the courts unless the court has been made aware of these, and has approved of them. This type of evidence under Section 116 of the manual, and Subsection 4 furthers this by mentioning that all parties must be allowed to view and inspect the evidence before it can be admissible in the case

    Another point of importance under Section 117 of the rules and concerns foreign law. The treatment is similar to that of photographic evidence, in that it must be approved of before it can move forward.

    Another matter which receives emphasis throughout Part 14 of the rules is that much of the evidence must get shared with the courts and other parties, and the practice directions must be made clear.

    The regulations are far more expansive than what we discuss presently. It is just the tip of the civil procedure and law of evidence iceberg. The system is highly regulated, with many notable similarities to the UK civil court procedure system, and the ADGM, in general, has big plans for its future, for which a good, well-developed system would be ideal

        ]]>
    Sun, 24 Jun 2018 11:49:00 GMT
    <![CDATA[Securitization: UAE and Global Overview]]> Securitization: An Overview

    Introduction

    Securitization is a powerful financial tool that renders possible the profitability of illiquid assets. We all agree that securitization contributed to the 2008 Financial Crisis, demonstrating how this powerful business instrument is a double-edged sword: it is capable of both boosting and devastating an economy. The United States also commonly known as an unchallenged leader in securitization markets. However, much of the current activity is happening in the Middle East, including the United Arab Emirates, where the new wave of securitization markets is emerging.

    Definition

    Through this financial process, several illiquid assets are packaged into pools and transformed into securities. The third-party investors in a secondary market then purchase these securities or their related cash flows. In other words, the security interests in the pool are sold to investors. The process enables the conversion of an asset or a group of assets into marketable security. In this article, I aim to offer a comprehensive explanation of the nature of the underlying holdings of securitization, the function of Special Purpose Vehicles, regulatory responses to securitization after the financial crisis, and the impact the economic process has had on different markets.

    An example of an illiquid asset is a debt instrument, which the originator (such as a bank) executes with numerous obligors (such as individuals who have a mortgage with the bank). These assets, which are into pools, can be various types of contractual debt (generally home equity mortgages) such as residential mortgages, commercial mortgages, auto loans, credit card debt obligations (or other non-debt assets which generate receivables). We combine these assets with other homogeneous assets, such as other mortgages issued on significantly similar terms, to form a pool. Then, they transfer it to trust or the Special purpose vehicle (SPV) which is the securitization vehicle. The company will sell the security interests to investors. They give the funds so raised to the Intermediary or Originator in consideration for the transfer of the assets.

    It is important to note that the vast array of asset varieties and the creation of liquidity for an illiquid asset makes securitization a powerful and practical financial tool. Furthermore, a pool of securities can be divided and sold to different investors based on the risk level these investors wish to adopt. If they are willing to take on the risk of mortgages that may or may not be paid off, then they will purchase the higher risk part of the pool. If they are not willing to take on such risk, they will buy the lower risk part of the lake.  Regarding value, mortgage-backed securities (MBS) dominate the global market, while asset-backed securities (ABS) feature steady growth rates.

    Benefits of Securitization

    The securitization process offers many essential benefits to participants. In this vein, it allows the originator to do the following things:

  • It will enable the transformation of an illiquid asset into a liquid financial instrument, thus setting up future revenue.
  •  It enables borrowing at a better rate given that the risk premium demanded by the investor is proportionate with the underlying pool of assets.
  • It improves balance sheet management with reduced leverage and gearing ratios by removing risky assets from its balance. It permits the use of capital to support loan writing and investment.
  • The prepayment risk of the underlying assets is after that on the investor.
  • It eliminates exposure to credit risk or the administration of the asset.
  • The originator gains access to a broader banking/investor base in the financial markets.
  • Securitization will benefit the investor in the following ways:

  • It enables the securities to obtain excellent credit ratings given that deals can entail credit enhancements.
  • The yields offered by securities exceed those on comparable corporate bonds.
  • The securities are liquid.
  • It is an investment in a diversified pool. Investors will prefer to hold a portion of a pool of risky assets than a single risky asset.
  • I.  Mortgage and Asset-Backed Securities (MBS)

    Categorically, the division of assets is in two categories being mortgage-backed securities and asset-backed securities. The form of a securitization backed by mortgages is called mortgage-backed securities. It comprises three central types:

  • mortgage pass-through securities
  • stripped MBS
  • collateralized mortgage obligations (CMO)
  • The fixes or floating rate mortgages sponsor these securities. An investor will purchase shares in a pool of mortgages, and receive a cash flow which basis on the features of the underlying mortgages such as principal amount, interest and payments made before the lease.

    Moreover, a stripped MBS is derivative mortgage security. The division of principal amount and interest is so segregated in such a way that the price of each investor is different from the other. There is a possibility of a stripped MBS which the companies structure in a way that there is an interest-only investor class and a principal-only investor class.

    Lastly, in a CMO, whole mortgages funded by debt issued in different tranches are purchased by the securitization vehicle. After that, there is a redistribution of Cash flows from the assets to different tranches. The principal and interest received by the securitization vehicle are used to pay attention to each branch. It creates different risk/yield relationships between investor classes by taking the mortgage (a single class instrument) and creating multi-class instruments. This type of mortgage-backed securities has developed immensely and has been the subject of considerable levels of financial re-engineering.

    II.  Asset-backed Securitizations (ABS)

    Asset-backed securities are securitizations backed by non-mortgage assets. These include (but are not limited to) the following:

  • automobile loans and leases
  • credit and department store charge card
  • computer and other equipment leases
  • accounts receivables
  • legal settlements
  • small business loans
  • student loans
  • home equity loans and lines of credit
  • boat loans

  • franchise loans
  • timeshare property loans

  • real estate rentals
  • whole business securitizations
  • Another vital perspective to consider to understand the securitization structure is the idea of credit enhancement. It is the way or strategy to enhance the procedure for assessment of a securitization exchange, as recommended by a credit rating agency keeping in mind the end goal to draw in financial investors for investing in these assets.

    Special Purpose Vehicles (SPV)

    SPV are subsidiary companies of a parent company, who provide an alternative mode of financing transactions. Given that there is the complete protection of assets from the actions of their parent company, they curb the financial risk to the property of the SPC. These vehicles play an indispensable role in the operation of global financial markets. The allow investors and businesses to raise capital, securitize assets, share risk, reduce tax and carry out activities without any chance (or at least not as significant a threat as would usually be the case). SPCs provide limited liability for shareholders, they can choose to operate on separate balance sheets than their companies ("off-balance sheets"), and they serve on these free balance sheets instead of recording transactions in the name of their parent companies. Following are the commonly used SPVs for the operations:

  • Securing projects from financial, commercial or operational failures
  • Securitizing Loans and Receivables. For instance, governments set up SPVs to fund their projects and the SPC entity enables the channeling of funds for projects in different areas.
  • Transfer of Assets: upon the transfer of assets to SPC, they become unidentifiable. As a result, it protects the firms in the event of bankruptcy or liquidation. This invulnerability has led courts to rule that there is a link between SPC assets and funds with the originating company.
  • Regulatory and Compliance: SPVs avoid regulation and compliance protocols since they can be set-up within orphan-like structures.
  • Financing and Raising Capital: They can be used to finance new projects without increasing costs or altering the shareholding structure. It makes them particularly useful for financing aircraft, power and infrastructure projects.
  • Global Aspect of Securitization

    In UAE

    Securitization also allows a company to deconstruct itself by separating highly liquid assets from the risks in association with the transaction. These assets are then used to raise funds in the capital markets at a lower cost, and a lower risk than if the company had grown funds directly (by issuing more debt or equity). The company will then retain the savings generated by these lower costs.

    In the United Arab Emirates, the company establishes a system of Islamic Securitization. It is a legal structure which replicates the economic purpose of a traditional asset-backed securitization structure and satisfies the requirements of Islamic Finance. The terms Al-Task and Tawriq are the terms used for securitization under Islamic Law. Given that most Islamic financial principles basis its concept of asset-backing, securitization fits particularly well with Islamic Finance.

    Conventional securitization, which originated in non-Islamic economies, involves interest-bearing debt. BY holding contingent claims on the performance of securitized assets, investors get entitled to pre-determines interest as well as the principal amount initially paid. However, Islamic finance principles prohibit profit from debt and speculation. Thus, the issuance of interest-bearing debt securities with a secured redemption conflict with Islamic financing principles. Despite the fact that securitization under Islamic Law bars interest income, the company structure it in such a process that it rewards investors for their direct exposure to business risk. Underlying securitization assets which do not comply with Sharia Law principles cannot securitize in the market.

    In the United Kingdom

    The UK is Europe's Largest Securitization Market, with issues worth approximately US Dollars 26 billion in 1999. The first asset class securitized in the UK are private mortgage loans. Subsequently, the market has expanded significantly to include credit card receivables, other consumer loans, lease receivables and whole business securitizations whereby the securitizations is on the entire future receivables of a company. In the UK, there is a continuous introduction of new asset types and structures.

    In Germany

    Germany market is not significant as the US. However, the ABS market in Germany has grown steadily since 1995. Housing loans, credit card receivables, and consumer loans are commonly the subjects of securitization processes in Germany. In mid of 1997, the German Bank Regulatory Office published a guideline allowing relief from capital adequacy requirements for banks if they meet the specific criteria. Since then, not only corporations but also banks have securitized many assets. In the past, traditional ABS transactions were based mainly on mortgage loans (residential and commercial), trade receivables, lease receivables and customer loans. Today, all kinds of assets can be securitized provided they are separable, transferable, pledgeable and free of objections.

    In Asian Region

    The Asian crisis has caused the securitization market in Asia to slow down. From properties to salaries, the market was continuously searching for new assets to securitize. The market was booming, as it was continually looking for innovative ways to overcome its legal, tax and accounting issues. But the market's collapse in 1997 drastically slowed down securitization's development process in the region. The market started to recover in 1998, and in total, four big deals were completed: in Hong Kong, Taiwan, Korea and an Asian Basket Deal (a CBO). 1999 saw a significant increase in activity focused on North Asia. Given that the central issue in the Asian market remained that of attracting investors, the focus in that region has been on credit enhancements and risk repackaging.

    Conclusion

    On the whole, securitization is a powerful financial tool that constitutes a significant part of today's global generation of profit. Given that securitization's abuses contributed to the global financial crisis, its regulation is critically important. US and European post-crisis regulation responses are insufficient. For achieving a more systematic regulatory framework, existing law will have to supplement.

    ]]>
    Tue, 24 Apr 2018 10:27:00 GMT
    <![CDATA[Contracts Law - Extension of Time]]> Preventive Principle and Extension of Time

    Time and again we have discussed the level of dynamicity in the sectors and industries such as construction, maritime, cryptocurrency and the like. Today, we are going to analyze why these areas in specific are comparatively more dynamic than others – mainly because projects and transactions in these sectors include numerous parties who operate on different stages. It is a mechanism for various individuals who perform their contractual obligations that are guided by internationally accepted norms. For instance, in the construction industry, engineering contracts usually are governed by the contract templates released by the Fédération Internationale Des Ingénieurs-Conseils (FIDIC), Engineering Advancement Association of Japan (or popularly known as the ENAA) among others. These templates or default contracts are in place to minimize the dynamicity that we had earlier discussed; however, they are not always viable because – every project is different from each other. No two plans or transactions are structured the same way since each project has its peculiarity in the number of parties involved, the financing structure in place, the estimated timeline for project completion and the like.

    Now, coming back to the topic I was initially assigned. In this article, we have elucidated the facts and issues of a landmark case that arose due to sector dynamicity between Adyard Abu Dhabi LLC (a company established in Abu Dhabi, United Arab Emirates) and SD Marine Services (a company incorporated in the United Kingdom). The case of Adyard Abu Dhabi (or Adyard or Claimant) v SD Marine Services (or SD or Defendant)[i] came before the High Court of Justice (Queen's Bench Division Commercial Court). Th court had to decide whether there a contractor can extend the time to complete to project when a delay that falls within the ambit of 'prevention principle' has taken place.

    Facts of the Case

    Adyard was an SME (small to medium size enterprise) that specialized in shipbuilding in Abu Dhabi, and SD provided commercial services in the maritime industry to the public sector in the United Kingdom. The Defendant had contracted with the Government of the United Kingdom to deliver sea-port services, navigational services and the like to the Royal Navy of the United Kingdom over a period of fifteen (15) years. SD appointed another company, SERCO, as the subcontractor and overlooked the project.

    The Defendant had engaged the Claimant to construct and assemble two (2) moorings and SOSVs (special operations support vessels) under a contract dated 14 December 2007 (the Contract). The Contract had stated that the Claimant had the liability to manufacture, assemble and ready the two (2) SOSVs by 30 September 2009 and 30 November 2009 for sea-trials. Article II of the Contract had also provided that the Defendant had the right to revoke the Contract in case the SOSVs were not ready for sea-trials by the dates agreed. Clause 3.3 of article II reads as follows:

    'If the Builder fails to complete either of the stages contained in Clause 3.1(c) or (e) by the dates specified therein, then the Buyer may, at its option, rescind this Contract. However, it should be by the provisions of Article X hereof, always provided that, to the extent that any delays were due to the Buyer's default or any Permissible Delay, that the increment in the period shall be to the same extent.'

    Clause 2.1 of article X of the Contract states that Adyard had the liability to refund all the amounts it had received from SD if they had not commenced the proceedings. However, the SOSVs were not ready for the decided dates, and SD subsequently exercised its right to rescind the Contract vide letters dated 7 October 2009 and 14 December 2009.[ii]

    Contentions

    Claimant's Contentions

    Adyard commenced proceedings by article X on 15 October 2009 and 14 December 2009[iii] claiming that the delay had occurred due to SD. They also contended in the circumstances that they were entitled to an extension and therefore, were not liable to refund the installments paid by SD. The primary contention of the Claimant was that SD and the Maritime Coastguard Agency had instructed them to make numerous changes in the designs of the vessels in June and July 2009. Adyard stated that the delay was not caused due to them as the variations arose from the changes in the safety standards of the Maritime Coastguard Agency.

    They also submitted that the 'preventive principle' would apply in their matter since their scope of work was amended to include the variations after the contract had commenced. It has also established in the Trollope & Colls Ltd v. North West Metropolitan Regional Hospital Board[iv] case that when the employer amends or increases the scope of work for the employee by asking the latter to do an additional job. In such cases, it would become impractical for the employee to complete the scope of work in the estimated or granted time. Therefore, the employer will not be liable for any liquidated damages due to the non-completion of the project on time. Adyard stated before the court that SD had asked them to undertake extra work (variations) and refused to negotiate on any adjustments or intention of time for completing the project.

    Defendant's Contentions

    SD, on the other hand, claimed that the design items ordered by them were not variations and also stated that there were no changes in the safety standards of the Maritime Coastguard Agency. They contended that the Maritime Coastguard Agency had merely reported that vessels would have to comply with the safety requirements of the SPS Code. They claimed that even if there were any variation in the scope of work (as Adyard had requested), it would not contribute to any additional delay. SD also emphasized on the Claimant's failure to furnish notice by Article VIII, clause two which mandated the latter to provide the cause of delay'.

    The Decision of the Court

    The court identified that there were contractual and factual issues in this case since the parties had raised their contentions on both grounds. The claimant successfully contended and established that there were variations in Article V, clause 2 of the Contract. However, Adyard's case ultimately depended on the applicability of the precautionary principle in this specific case. The learned court referred to the explanation of the preventive law in the judgment of Multiplex v Honeywell[v], in which Jackson J stated that one party could not insist the other side perform an obligation that the latter could not complete due to specific hindrances put forward by the former. In the construction sector, employers cannot hold the contractor liable if they could not meet the completion date due to variations (act or omission) of the employer. Instead, the contractor should be provided with reasonable time to complete the project considering the degree of difference. Extension of time clauses in construction contracts aims to protect and safeguard the rights and liabilities of both the parties. There are three (3) general propositions formulated by Jackson J that is still followed in the construction sector, being:

  • Legitimate actions by the employer could be termed as preventive if it causes the delay beyond the date specified in the contract;
  • Preventive measures by the employer that does not set time at large (provided the agreement provides for EOT or extension of time clause for those specific issues);
  • When the parties have concluded that there is ambiguity regarding the expansion of time clause – such uncertainty should favor the contractor.
  • The court found that the Adyard failed to enforce the precautionary principle since they did not have any substantial claim for an extension of time. The court also observed that Article II, clause 3.3 and article VIII had laid down the circumstances when the contractor could claim for an extension of time to complete the project. However, Adyard failed to furnish notice by Article VIII, clause 2 to enforce these provisions. On the other hand, even if there were no requirements regarding the announcement, the actual reason for the delay should be analyzed to understand the extension of time. Once, they identify and analyze the right or cause of suspension; they must add the period of suspension to the initial contractual date. However, the Claimant continued to argue that the Defendant had not agreed to make any adjustments towards the completion date (date of sea-trials). Therefore, the court held that the Defendant had the right to rescind the Contract since Adyard failed to complete the work before the day of the sea-trials. The court also observed that this delay was not caused due to the Defendant and ruled the case in favor of SD.


    [i] Case Number 2009 Folio Number 1361 & 1622; [2011] EWHC 848 (Comm)

    [ii] 7 October, 2009 letter regarding the Hull 10 SOSV vessel; and 1 December, 2009 letter regarding the Hull 11 SOSV vessel.

    [iii] 15 October, 2009 proceedings regarding the Hull 10 SOSV vessel; and 14 December, 2009 proceedings regarding the Hull 11 SOSV vessel.

    [iv] [1973] 1 WLR 601, HL

    [v] [2007] Bus LR Digest D109

     

      ]]>
    Fri, 16 Feb 2018 12:00:00 GMT
    <![CDATA[Q&A: Pharmaceutical Laws and Regulations in UAE]]> Pharmaceutical Industry in the UAE

    1.     What are the primary laws and regulations governing pharmaceutical companies in the United Arab Emirates?

  • The primary piece of legislation governing pharmaceutical companies in the United Arab Emirates is Federal Law Number 4 of 1983 concerning the Pharmaceutical Profession and Pharmaceutical Institutions (the Pharmaceutical Law). This law applies to pharmacists, pharmaceutical establishments, and governs the import, manufacture, and distribution of pharmaceutical products. Articles 63 to 67 of the Pharmaceutical Law deals with the registration of pharmaceuticals. Article 47 of the Pharmaceutical Law states that a company must obtain a license to open a pharmaceutical company and Article 48, 55 and 56 lists the conditions that the entity should meet to get the permit. These include, among others, the requirement that the company is composed of different sections (production section, chemical section, disinfection section, and bacteriological laboratories) and that licensed pharmacists should supervise the factory. Article 49 mandates that the application for a license to open a pharmaceutical company should accompany the factory's contract of establishment/ articles of association and also the permit issued to the manager and the pharmacists, among other documents.
  • Federal Law Number 14 of 1995 regarding counter-measures against narcotic drugs and psychotropic substances regulate the import of (pharmaceutical products and) medicines into the United Arab Emirates.
  • Federal Law Number 5 of 1984 governs the licensing and registration requirements of physicians, pharmacists, and other professionals within the country's pharmaceutical industry.
  • Federal Laws Number 7 of 1975 and Number 2 of 1996 has laid down specific requirements for the establishment and licensing of public and private medical laboratories, clinic and hospitals in the country.
  • Federal Law Number 1 of 1979 on the Organization of Industry Affairs affect pharmaceutical companies located in the mainland as a local Emirati agent must be appointed, and their shares in the company's capital should not fall below a certain percentage.
  • Federal Law Number 2 of 2015 regarding Commercial Companies, provides further requirements applicable to companies on a general note, over matters such as licensing, the trade name, the Memorandum of Association (Articles 12 to 15).
  • The governmental regulators of each Emirate (such as the Dubai Health Authority or DHA and Health Authority - Abu Dhabi or HAAD) also issue regulations from time to time to regulate the pharmaceutical companies in their jurisdiction. The 'Dubai Community Pharmacy Licensure and Pharmaceutical Practices Guide' (February 2013) issued by the Health Regulation Department of the Dubai Health Authority focuses primarily on the licensing and protocol of institutions and professionals. This guide provides information on the administrative procedures required to set up a pharmaceutical company. It also offers instructions on purchasing, storing, dispensing, and prescribing medication and drugs. The Ministry of Health Code of Conduct also outlines the standards expected of professionals providing medical services.

    2.     Which governmental authorities regulate the licensing of pharmaceutical companies?

    The Ministry of Health and Prevention (MoH) is the primary body regulating the licensing of pharmaceutical companies in the United Arab Emirates. Article 65 of the Pharmaceutical Law specifies that imported pharmaceuticals should be registered with the MoH, regardless of whether or not they have been approved or registered in their country of origin. The MoH is also responsible for the regulation and implementation of health care policies in the country. Moreover, individual Emirates have also established their local health regulators to oversee the healthcare and pharmaceutical sector of their specific jurisdiction (Dubai Health Authority in Dubai, and the Health Authority - Abu Dhabi). These regulators monitor the licensing of pharmacists and pharmacies, the registration of pharmaceuticals and advertising guidelines for medications. The MoH formulates federal health policies and regulates the healthcare market in the Northern Emirates.

    3.     What is the registration process to set up a pharmaceutical company in the UAE?

    As mentioned earlier, under the Pharmaceutical Law, pharmaceutical products, and preparations must be registered with the MoH before being imported into the national market. The market authorization holder, along with its local representatives (such as licensed distributors) are mandated to submit a new drug application to the MoH before importing or manufacturing a pharmaceutical. The local agent is wholly liable for any complaints made by customers and non-compliance with the regulations set out by the Ministry.

    The Pharmaceutical Law prohibits anyone from preparing, composing, separating, manufacturing, packaging, selling or distributing any medicine without a valid license from the MoH (Article 1). This law also mandates that companies importing pharmaceutical products or medical devices must be locally established in the United Arab Emirates and have a pharmaceutical importation license. A sole natural person may also be importing these products if he is UAE national.

    4.     Are there any exceptions to the requirement that pharmaceutical products should undergo registration in the United Arab Emirates?

    The Pharmaceutical Law states that all pharmaceutical products imported into the United Arab Emirates must undergo registration with the Ministry of Health, with NO exceptions. However, the general practice has confirmed that the Ministry of Health has authorized the import of unregistered products in exceptional circumstances such as:

  • Emergency situation medicines
  • Drugs and medications required by government or semi-government health institutions
  • Registered and unregistered medication that is not available in the local market
  • Narcotic and psychotropic drugs (as per Federal Law Number 14 of 1995)
  • However, pharmaceuticals that are unregistered in the country of origin cannot be imported to the UAE even under the circumstances mentioned above.

    5.     How can a foreign manufacturers trade, distribute and advertise pharmaceutical products in the United Arab Emirates?

    Foreign manufacturers have two options to trade and distribution of pharmaceutical products in the United Arab Emirates. They can either establish a local presence (a company in the UAE) or appoint a local agent. Given that the MoH requires all pharmaceutical products be registered, a foreign manufacturer with no local presence will have to select a domestic partner to obtain the necessary approvals for trade, distribution, and advertisement of the product. This requirement allows foreign manufacturers to access the network and resources of the local agent, who may have nurtured their business relationships in the country over an extended period. The United Arab Emirates imposes restrictions on such foreign ownership and sponsoring arrangements.

    6.     Are local agents of pharmaceutical companies regulated? If so, how?

    The appointment of a local licensed agent by pharmaceutical companies is governed by Federal Law Number 18 of 1981 concerning organizing of trade agencies. Under this statute, the local agent will distribute the pharmaceutical companies' products in the United Arab Emirates vide an agency agreement registered with the Ministry of Economy. However, the local agent must comply with the following conditions:

  • the local agent should be a UAE national, or an entity fully owned by UAE nationals (i.e., hundred percent stake owned by UAE nationals);
  • the agent's appointment will be granted exclusively for one Emirate or several Emirates, and
  • the agreement must get notarized in Arabic, and the foreign manufacturer must provide a letter confirming they have no objection to the registration;
  • The local agent will have the right to trade, distribute and advertise the pharmaceutical products, exclusively and within the confines of the territory agreed on in the distribution agreement after meeting the above criterion. The agent's exclusivity to manage the registered products means that they can block third parties from dealing with them. Agents are also entitled to a commission on the sale of the registered products and will have the right to claim compensation upon the termination of the agreement.

    7.     Which license should a company obtain to open a medical store in the UAE?

    A person (legal or natural) that intends to set up a medical store or warehouse for medical products should obtain a medical store license to conduct their activities in the country. This requirement is not limited to companies that deal with pharmaceutical products but also applies to businesses that store medical equipment. To obtain this particular license, the company must employ at least two licensed pharmacists to regulate the medical store, and these pharmacists must be in charge of the regulation of medical devices and pharmaceutical products.

    8.     What are the responsibilities of a licensed pharmacist in the United Arab Emirates?

    A license issued to a pharmaceutical will bear the name of the 'licensed pharmacist,' and he or she would be responsible for the following:

  • Importing pharmaceutical products;
  • Storing pharmaceutical products;
  • Enter into contracts regarding pharmaceutical products and medical devices; and
  • Complying with the regulations of the MoH and local regulator and the provisions of the Pharmaceutical Law.
  • 9.     Are there any sanctions for submitting false documents to obtain a license to undertake the pharmaceutical profession?

    Articles 83 and 84 of Federal Law Number 4 of 1983 states that the offenders may face imprisonment of up to (1) one year along with a fine for anyone who submits false documents or information to obtain a license, and on anyone practicing as a pharmacist illegally. Article 86 of the law states that people who adulterate or imitate substances may face imprisonment of up to three (3) years and fines of up to AED 10,000.

    10.  Are there any restrictions on the ownership of pharmacies in the United Arab Emirates?

    In the United Arab Emirates, one can obtain a license for more than one medical facility. As for pharmacies, their ownership must vest either with the UAE Nationals or a UAE National must own at least 51% of the company's shares. Federal Law Number 2 of 2015 states that GCC nationals may hold one hundred percent shares in the pharmacies. One cannot obtain a license to open more than two stores except for pharmacies located in hospitals.

    11.  What happens when the licensed pharmacist gets terminated from the pharmaceutical company?

    When a licensed pharmacist resigns or gets terminated from their employment, the pharmaceutical company should submit a request through the Ministry of Health's online portal for the cancellation of the current pharmacist's license. Upon the revocation of the license, the company should then apply for a new license with another licensed pharmacist-in-charge. After this step, an application should be filed with the Department of Economic Development for the amendment of the trade license to replace the name of the licensed pharmacist with the new one.

    The Ministry of Health may take approximately 3-4 weeks to cancel a license and issue a new permit, and the Department of Economic Development would take nearly 2-3 weeks to replace the same.

    12.  Can a company's pharmacovigilance and regulatory affairs be handled and managed by the same person or is there a requirement for separate people to do the job?

    Pharmacovigilance is known popularly as drug safety and is the pharmacological science to collect, detect, assess, monitor and prevent adverse effects of the pharmaceutical products. The pharmaceutical companies assign the same licensed pharmacists to handle pharmacovigilance also; although, the MoH has not mandated that the same person should undertake both the assignments. A company is also entitled to appoint separate officials for each of these functions.

    13.  Can a company outsource the importation of medical goods or storage in the United Arab Emirates?

    Outsourcing the function of importation or warehousing to a third party is not authorized by the MoH. All medical equipment imported by a pharmaceutical company should get registered under the name of the same entity before the MoH. These medical devices and pharmaceutical products have to be stored in warehouses and medical stores which should also be under the license of that company.

     

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    Thu, 15 Feb 2018 12:00:00 GMT
    <![CDATA[Franchising in UAE]]>    Liability of Franchisors

    You cannot bring the Canadian winters to the UAE, but you can enjoy the warm coffee of Tim Hortons in the UAE. UAE has the answer to most of your cravings from back home, whether you are missing the butter chicken or chicken and waffle. This multi-diverse country is a global hub of franchising. The franchising business in the United Arab Emirates (the UAE) has been developing consistently over the last couple of years. Abundant international companies have expanded their organizations in the Emirates over the recent years. Their diverse multi-social populace and their excellent business condition have transformed the UAE into a social and visitor focus positive for diversifying. The many open doors the Emirates give enable organizations for any industry to flourish. The UAE is the focal point of this dynamic franchising as it is a business gateway to the MENA region. The Emirates holds the second place in the UK about the global retail brands with Dubai as the most common choice to invest. From organic cafes and supermarkets, fancy eateries, to thrift shops and top of the line garments brands, most of the world-known names are available on the UAE marketplace.

    While the notion of franchising seems simple, several issues should be taken into consideration when dealing with this business segment. It is essential to understand the rights and obligations of the franchisor and the franchise and what are the issues and rules that one should consider before moving forward. As for the concept of franchising in the UAE, there is no specific law for the business and franchising is the subject of commercial and agency regulations, which does not differentiate, between franchise agency or distribution agreements or another form of sales agency relationship. There is no specific legislation for regulating the franchising business in the UAE, but there are numerous laws in the UAE, which governs the franchising businesses as follows:

  • Federal Law Number 18 of 1981 regarding Organization of Commercial Agencies (as amended by Law Number 14 of 1998) and as amended by Law Number 13 of 2006 (the Agency Law);
  • Federal Law Number 5 of 1985 Civil Transactions (the Civil Code);
  • Federal Law No 18 of 1993 on Commercial Transactions (the Commercial Transaction Law).
  • The Dispute Resolution

    The law in the UAE mandates that only UAE nationals or corporations wholly owned by UAE nationals or those with a UAE partner or sponsors are allowed to conduct business. However, there is an exception to the companies who have their presence in the free zones. The companies in the free zones are free to opt a foreign law to govern their agreement. On the other hand, UAE federal laws apply to commercial arrangements such as the Civil Code and the Commercial Transactions Law govern unregistered contracts or companies having their presence in UAE mainland.

    The UAE legal system differentiates between the two forms of agreements, registered agreements and unrecorded in the ministry of economics. In general terms, these laws recognize the right of parties in an unregistered deal to contract with each other on conditions as they may concur and are free to choose a foreign law to govern their agreement. And there are also some events where the local courts will not consider the parties choice of law and administer the contract under UAE law.

    Registered Agreements

    If a franchisee registers its agreement under the Agency Law, the franchise holds an extreme position regarding negotiating the termination of a contract making it very difficult for the franchisor to terminate a registered agreement. The franchisee will also be able to block imports of products covered by the franchise, which companies ship to other consignees. Thus, in practice, it is best for franchisors to take steps to ensure that no registration under the Agency Law occurs as the law favors the franchise more than the franchisor. The UAE Ministry of Economy recommends the company for applying Agency Law in UAE to register themselves and to meet the following requirements:

  • Agent must be a UAE national or a company wholly owned by UAE nationals;
  • The relationship must be exclusive; and
  • The relationship between the agent and principal should register with UAE Ministry of Economy.
  • Accountability of the Third Parties

    As in the event where the franchising agreement creates an agency, the franchisor (the principal) could be liable for acts performed by the franchise (the agent) in the ordinary course of business. It is a situation where someone is held responsible for the actions or omissions of another person.

    The rules regarding the vicarious liability of franchisors can be complicated and vary from state to state.

    In the USA

    Vicarious liability, reputedly the most common tort theory of recovery against franchisors arises from the principal-agent relationship or an employer-employee relationship between the parties to the contract. Vicarious Liability occurs because of the proven actual agency or proven apparent body and also because of direct liability, where the franchisors can Be Responsible for Its Negligence and acts or omissions.

    In the US it is the degree of control of the franchisor over the franchise in running the business that determines the liabilities that the franchisor is liable. The extent of the parent company's control and supervision over the employee and the involvement in running the business determines the actual authority of the franchisor.

    If the agent enters into a contract with a third party under his actual authority, the agreement came into will create contractual rights and liabilities between the principal and the third party.

    And the doctrine of apparent authority rests on the premise that one who causes a third person to believe someone is his agent should bear the loss associated with that third party's reasonable reliance on the presumed agent's supposed authority. For example, in Crinkley v. Holiday Inns, The Fourth Circuit Court of Appeals upheld a jury verdict against Holiday Inns. A gang of "Motel Bandits" who burst into the plaintiff's room at Holiday Inn had robbed the plaintiffs.

    The court noted that the defendant franchisor "engages in national advertising... without distinguishing between company-owned and franchised properties."  And The plaintiff's testified that they chose Holiday Inn because they thought it would be a "good place to stay" based on her previous visits to the chain

     As seen above, the franchisor's "holding out" of the franchise as being part of one business entity (using the trademark, advertising, or architecture), and the consumer's reasonable reliance on the franchisor's representations. The evident expert can likewise happen where a vital ends the specialist of an operator, however, does not advise outsiders of this end.

    Percentage of US ownership depends on the business activity and the purpose of the office the US company wishes to establish. US companies are allowed to open representative, branch or regional offices with 100% ownership, however, are limited to direct specific business exercises. If a US organization wishes to establish a business in the UAE, at that point, the law requires a joint venture with a UAE national owning at least 51% of the market.

    In the UAE

    The contract of the agency is considered a commercial deal and the agent acts according to his professional activity. Under this law, the agent carries out legal action on behalf of his client and at his request for a commission charged by the client. And any third party who contracts with the commission agent may not refer to the principal who remains a foreigner from the contract. And the agreement does not establish between the principal and any person who has contracted with the commission agent any legal relationship authorizing one of them to refer to the other under the pretext of gluttonous.[i]

    UAE Civil Code

    Article 282

    Any harm dome to another shall render the actor, even though not a person of discretion, liable to make good the harm.

    Article 313

    1.      No person shall be liable for the act of another person, but the judge may upon the application, of an injured party, and in the event. In his opinion there is justification for taking that course, render any of the following persons liable as the case may be to satisfy any amount awarded against a person who has caused the harm:

    a)      Any individual who by law or by assertion is obliged to administer a man who requires supervision by his being a newborn child or as a result of his psychological or physical condition. Unless it demonstrates that he did 'his obligation of control or that the harm would necessarily have happened regardless of whether that assignment had been, completed with the best possible care; or

    b)      any individual who has real control, by a method for supervision and heading, over a man who has caused the harm, despite that he might not have had a free decision if the demonstration causing hurt was conferred by a man subordinate to him in or because of the execution of his obligation.

    The UAE is an important market with the presence of a large number of businesses through franchising. There is no law or legislation regarding franchising in Dubai and/or the UAE and franchising related operations are subject to civil and commercial requirements with principles of Shariah Law on business transactions. Based on the above, it becomes clear that unlike the USA, the UAE holds the view that a person shouldn't be liable for another person's act if he is not directly responsible for supervising his law and had no control over the code. Also, that the agent acts out of his capacity for running the business and the principle, i.e., the franchisor cannot be liable for the acts of the agent, i.e., the franchise.


    [i] (Ruling of the Court of Cassation - Dubai on 17-09-2007 in Appeal Number 2007/173 Commercial Appeal)

     

     

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    Wed, 31 Jan 2018 11:28:00 GMT
    <![CDATA[Arbitration Award Vs Public Order]]> Arbitration Award Vs Public Order

    "Public order is a fragile thing, and if you don't fix the first broken window soon all windows will be broken"

            James O Wilson

    Many of us flinch at the thought of court proceedings, given its costly and lengthy nature. But luckily for us, alternative methods of settling disputes exist such as arbitration. Arbitration in the modern world has become the most favorable option for many investors and is today welcomed by developed countries that are eager to attract international investments in their region. It is not difficult to see why arbitration is the most appropriate resolution when it comes to handling disputes between parties and their delicate issues. When you as a litigant, choose arbitration, you can rest assured that your case will be handled diligently by an expert who understands the technicality of the subject. This is in contrast to giving the case to a judge and crossing fingers that he will hand it to the right expert! Not to mention that arbitration proceedings are faster than court procedures and that one can rely on arbitration especially when the deal is between parties from different territories and jurisdictions and they do not trust litigation in any of each country.

    Domestic Matters

    Each side can appoint the arbitrator(s) or the selected arbitration center. When the appointed arbitrator(s) receives the claims and responses of the parties, he issues an award, which according to UAE law is binding and final. It is true that the UAE Federal Law Number (11) of 1992 concerning Civil Procedures (the Civil Procedures Code) has given the power to arbitration awards to be final, binding and ready for execution in courts. This means that no party after receiving the Arbitration award can seek an appeal as it cannot be modified, which leaves the defeated party with one card left which is the annulment of the award. In contrast, the civil procedures code has given an exception in certain cases mentioned in article 216 where the court can annul an arbitration award. One of the reasons why the courts decided to annul arbitration awards was based on the violation of public order. This was clearly mentioned in the civil procedures code which states that "the litigant parties may request the nullity of the arbitrators' decision when the court examines its authentication, and that shall be in the following circumstances: If a nullity in the decision or a nullity in the procedures which has affected the decision has occurred". As per this article and according to the courts, violation of public policy leads to the nullity of the judgment.

    What's Said is Said

    Unlike the UAE, the French took a further step, they did not want to give arbitrators' awards power over court judgments and allowed arbitration awards to be appealed, although only for internal arbitration awards. As for international arbitration awards, they are final and binding according to the French law. 

    Moreover, as per Article 203 of the UAE Civil Procedure Code which states that "Arbitration is not permitted for matters which cannot be settled" and a matter which cannot be settled becomes a matter of public policy. This means that if an Arbitration award was found to be in violation of public order, then it will be annulled. One might think that a violation of federal policy is a rare and non-applicable case; however, this subject matter has appeared in courts many times, especially in real-estate and constructions cases, and has raised eyebrows as it seems that it can apply to anybody!

    It is essential to understand what public policy is according to the UAE laws. As defined, Public Policy is a group of fundamental interests which society stands for be it political, economic or social and it is found to protect the interests of the public and must be respected and followed by all members of the society even when it is unfavorable to some. The term public policy is broad and could differ from one community to another and what is considered a violation of public policy in the UAE could be deemed acceptable outside UAE. One should also bear in mind that any agreement or award which is in violation of public policy shall be deemed null and void by the higher courts of the UAE. Federal Law Number (5) of 1985 concerning Civil Transactions defined the term public policy in Article (3) by stating that "Shall be considered of public policy, provisions relating to personal status, such as marriage, inheritance, lineage, provisions relating to systems of governance, freedom of trade, circulation of wealth, private ownership and other rules and foundations on which the society is based, provided that these provisions are not inconsistent with the imperative provisions and fundamental principles of the Islamic Sharia" . Given this, one might wonder how an arbitration award could violate public policy?

    In a compelling real estate case raised before the Dubai Court of Cassation under the number 190/2011, the Court decided to annul an arbitration award. The award was rescinded since the contract signed between the purchaser and the developer for the sale of an off-plan unit was not registered in the Interim Real Estate Register "the Register" thus making it a contract in violation of public policy.  The purchaser sought relief to the arbitrator to annul two purchase contracts entered into with the developer because the purchase contracts were not registered in the Register as required by Article 3 of Federal Law Number 13 of 2008 on the Interim Real Estate Register in Dubai which states as follows:

    'The Interim Real Estate Register is used to record all disposals of Real Estate Units off plan. Any sale or other disposition that transfers or restricts title or any ancillary rights shall be void if not recorded on that Register'.

    In its judgment, the court stated that since the arbitrator who handled this case knew during the proceedings that the contracts were not registered, the Arbitrator was aware of the violation of public order and did not have jurisdiction over the case. Accordingly, this made his arbitration award null and void. The Dubai Court of Cassation also took a similar position in case number 14 of 2012. It follows that investors and developers must be aware that off-plan units which are not registered in the real estate registry will eliminate the jurisdiction of arbitration due to the lack of registration of the unit and will become a matter of public policy which will be within the sole jurisdiction of the courts. Any agreement relieving the courts from their jurisdiction in such cases will also be annulled.

    This shows how strong public policy is against an arbitrator's final awards. It is clear that the UAE laws have set the position that nothing will supersede the UAE public policy and that no arbitration award violating public policy shall be executed whether such award was issued inside or outside the UAE. Also, a judge can look into the matter of public policy and annul the arbitration award without restrictions to litigant's request. Such annulment cannot be rectified, canceled, and a litigant can claim annulment under public policy even at the cassation stage.

    What Should the Arbitrator Do in Event of Violation of Public Policy?

    Generally, in such matters, the arbitrator states that he does not have jurisdiction over the matter. Nevertheless, some experts believe that the arbitrator should dismiss the case and others think that the arbitrator should issue his award for the annulment of the contract. Regardless of arbitrators' opinions, investors should be careful when filing their case due to non-registration of their units by developers. One must first check with a real-estate lawyer to understand the correct process of filing a real estate case to assure no time and effort are wasted. The bottom line is that in the event where the developer sells you a non-registered unit you go to the court to annul the arbitration jurisdiction in your contract and to demand the termination of the signed agreement. Usually, developers in such cases will not say anything during the process of arbitration until you receive the arbitration award in your favor and go to the Court. Once the Court executes the award, the developer will have the right to request the annulment based on the violation of public policy. Therefore, it is recommended to go to Court directly in such cases.

    Eventually, there has to be a balance between protecting the public order, which preserves the values of the community, and arbitration which supports investors from around the globe to invest in the country, and which is a gate to international investments and economic development in the region. The UAE has indeed taken a significant step in terms of creating platforms for arbitration through global arbitration centers. However, we need to set clear standards on what is to be deemed as part of the public order rather than just giving examples in the law and leaving it up to the Court to decide, and most importantly the public must be educated on what is considered a public policy and a violation.

    ]]>
    Sat, 16 Dec 2017 11:29:00 GMT
    <![CDATA[Aviation Law - Country Guide: UAE - Q & A]]> Part 1 - General                                                                                                                                                                                            

    1.1  Please list and briefly describe the principal legislation and regulatory bodies which apply to and/ or regulate aviation in your jurisdiction.

    The UAE's principal legislation governing aviation law is as follows:

    • Federal Law Number 20 of 1991 regarding the civil aviation (the Civil Aviation Law);
    • Federal Law Number 4 of 1996 concerning the Aviation Authority (the Aviation Authority Law); 
    • Federal Law Number 20 of 2001 concerning the amendments in the Aviation Authority Law; and
    • Federal Law Number 8 of 1983 issuing Commercial Transaction Law, providing rules for Air Carriage.  
    • Federal Act Number 22 of 1972 concerning the participation by the UAE in the project for the establishment of an Arab Testing Unit for Air Navigation Equipment.
    Regulations include:
    • Civil Aviation Regulation – Licensing Regulation of July 2011;
    • Civil Aviation Regulation – General Regulation of March 2013;
    • Civil Aviation Regulation – Operations Regulation of July 2011;
    • Civil Aviation Regulation – Airworthiness Regulations of July 2011;
    • Civil Aviation Regulation – Aviation Safety Regulations of February 2011;
    • Civil Aviation Regulations – Aviation Security Regulations of May 2016;
    • Civil Aviation Regulation – Air Navigation Regulations of September 2011;
    • Civil Aviation Regulation – Aerodromes Emergency Services of February 2017;
    • Civil Aviation Regulation – Safety Management System of June 2016;
    • Civil Aviation Regulation – Concerning Unmanned Aircraft System (CAR UAS) in February 2017;
    • Civil Aviation Regulation – Transport of Dangerous Goods by Air of May 2015;
    • Civil Aviation Regulation – Foreign Operators Regulation of October 2016; and
    • Civil Aviation Regulation – Light Sports Aircraft of March 2013.
    The Civil Aviation Law applies to all aircraft registered in the UAE, air traffic control, communications and civil airports, whereas the Aviation Authority Law has established the General Civil Aviation Authority (the GCAA). The GCAA is the regulatory authority which is designated to ensure proper compliance with the Civil Aviation Law in the UAE, whilst emphasizing the concept of security and safety. Having exclusive authority over the aviation industry in the UAE, the GCAA is responsible for en-route air navigation services and all aspects of air safety.   Subsequently, each Emirate has its own aviation authority which regulates all matters related to aviation in its respective Emirate, such as the Dubai Aviation Authority established under Law Number 21 of 2007, Department of Abu Dhabi Civil Aviation, Department of Civil Aviation of Ras Al Khaimah, Sharjah Department of Civil Aviation, Department of Civil Aviation Fujairah. 1.2  What are the steps which air carriers need to take in order to obtain an operating license? There are several steps involved in obtaining an operating license for air carriers which are as follows:   Pre-application Stage: Prior to submitting an online application, the applicant is required to meet with the GCAA and should discuss his initial plan during his pre-application meetings. During this stage, the applicant submits a pre-application statement of intent and the documents required by the GCAA. On the basis of information provided by the applicant, the GCAA will provide the formal application to be submitted by the applicant.   Formal Application Stage: This stage commences when the applicant submits a formal application for an Air Operator Certificate (the AOC) along with several documents and manuals describing its operations as directed by the GCAA. The application should begin at least 90 days prior to the actual revenue operations.   Document Evaluation Stage: This stage involves a detailed evaluation of documents and manuals for their content and compliance. During this stage, the GCAA will ascertain the technical fitness of the operations proposed by the operator. The documents and manuals submitted for consideration should not be at least 60 days prior to the commencement of proposed operations in order to avoid undue delay.   Inspection Stage: During this stage, the GCAA will inspect whether or not the physical facilities and equipment proposed by the applicant are suitable for the type and size of the operations. The applicant must demonstrate his ability to comply with all requirements and operating practices prior to the beginning of actual revenue operations.   Certification Stage: The stage begins when the GCAA is satisfied from the applications and proposed operations of the applicant and takes a necessary step to issue AOC. However, if the GCAA is unsatisfied during the Inspection Stage, the Certification Stage will not take place until the safety and security requirements are complied with. 1.3   What are the principal pieces of legislation in your jurisdiction which govern air safety, and who administers air safety?

    The principal piece of legislation which governs air safety is the Civil Aviation Law; however, there is Aviation Safety Regulations (the Safety Regulation) of February 2011 which governs the air safety. The Safety Regulation consists of three chapters which include passenger cabin safety, transport of dangerous goods by air, aviation accident and incident investigation.

    The Aviation security affairs sector administer and provide safety to the aviation industry, and the sector consists of several departments as follows:
    • Air Navigation and Aerodrome (the ANA);
    • Airworthiness (the AW);
    • Flight Operations (the FOP);
    • Licensing (the LIC); and
    • Policy, Regulations, and Planning (the PRP).
    1.4   Is air safety regulated separately for commercial, cargo, and private carriers? Are air charters regulated separately for commercial, cargo and private carriers? Commercial aircrafts, as well as private aircrafts, e regulated pursuant to the Civil Aviation Regulations on Air Safety of February 2011, and the Civil Aviation Regulations on Transport of Dangerous Goods by Air of May 2015 regulates cargos.   Air charters for commercial, cargo, and private carriers are regulated under the Air Safety Regulation of February 2011.

    1.5 Are airports state-owned or privately owned?

    All the major airports in each Emirate are owned by the government of the respective Emirate or the Department of Civil Aviation in that Emirate. However, there are several privately-owned airports in Abu Dhabi, such as: Al Futaysi Airport, owned by Hamad bin Hamdan Al Nahyan; Al Jazeirah Airport, owned by Al Jazeirah Aviation Club; Arzanan Airport, owned by the Zakum Development Company; and Buhasa Airport, owned by the Abu Dhabi Company for Onshore Oil Operations. 1.6   Do the airports impose requirements on carriers flying to and from the airports in your jurisdiction? UAE airports impose several charges on outbound and inbound airlines, as follows:
    • Passenger Service Charges (the PSC), which is to be paid by the outbound airline. Infants, aircraft operating crew and transit/ transfer passengers continuing travel within 24 hours are exempted from PSC.
    • Passenger Security and Safety Fee (the PSSF), payable on outbound airlines. Infants, aircraft operating crew and transit/transfer passengers continuing travel within 24 hours are exempted from PSSF.
    • Advance Passenger Information Fee (the API) for arriving passengers on inbound airlines. Infants, aircraft operating crew and transit passengers continuing travel within 12 hours are exempted from API.
    • Passenger Facility Charge (the PFC), which has recently been implemented and is payable by outbound airlines for departing passengers. Infants, operating crew and transit passengers with two flights on the same journey are exempted; however, transfer passengers are obliged to pay this charge.

    1.7    What legislative and/or regulatory regime applies to air accidents? For example, are there any particular rules, regulations, systems and procedures in place which need to be adhered to?

    Civil Aviation Regulation Part VI-Chapter 3 (the Air Accident Regulation) applies to air accident and incident  investigation(s).  The Air Accident Regulation governs commercial, private, leased and chartered aircraft. It further includes, but is not limited to, the procedure for investigation, objectives of the investigation,  powers of investigators, responsibilities of the GCAA, the roles of the investigating committee, investigations conducted by foreign states, besides other key provisions.   Procedure:
  • Any person having knowledge of an aircraft accident or incident should immediately notify the GCAA, and such notification should include all the details including, but not limited to: the manufacturer, model, nationality, registration mark and serial number of the aircraft; complete details of the owner; the date and time of the accident; complete details of the flight commander and cabin crew; the last point of departure; and the landing destination;
  • Upon the receipt of the information, the GCAA will request that the state of the operator, the state of the manufacturer and the state of design provide the complete details regarding the aircraft.
  • Thereafter, the GCAA will establish an Accident Investigation Committee to investigate the cause of such accident.  

    1.8   Have there been any recent cases of note or other notable developments in your jurisdiction involving air operators and/or airports?

    The Dubai Government is planning to increase the number of flights, and it is anticipated that it will handle 100 million passengers on a daily basis.

    Part 2 Aircraft Trading, Financing, and Leasing                                                                                                                                      

    2.1    Does registration of ownership in the aircraft register constitute proof of ownership?

    The GCAA, after having approved the application, will register the aircraft, including complete details of the aircraft in the Certificate of Registration (COR), and will hand over the COR to the owner of the aircraft or his representative, which will constitute proof of ownership.

    2.2    Is there a register of aircraft mortgages and charges? Broadly speaking, what are the rules around the operation of this register?   There is no mortgage register in the UAE; however, the creditors financing the foreign aircraft must have the existence of any foreign- registered mortgage noted by the GCAA in its files.   The GCAA also has the authority to acknowledge irrevocable de-registration and export request authorization, registered under the Cape Town Convention in an international registry.   All the aircraft mortgages in the UAE are required to be registered in the Aircraft Register, along with the prior approval of the GCAA. Post the mortgage, the GCAA will issue a new Certificate of Registration, upon submission of following documents:
    • A certified copy of the certificate of a true commercial name of the entity, issued by the Commercial Registry of the state in which it was registered;
    • a certified copy of the Board Resolution;
    • a notarized confirmation letter signed by the entity's legal representative; and
    • the changed registration plate.

    2.3    Are there any particular regulatory requirements which a lessor or a financier needs to be aware of as regards aircraft operation?

    In accordance with Article 28 and 29 of the Civil Aviation Law, the GCAA has the authority to register the aircraft in the name of lessor, if he is a qualified person. The aircraft will remain registered for the duration of the lease agreement period, subject to provisions of the Civil Aviation Law.

    2.4    As a matter of local law, is there any concept of title annexation, whereby ownership or security interests in a single engine are at risk of automatic transfer or other prejudice when installed 'on-wing' on an aircraft owned by another party? If so, what are the conditions to such title annexation and can owners and financiers of engines take pre-emptive steps to mitigate the risks?

    The Civil Aviation Law is silent on the concept of title annexation wherein the ownership or security interests in a single engine are  at risk due to automatic transfer upon installation 'on-wing' on an aircraft.

    2.5    What (if any) are the tax implications in your jurisdiction for aircraft trading as regards a) value- added tax (VAT) and/or goods and services tax (GST), and b) documentary taxes such as stamp duty; and (to the extent applicable) do exemptions exist as regards non-domestic purchasers and sellers of aircraft and/or particular aircraft types or operations?

    Federal Decree Number 8 of 2017 concerning Value Added Tax (the VAT Law) is applicable to companies incorporated in the UAE. Therefore, companies are obliged to pay five (5) percent VAT on all goods and services; however, there are several exemptions for certain goods and services, within which a zero-tax rate will apply, such as the supply of means of transport by air used to transport passengers and goods, or the supply of aircraft specifically for assistance in rescue by air.

    2.6    Is your jurisdiction a signatory to the main international Conventions (Montreal, Geneva and Cape Town)?

    The following are the international Conventions signed by the UAE:
    • The Cape Town Convention on International Interests in Mobile Equipment signed on 2 April 2008.
    • The Convention for the Suppression of Unlawful Acts Against Safety of Civil Aviation (the Montreal Convention), signed on 23 September 1971.
    • The Chicago Convention.
    • The Convention on Offences and Certain Other Acts Committed on Board Aircraft (the Tokyo Convention), signed on 14 September 1963.
    • The Warsaw Convention for Unification of Certain Rules Relating to International Carriage by Air, signed in 1929.
    • The Convention on Suppression of Unlawful Seizure of Aircraft (the Hague Convention), signed on 16 December 1970.

    2.7    How are the Conventions applied in your jurisdiction?

    The UAE has ratified numerous international Conventions in relation to civil aviation, and have simultaneously given them legal status through the following statutes:
    • Federal Decree 95 of 1980 approving the state's Accession to the Convention for the Suppression of Unlawful Acts against the Safety of Civil Aviation, signed at Montreal on 23 September 1971.
    • Federal Decree Number 8 of 1981 approving the state's accession to the Convention for the Suppression of Unlawful Seizure of Aircraft, signed at The Hague on 16 December 1970.
    • Federal Decree Number 9 of 1981 approving the state's accession to the Convention on Offences and Certain Other Acts Committed On Board Aircraft, signed at Tokyo on 14 September 1963.
    • Federal Decree Number 13 of 1986 concerning the state's accession to the Warsaw Convention for the Unification of Certain Rules relating to International Carriage by Air (1929).
    • Federal Decree Number 85 of 1986 concerning the state's membership of the World Meteorological Organization.
    • Federal Decree Number 79 of 1988 ratifying the state's accession to the Protocol for the Suppression of Unlawful Acts of Violence at Airports Serving International Civil Aviation, supplementary to the Convention for Suppression of Unlawful Acts against the Safety of Civil Aviation.
    The GCAA ensures compliance with the aforementioned international treaties and Conventions to which the UAE is a party

    Part 3 Litigation and Dispute Resolution                                                                                                                                                

    3.1    What rights of detention are available in relation to aircraft and unpaid debts?

    There are no detention rights that exist with respect to unpaid fees or any air navigation fees. However, the GCAA can recover the amount by filing a civil action in a civil court against the owner, operator or lessee of the aircraft.

    3.2    Is there a regime of self-help available to a lessor or a financier of an aircraft if it needs to reacquire possession of the aircraft or enforce any of its rights under the lease/finance agreement?

    The UAE does not recognize the self-help regime; however, pursuant to the Civil Aviation Regulations and Civil Aviation Advisory Publication Number 58, the GCAA has framed a procedure for irrevocable De-Registration and Export Request Authorization (IDERA), under which an approval from the UAE courts is not required. An IDERA entered into by a lessor and financier allows them to initiate self-help proceedings.   However, with regard to leases of aircraft, there are, primarily, three types of leases available, as follows:
    • Wet Lease: Under a Wet Lease agreement, the company which is leasing out the aircraft is required to provide Aircraft, Crew, Maintenance, and Insurance (ACMI) to the lessee. The Wet Lease is for a short time span, and during that span, the lessor holds the AOC, whereas the lessee is obliged to pay other charges or fees such as airport fees, charges, and other duties. The lessee even has financial control over the aircraft operations.
    • Damp Lease:  In a Damp Lease, the lessor provides the aircraft, maintenance, and insurance, except the crew. Thus, it is the responsibility of the lessee to hire the crew.
    • Dry Lease: Under this arrangement, the lessor is only obliged to provide the aircraft; the rest is maintained by the lessee.
    This lease is for more than a year and can be extended up  to half the life of the aircraft. The lessee in this lease has to obtain its own AOC.   Civil Aviation Regulation Part I, including Definitions, also defines Dry Lease and Wet Lease as mentioned above.  

    3.3    Which courts are appropriate for aviation disputes? Does this depend on the value of the dispute? For example, is there a distinction in your country regarding the courts in which civil and criminal cases are brought?

    There are no specific courts assigned for resolving aviation disputes; UAE courts adjudicate aviation disputes in the country, depending upon the value of the dispute and the Emirate in which the aircraft is situated.   The UAE has signed and acceded to the Cape Town Protocol, which outlines that parties to an agreement, contract of sale, guarantee, and agreement may decide the law governing their disputes.  

    3.4   What service requirements apply to the service of court proceedings, and do these differ for domestic airlines/parties and non-domestic airlines/parties?

    Court proceedings in the UAE initiate by filing a claim in the relevant court along with the court fees. The claim is served on each defendant in the proceedings personally; however, if the court is unable to locate the defendant, investigations are carried out by several government authorities in the respective Emirate, and if this investigation is unsuccessful, the court orders that the service takes place by way of publication in the newspapers in both languages (Arabic and English). However, for parties residing outside the jurisdiction of the court or outside UAE territory, the court will permit the service of court proceedings directly to the other party residing outside the country.

    3.5   What types of remedy are available from the courts or arbitral tribunals in your jurisdiction, both on: i) an interim basis, and ii) a final basis?

    The remedies available to the claimant generally depend on the nature and size of the dispute in addition to type of forum (arbitration (domestic or international), the DIFC., the ADGM by way of example) The remedies may be awarded as follows:   Interim basis
  • the preliminary injunction, to prevent the other party from doing something until the final judgment is passed; and
  • damages.
  • Final basis
  • damages;
  • orders to hold possession of the aircraft;
  • de-registration of an aircraft;
  • sale of an aircraft; and
  • final injunctions requiring one party to do something and
  • simultaneously prevent the other party from a certain act.
  • 3.6   Are there any rights of appeal to the courts from the decision of a court or arbitral tribunal and, if so, in what circumstances do these rights arise?

    Yes, parties to the dispute have the right to file an appeal in the relevant court against the decision of a lower court or of an arbitral tribunal.   Parties can file appeals in the Court of Appeal against the final decision passed by the Court of First Instance in relation to issues of law. However, the law imposes a time limitation on such appeals, which is of thirty (30) days, within which the appellant should file an appeal in the court.   The Decision passed by Arbitral Tribunal is binding upon the parties; however, there are certain cases in which the decision passed by the arbitral tribunal can be set aside by the Court of Appeal or other relevant courts, which are as follows:
    • invalidity of the arbitration agreement;
    • failure to adhere to the rules and regulations of arbitration proceedings;
    • the award passed by the tribunal is beyond the scope of
    • submission to arbitration;
    • the arbitral tribunal was not composed within the rules and procedures agreed between the parties; and
    • the dispute between the parties is not arbitrable in nature.

    Part 4 Commercial and Regulatory                                                                                                                                                               

    4.1    How does Dubai and the UAE approach and regulate joint ventures between airline competitors?

    Joint ventures between airlines are regulated by Federal Law Number 2 of 2015 concerning Commercial Companies. There are several types of joint ventures, such as a Limited Liability Company, Public Joint Stock Company, Private Joint Stock Company and Limited Partnership Company. The LLC is considered the most suitable option, due to its flexible management system. The main consideration in choosing a joint venture on the UAE mainland is the shareholding ratio, which is restricted to 49 percent for a foreign company.

    The company also has an option to opt for a free zone for establishing a joint venture. A free zone offers several advantages, such as the availability of 100 percent ownership in the venture.

    4.2    How do the competition authorities in your jurisdiction determine the 'relevant market' for the purposes of mergers and acquisitions?

    The competition authorities do not provide any clear guidance in order to explain what constitutes a "relevant market". However, Federal Law Number 4 of 2012 on Regulation of Competition (the Competition Law) defines a relevant market as a commodity, service, or a group or products or services which may be substituted, on the basis of its price, characteristics and uses, or whose alternatives may be chosen to meet customers' needs in any specific geographical area.

    However, the definition of the relevant market may vary according to the establishment's position in the market, economic consideration captured by the company, or any restrictive agreement signed by the parties.

    4.3   Does Dubai or UAE have a notification system whereby parties to an agreement can obtain regulatory clearance/anti-trust immunity from regulatory agencies?

    Yes, parties entering into a merger or capturing a significant economic consideration in the market are obliged to notify the Ministry of Economy (MOE) of the relevant Emirate. The notification must take place thirty (30) days prior to the signing of the merger agreement

    4.4  How do Dubai or UAE approach mergers, acquisition mergers, and full-function joint ventures?

    The Competition Law regulates mergers,  acquisition mergers, and full-function joint ventures. The Competition Law includes restrictions on anti-competitive practices and simultaneously imposes merger control measures. The Competition Law provides that the acquirer of a proposed economic concentration which has the potential to affect the relevant market is required to inform the Ministry of Economy thirty (30) days prior to the commercial transaction. Also, it is obligatory for the companies to inform the MOE if the market share of the parties exceeds forty (40) percent of the total transactions undertaken in the relevant market.

    4.5  Please provide details of the procedure, including time frames for clearance and any costs of notifications 

    The Competition Law provides that, in a proposed economic concentration which will have a severe impact on competition in the relevant market or will create a dominant position of the acquirer, the procedure through which the acquirer can seek clearance from the MOE is as follows:

    The acquirer should submit an application in order to seek pre-approval from the Competition Authority of the MOE thirty (30) days prior to the contract.

    Post receiving the application, the competition authority will undergo a substantive test.

    Through the substantive test, the competition authority will ascertain the effects of the merger in the relevant market and whether or not the merger will create a dominant position in the market. However, it is still unclear whether or not parties can proceed with signing the agreement without actually obtaining approval from the authority. There is no specific cost for notifying the authority regarding a merger.

     

    4.6  Are there any sector-specific rules which govern the aviation sector in relation to financial support for air operators and airports, including (without limitation) state aid?

    The GCAA does not specifically provide rules governing financial support for air operators and airports.

    However, the Dubai Government recently planned for an initial $3 billion financial deal in order to support Dubai International Airport and Al Maktoum International Airports. Financial support will be provided by a consortium of Dubai entities, including the State- owned Investment Corporation of Dubai, the Dubai Department of Finance, and the Dubai Aviation Corporation.

     

    4.7 & 4.8  Are state subsidies available in respect of particular routes? What criteria apply to obtaining these subsidies? What are the main regulatory instruments governing the acquisition, retentio and use of passenger data, and what rights do passengers have in respect of their data which is held by airlines?

    The UAE government does not provide any subsidies to aircraft with respect to particular routes.

    Federal Law Number 5 of 2012 on Combatting Cybercrimes (the Cybercrime Law) is the primary piece of legislation which governs the acquisition, retention, and use of passenger data.

    Passengers have the right to limit the information held by airlines or to make any changes to such information. The Cybercrime Law imposes severe penalties on the accused when actions result in the disclosure of personal information to the public.

    4.9 In the event of a data loss by a carrier, what obligations are there on the airline which has lost the data and are there any applicable sanctions?

    The Cybercrime Law does not specifically lay down obligations on the airlines in the event of loss of personal data; however, there is an obligation on the data controller to ensure that the data is processed properly and to take preventive measures against the unauthorized use or disclosure of personal data.

    4.10   What are the mechanisms available for the protection of intellectual property (e.g. trademarks) and other assets and data of a proprietary nature?

    The protection of intellectual property covers protection of trademarks, patents, copyright, geographical indications and industrial designs. The laws regulating intellectual property are:

  • Federal Law Number 31 of 2006 pertaining to Industrial Regulation
  • and Protection of Patents, Industrial Designs, and Drawings; 
  • Federal Law Number 7 of 2002 concerning Copyrights and Neighbouring Rights; and 
  • Federal Law Number 37 of 1992 on Trademarks as amended by Law Number 8 of 2002.
  • The aforementioned types of intellectual property can be protected by filing an application with the MOE, which undertakes a substantive test. Thereafter, upon satisfying itself of the validity of the documents submitted, the MOE issues the registration certificate to the owner of the intellectual property.

    4.11 to 4.13   Is there any legislation governing the denial of boarding rights? What powers do the relevant authorities have in relation to the late arrival and departure of flights? Are the airport authorities governed by particular legislation? If so, what obligations, broadly speaking, are imposed on the airport authorities?

    4.11 The GCAA does not have any specific regulations governing the denial of boarding rights; however, each major carrier in the UAE, such as Emirates, Etihad and Flydubai, has its own conditions for carriage and its own rules by which it may deny passengers their boarding rights.

    On a similar note, passengers denied boarding rights involuntarily are entitled to claim compensation.

    4.12 Under the Air Transport Regulations of 2007, the Department of Transport obliges the aircraft operators to establish minimum service quality standards, which include compensation for delayed flights.

    4.13 The authorities managing airports  in the  respective  Emirates are regulated by Federal Law Number 2 of 2015 on Commercial Companies (the Companies Law). For example, the Dubai Airports Company in the Emirate of Dubai is the airport authority regulating Dubai International Airport and Al Maktoum International Airport, under the Companies Law.

    4.14 to 4.17  To what extent does general consumer protection legislation apply to the relationship between the airport operator and the passenger? What global distribution suppliers (GDSs) operate in your jurisdiction? Are there any ownership requirements pertaining to GDSs operating in your jurisdiction?Is vertical integration permitted between air operators and airports (and, if so, under what conditions)?

    4.14  Federal Law Number 24 of 2006 on Consumer Protection does not specifically govern the relationship between the air operator and the passenger.

    4.15 The Major Global Distribution Suppliers in the UAE are Rakha Al- Khaleej International LLC and Global Distribution FZE.

    4.16  GDSs operating in the UAE can be in the form of Limited Liability Company, wherein fifty-one (51) percent of the shares are held by a UAE national.

    4.17 Yes, air operators or airports can enter into joint ventures or mergers, as mentioned in question 4.1 of this UAE Aviation Law Guide 2018

     

    Part 5 In Future

    4.1    In your opinion, which pending legislative or regulatory changes (if any), or potential developments affecting the aviation industry more generally in your jurisdiction, are likely to feature or be worthy of attention in the next two years or so?

    In order to improve the safety of helicopters operating in the UAE, the GCAA issued Information Bulletin of 2017, on 8 February, which provides the guidance applicable to the Civil Aviation Advisory Publication (CAAP). The guidelines must be complied with from 1 January 2018 by the following operators:
    • CAAP 70 operators must ensure that they adhere to the physical specifications and register themselves with the GCAA, and should obtain a landing area certificate.
    • CAAP 71 operators are required to obtain a primary accountable organization approval from the GCAA.

     

     

    STA is an international law firm headquartered in the Emirate of Dubai, UAE with a multijurisdictional presence. STA offers a multifaceted and well-rounded approach to addressing the legal needs of corporate clients, banking institutions, national and multinational corporations. STA's team of lawyers in Dubai and across UAE, Middle East, Asia and Europe work alongside several groups of companies within the Oil and Gas, Maritime, Real Estate, Construction, Hospitality, Aviation and Healthcare sectors regionally and internationally.

     

    Originally Published in ICLG to Aviation Law 2018

      ]]>
    Sat, 02 Dec 2017 05:00:00 GMT
    <![CDATA[Guide to Off Plan Property Laws in Abu Dhabi]]> GUIDE TO OFF-PLAN PROPERTY LAWS IN ABU DHABI

    Previously, laws concerning off-plan property sales in Abu Dhabi was a legal blind-spot that caused ambiguity and failure in securing the interests of the investors. However, the establishment of Law Number 3 of 2015 on the Regulation of Real Estate Sector in Abu Dhabi came as a relief since it had explicitly mentioned the provisions regarding off-plan sales. The salient off-plan features of this legislation include the establishment of the interim register and escrow that had already been established in Dubai a few years ago.

    This article from our team of property lawyers in Abu Dhabi details the legal status of off-plan sales, the compliance requirements of developers and the liability of the developers in case a company delayed or postponed the construction of the property after the investors depositing all their funds.

    Off-plan property sale is a well-known method for the developers in the United Arab Emirates (UAE) to secure investors in any new real estate project. This form of transaction creates a nexus amongst various parties involved in the transaction such as financiers, developers, and investors by way of entering into different agreements. In Abu Dhabi, unlike Dubai, the government had not enacted any regulations concerning off-plan sales. Therefore, the market for investors was less confident, especially before the enactment of Law Number (3) of 2015 Concerning the Regulation of the Real Estate Sector in the Emirate of Abu Dhabi (the Law). The government soon realized the need for precise guidance in Abu Dhabi, considering the faster pace of development and launching of several new real estate projects following the year 2010. In comparison to the regulatory framework of Dubai, Abu Dhabi had no protection regarding any delay, non-completion, or defects of the property/project. There were several risk elements involved in such investments. For example, the financier would be required to accept the credit risk of the property developer and also that of the investor for financing the purchase of an off-plan property. The financier would rely on the records of the developer as there was no interim registry to record the real estate rights in the property. 

    Under Article 1, the Law defines Off-Plan Sales as "the contract whereby the buyer obtains a grant of property rights to real estate unit(s) suggested according to the compound plan and the floor plan."  In Abu Dhabi, the Department of Municipality Affairs (the DMA) is responsible for maintaining the real estate records that have similar functions as those of Real Estate Regulatory Authority (the RERA) in Dubai. The new Law mandates the provisions discussed below regarding the registration of real estate property.

    Significant Features of the new Law: 

  • Concerning Article 15 of the new Law, the developers are not allowed to sell any unit unless they fulfill the conditions as stated. The most significant feature is that the developers-apart from getting a license from Department of Economic Development-are required to obtain an NOC from the DMA that they are eligible to undertake the development of such real estate project, which ensures the qualification of the developer and its professional capacity. This requirement as to NOC is a significant aspect of curbing: (i) any mismanagement of the real estate project where the interest of the public is involved at large; and (ii) the developer breaches its obligations and misuses its position and entitlements. Earlier, the terms of the agreement signed between parties were binding on them. However, absence of regulations has departed several investors from their legitimate rights
  • Further, the initial floor plan and initial compound plan (the Development Plan) shall be submitted by the developer before the real estate registers with the DMA. This requirement, in particular, confirms and prevents any objection raised by DMA at a later stage while implementing the plan. The developer shall also obtain the approval of the DMA on the disclosure statement and shall show all the data related to the real estate unit and the development project.
  • Also, the developer would hold the interest in the land on which the project will develop or the contractual right(s) that would permit them to build the land-parcel and grant property rights to the property units constructed on the said land. One of the most notable features of the new Law the is the maintenance of an escrow account that the developer should open. The developer would deposit the investor's money in the account for construction expenses. All proceeds from off-plan sales should be placed and stored in the escrow account and shall only be taken out in stages to fund the development of the project. The developer, however, effectively has to self-fund or obtain finance for the first twenty percent (20%) of construction works, given the restrictions. Under article 18 of the new Law has laid down a separate provision for escrow accounts and the developers' obligations for managing the funds for the construction. Developers who plan to sell off-plan property units of the project should open an escrow account after submitting an application and necessary documents to the DMA. The developer should also appoint an account trustee and all the funds paid by the investors of the off-plan property units should be deposited into this escrow account as per the new Law and its Executive Regulation.
  • The developer and the account trustee should form an 'Escrow Account Agreement' in line with the standard form of the DMC to open the account for the particular real estate project. The developers should open a separate escrow account for each project and the amounts deposited in this escrow should be solely used for construction and settlement of financing payments under the provisions of the escrow account agreement and the new Law.
  • Mortgage: Article 23 of the new Law has stated that the developer can mortgage the land of the development project only for raising funds for construction after meeting the following conditions:
  • The buyer of the real estate unit should get notified as to the land on which the project will be developed or the property right, and such terms should reflect in the sale and purchase contract.

    • The developer should undertake, and the funder of the developer should subsequently approve that any mortgage over the real estate unit, for which the investor has fully paid the price by depositing it in the escrow account, will be removed.
    • The bank or the financial institution will be responsible for depositing the whole amount of the funds in the respective escrow account and shall not to pay it directly to the developer.

    The developer is liable to ensure and take necessary steps to comply with the provisions of the new Law. On the other hand, the property buyer will be bound to pay the value of the (off-plan) real estate unit by the actual completion percentage of the construction works, unless otherwise agreed.

    The DMA shall issue the resolutions required for the organization of the matters related to the methods and mechanisms of off-plan sales as well as the documents that should be exchanged between the concerned parties in this regard.

    What would not constitute a breach by the developer?

    Article 17(2) has stated that the following acts of the developer will not be considered as a breach of the Law:

  • if the land on which the real estate development project is expropriated for the benefit of the public;
  • if any governmental entities freeze development of the project for re-planning;
  • if there are buildings, excavations or service lines, found at the site of the real estate development project; and
  • if the main developer has made amendments to the site of the project, and it resulted in the change of the borders and area of the project in a manner that affects the implementation of the sub developer's obligations.
  • Conclusion

    The new Law has given high hopes to the real estate market in the Emirate of Abu Dhabi similar to that of Emirate of Dubai where the real estate regulations are well developed. The provisions of the new Law have regained the confidence of investors since it reassures investors' rights. Earlier, in the absence of any such regulations, it was difficult for investors to understand their legal status in the event of delay of the construction of a project. Now the position of investors is clear, as the new Law has stated the definite rights and obligations of each party and adheres to international standards of property development.

     

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    Mon, 16 Oct 2017 12:00:00 GMT
    <![CDATA[FIDIC and ENAA: Comparison (Part II of II)]]> FIDIC AND ENAA: COMPARISON

    Part II of II

    In our previous issue, we discussed FIDIC and ENAA forms which are an internationally recognized and utilized form of contracts and the general comparisons between them. Our attorneys had also detailed the requirements of data accuracy, and other conditions of companies. Although, it does not end there. This Part II of the article gives a detailed comparison of the design obligations and force majeure clause requirements provided in the FIDIC and ENAA forms.

    Rachelle Doorley once said, '(construction of) buildings require the skill of an engineer, a contractor and an artist.' So, the question that might cross your mind is how an artist could grasp their work environment once submerged into the chaos of a construction site. If so, then, you're thinking of the wrong question. A more appropriate thought may be how an artist would confine his creative and free-flowing mind to the precise and narrow rules by which an engineer and contractor must abide. Although, uniformity is not encouraged in an artist's work; that is not the case for engineers and contractors who are likely to be bound by the standard forms of contracts and practices that prevail in their line of work. The requirements found in these standard forms and the role of both contractors and employers are detailed below in this second part of the article.

    Design Obligations

    The general design obligations under sub-clause 5.1 of the Conditions of Contract for Electrical and (for) Mechanical Works including Erection on Site (Yellow Book, 1987 First Edition, revised in 1999) states that:

    "The Contractor shall carry out, and be (liable or) responsible for, the design of the Works." Further upon receiving notice of commencement of works the "Contractor shall scrutinize the Employer's Requirements (including design criteria and calculations, if any) and (must also do so for the) items of reference mentioned in Sub-Clause 4.7 [Setting Out]. The Contractor must provide notice to the Engineer of any (and all) errors, fault or other defects found in the Employer's Requirements or these items of reference". Furthermore, it also contains provisions regarding the application of variations and adjustments, subject to an experienced contractor exercising due care and consequently discovering the error, fault, or other defects upon examination of the Site and the employer's requirements before submission of the tender. Extension of the time for competition shall not occur and neither shall adjustment of the contract price.

    From the above provisions, it is evident that the contractor is responsible for identifying any errors in the design criteria submitted by an employer and any defects when examining the site or the employer's requirements. The contractor is left with little remedy even if the data provided by the employer was incorrect as there is no responsibility placed on an employer for providing correct data or design criteria based on which the contractor lays down his plans. It seems that the form relies on the general premise of ancient practices where an employer was a layman and is persistent. However, in today's modern world, participants of large projects and users of these forms are technically well equipped from both the ends of the contract whether its employer or contractor.

    Further, sub-clause 5.8 Design Error states as:

    "If mistakes, omissions, ambiguities, inconsistencies, inadequacies or other defects exist in the Contractor's Documents, then they and the Works shall be corrected at the Contractor's cost, notwithstanding any consent or approval under this Clause."

    Accordingly, even if the engineer has granted approval after a review of the "Contractor's Documents" (which may include designs submitted by the contractor) under Sub-Clause 5.2, the obligation as to costs for correction of errors or such defects falls on the contractor. Undermining the role of the engineer in bringing out any deficiency or defect before any work is implemented and thereby rendering the role of engineers in projects almost limited to a determination of contractor's and employer's claims which finally is controlled by the contractual presumptions established hostile to a contractor.

    The ENAA (Engineers Advancement Association of Japan) form of contract under general conditions of clause 20.1.1 states as:

    "C 20.1.1 - Specifications and Drawings: The Contractor shall be responsible for any (and all) discrepancies, errors or omissions in the specifications, drawings and other technical documents prepared by them; (regardless of) the approval of such specifications, drawings, and other (such) documents from the Owner. However, the contractor would not be liable if such discrepancy or error happened due to inaccurate information furnished in writing to the contractor by or on behalf of the Owner."

    The above provision is self-explanatory as to the demarcations of the liabilities between the parties as the proviso imposes liability on an employer for erroneous information and exempts contractor for errors resultant of such owner's errors.

    Force Majeure

    The force majeure clause under Clause 19 defines force majeure as an exceptional event or circumstance (that is) beyond the party's control. It is something that could not have been reasonably comprehended before entering into the contract and upon its arising the party could have reasonably avoided or overcome. Further, it is not substantially attributable to the other party, and the clause also provides a non-exhaustive list of events. Sub-clause 19.2 has stated that when one party would be provided with substantial relief when the other parties prevent them from performing their obligations. Under Sub-Clause 19.7 the party is released from the performance of its obligations if the event makes it "impossible or unlawful" to fulfill its contractual obligations.

    Though the provision somewhat covers events and circumstances in general, the ENAA force majeure clause is wider in effect. Force majeure is a predicament which is beyond the reasonable control of the affected party, which is unavoidable. The non-exhaustive list if also provided under ENAA form with an addition of a category for labor, materials and utility shortages that are caused by force majeure events. Another difference is that the relief is provided not only for prevention but also for the works "hindered or delayed" due to force majeure. A force majeure clause is believed to apply to differing types of performance rather than only for non-performance as the word hinder has a greater interpretation than just rendering contractual obligation impossible and incapable of being performed. Further, there is a difference in notice provisions as the FIDIC force majeure notice should be furnished within a period of fourteen (14) days from the date of obtaining awareness about the event; whereas, in ENAA the notice period starts from the time of occurrence of the event.

    Conclusion

    The principle difference in these forms of contract discussed at hand is employer's liability for the scope of works and design outline or the requirements provided by the owner and technical specifications provided by the contractor by such documents. In FIDIC, the contractor possesses larger risks and responsibilities than an employer; whereas, in the ENAA standard form, the obligations seem balanced as the responsibility for specifications of work provided by the owner has been placed on themselves. However, simultaneously, there is a need of giving wider authority to the employer in ENAA form. Further, the owner's constant instruction and the need for approval or authority should not extend to the limits of the FIDIC form to interfere with the engineer's performance. It will also be interesting to compare Conditions of Contract for EPC Turnkey Projects (Silver Book 1999 First Edition) or Conditions of Contract for Design, Build and Operate Projects (DBO Contract 2008 First Edition) with the ENAA's turnkey form.

    STA's team of construction lawyers in Dubai are trained with an in-depth experience in the Real Estate law and have handled several turnkey projects including advisory on man-made islands, office, retail, industrial, leisure and residential sectors including mixed use and urban regeneration projects.

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    Tue, 22 Aug 2017 13:00:00 GMT
    <![CDATA[Court Side Justice]]> Court-Side Justice

    'You don't go on bended-knee to petition the official culture for your rights. You have to take them.'

    -Terrance McKenna

    Countries are not sustained, and their peoples are not stable where a superior judicial system is not in place. Achieving a system of justice is not possible unless there is a good judicial system that protects the weak and beats the hand of the oppressor. A political system will remain unstable without the existence of justice; as such the right to litigation should be a guaranteed right for all. One of the most important elements and bases for achieving justice is through doing justice to justice itself. This simply means maintaining a fast speed in which cases are brought before the courts until the claimant's rights are assured. Otherwise, delay in rights and litigating disputes will result in justice losing a fundamental part of its meaning and true essence.

    There is a saying which says that slow justice is an injustice, and here the legislator did its job by providing a means to meet a fixed debt which is in writing through a writ of performance and this is considered the exception to the general rule. This is because the general rule is to resort to the competent judge and proceed with the relevant procedures of the appropriate court. However, the legislator would take a different route in this matter making the process easier and smoother for the judge and the concerned parties in achieving said justice. Bearing in mind that the law has placed specific conditions that the dispute must meet for the litigants to be able to use this exceptional route. The judge of the court is afforded the discretion to decide when to award a writ of performance. How this takes place is outlined below.

    One Step at a Time

    First: A writ of performance is an exception to the general rule of raising a claim:

    As noted earlier, the write of performance orders are an exception to the general rule as the original rule requires a litigant to resort to the substantive judge of the matter. As such they are referred to as expedited or urgent cases for the speed in which they are resolved as opposed to the ordinary judicial procedures. The law has placed specific conditions that allow a litigant to use the route of a writ of performance. Of which, the creditor must have their right evidenced in writing, showing a fixed monetary amount, and the amount is due for payment (Article 143 of the Civil Procedure Code). Further, orders for writs of performance do not encompass and accept fragmentation. It is not the role of a judge to allow some part of a writ of performance claim and reject another. If it is apparent that some claims are not subject to the terms and conditions of issuing a write of performance, then the court must refuse to issue it and refer the matter to the competent court.

    Second, the order of performance is subject to a general order:

    A writ of performance is subject to the general order, meaning that upon meeting the conditions for issuing the writ, the litigants may not resort to a court other than that for such urgent cases. For example, upon raising it before a substantive court, the court may decide on its behalf not to accept the lawsuit. The claim will then be raised for review under the discretion of a competent judge of the court of first instance. Also, the rule of value to jurisdiction found in the Code of Civil Procedure does not apply to writs of performance. Litigants can raise a claim for a performance order regardless of the amount requested.

    Third: The creditor must first charge the debtor with the obligation to fulfill the debt:

    The creditor must first charge the debtor to meet his obligation within a minimum of five days (Article 144 of the Code of Civil Procedure). The debtor is first assigned to fulfill the debt using a notification of payment. If the debtor fails to pay after a minimum of five days, then the creditor may claim for a writ of performance from the judge of a court that lies within the district of the debtor. The claim will be issued through a petition submitted by the creditor which the bond of debt shall be attached to, and showing proof of the obligation to pay will. The creditor shall not ask for more than the amount mentioned in the petition which should not be more than the amount assigned to pay in obligation to fulfill the debt; both values must correlate.

    Fourth: The writ of performance must be issued within three days at most from the date of submission of the petition

    The writ of performance shall be published within three days of the time of filing of the petition. After all, this is the purpose of this legislation; to have the indebted amount returned in a quick and efficient timing. To return the obligated amount back to the creditor within three days of the submission of the claim is a testament to serving justice to justice.

    Fifth: Referring the claim to a competent court where the judge refuses to issue the writ of performance

    Under Article 145 of the Code of Civil Procedure, if a judge refrains from issuing a writ of performance for any reason, he shall be in charge of determining a hearing where the case will be heard before a competent court. The court shall then order the debtor to appear before it at the appointed session. Basing this on the fact that the measures before the substantive courts follow the usual procedures and none of the litigants may challenge the decision of the assignment.

    Sixth: The creditor must announce the performance order to the debtor:

    Article 146 of the Code of Civil Procedure stipulates that should the writ of performance be issued then the creditor shall announce the contents of the writ of performance to the debtor's person, in the debtors original country, or in his work place. In doing so, they must provide the petition and the order issued against the debtor to perform the debt. If this is not announced within six months of the issuance of the order, the petition and the writ of performance issued will be considered as if they were not. Thus, they would be void of legal effect.

    Seventh: Complaints and Appeals on a writ of performance:

    The debtor may raise a complaint as to the writ of performance within fifteen days from the date of its declaration. Upon doing so, the complaint must be causative for it to be heard before the competent court where the usual procedure shall take place for bringing the case before it. A creditor may also appeal in agreement with the rules and procedures of appealing judgments. Further, the start date of an appeal will begin from the date the complaint period has elapsed. The right to complain is waived if it is challenged directly by an appeal (Article 147 of the Civil Remuneration Act).

    Eighth: Method of executing the writ of performance:

    The performance order shall be subject to the usual procedures and the execution of the judgment provisions. With this follows the creditor's entitlement to raise a claim for execution after the period of complaint and appeal have elapsed regardless of whether it is an appeal to the Court of Appeal.

    An Overview

    Finally, we must ensure to discuss the rule included in the judgment of the Dubai Court of Cassation on 26 February 2012 in Civil Appeal No. 253 of 2011 issued in 2012. The decision highlights the right to establishing a claim for a performance order, summarizing all matters relating to the performance order and the conditions required to allow the issuance of one. The following is stated:

    As per Articles 42, 143, and 145 of the Civil Code of Civil Procedure, a plaintiff who claims a right before his adversary can appeal to the relevant court through a statement of claim. An exception to this norm would be resorting to the issuance of a writ of performance. This can be done if the creditor is claiming for a debt that is proven in writing through signature and provided that it is consistent with several other conditions. Namely that the debt's performance is not dependent on the fulfillment of any conditions and that the amount indebted is fixed. Only if all of these conditions are fulfilled can a claimant resort to a writ of performance. It is not lawful to resort to a writ of performance claim even if these circumstances are met for only a partial amount of the debt of the claimed amount. It is a method that can be resorted to only in an exception, and its boundaries should not be broadened to allow partiality. Similarly to how a judge cannot issue an order that only allows part of a claim and disallows another part only to have it referred to a competent court for adjudication. Insofar as the above-mentioned, Article 145 provides that if the judge considers that the claimant has not responded to all his requests, then it is necessary for the judge to reject the issuance of a writ of performance. This does not alter the existence of a link between the written fixed debt and the claim of another right attached to it, consequent to it, or connected to unless it is set in writing. Further, a performance order for a fixed amount can be pursued by a creditor without resorting to usual procedures for raising a claim. The legislature has also necessitated resorting to this exceptional route if the creditor is claiming for something transferred that is of a fixed type and amount, or he is indebted as per a commercial paper if his claim is addressed to the maker, drawer, and the guarantor.

    Conclusion

    Swift justice is what any legal system requires to ensure its claimants are met with the appropriate protection. The issuance of a writ of performance is one example of how a claim may be expedited and resolved within a few days. STA's team of criminal lawyers in UAE are well equipped and versed to handle matters relating to debts and collection.

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    Sat, 29 Jul 2017 12:00:00 GMT
    <![CDATA[FIDIC and the ENAA: A Careful Comparison]]> FIDIC AND ENAA COMPARISION

    In the complex and technical world of construction and large manufacturing projects, the contracts and negotiations on the terms of an agreement between the parties are a means to keep the complex relation of parties within the bounds of clear understanding by utilizing a standard form of contract. The industry has seen the development of a various standard form of contract including, FIDIC (Fédération Internationale des Ingénieurs-Conseils), JCT (Joint Contracts Tribunal), ENAA (Engineering Advancement Association of Japan), ICE (Institution of Civil Engineers), etc. This list is not exhaustive but only indicative as there are numerous standard forms. We will discuss the standard form of contract produced by FIDIC and ENAA.  

    The FIDIC standard form of contract is internationally recognized and a utilized form of contract. FIDIC, established in 1913 by three countries namely Belgium, France, and Switzerland presently covers 97 countries as its member and has created forms of contract which are used extensively throughout the world. ENAA is a non-profit organization established in 1978 with the support of the Ministry of International Trade & Industry of Japan. Members of ENAA consist of 217 Companies (as of April 2016). The aims of the above organizations, in general, are to achieve inclusive, dynamic and sustainable development while having a voice for engineering professionals and, among other things, provide integrated assistance. 


    FORMS OF CONTRACTS

    1. FIDIC - The Fédération Internationale des Ingénieurs-Conseils: FIDIC has the best-known standard contracts which are as follows:

    • The Contract for Works of Civil Engineering Construction (Red Book, 1987 First Edition, revised in 1999).
    • Conditions of Contract for Electrical and (for) Mechanical Works including Erection on Site (Yellow Book, 1987 First Edition, revised in 1999).
    • Conditions of Contract for Design-Build and Turnkey (Orange Book, 1995).
    • Conditions of Contract for EPC Turnkey Projects (Silver Book, 1999 First Edition).
    • Conditions for Design, Build and Operate contracts (Gold Book, 2007).
    • Conditions of Contract for Plant and Design-Build (Yellow book, 1999 First Edition).
    • Conditions of Contract for i) Design, ii) Build and iii) Operate (the DBO) Projects (DBO Contract, 2008 First Edition).

    Other FIDIC contracts which are less known are the Turquoise Book for Dredging and Reclamation Works (January 2006), and also, the White Book Model Services Agreement (October 2006)

    ENAA

    ENAA also has model forms which are increasingly used by the industry recently in the past 12 years. The forms are as follows:


    • International Contract for Process Plant Construction (1986 – First Edition, revised in 1992 and 2010)
    • International Contract for Power Plant Construction (Turnkey Lump-sum Basis) (1996 – Second Edition, revised in 2012)
    • International Contract for Engineering, Procurement and Supply for Plant Construction (EPS type contract) (2007 Edition, revised in 2013) 

       

      General Comparisons

      The content structure of the FIDIC forms of contracts often consists of general conditions, forms of tender and contract agreement, guidance for the preparation of the particular conditions, and dispute adjudication agreements. The ENAA model forms' in its latest Process Model Form – 2010 edition consists of a form of contract, general conditions, and guide notes. Wherein Volume 2 includes a sample of an appendix, Volume 4 consist of work procedures and Volume 5 consists of the general conditions and the form of agreement (an alternative form of industrial plant – without process license). The Power Model Form - 2012 edition consists of a form of agreement, and general conditions and Volume 2 provides a sample of appendices to the agreement.

      Although the FIDIC forms seem to be very well drafted "by the engineers for the engineers," is seemingly balanced, have many provisions, and are very extensive, they bring out the fact that legal layman draft such contracts. ENAA is written well with clear, precise, and short wordings. For the purpose of this article, with consideration to its possible limitations, we shall be comparing between FIDIC's Yellow (Conditions of Contract for Plant and Design-Build, 1999 – First Edition) and ENAA's Power Plant Construction Form – 2012.  However, there can be references in general to other forms, when stated otherwise. Where the Yellow book is for Plant and Design Build, ENAA's Power Plant construction model form is a turnkey form for BOT (build-operate-transfer) projects.

      Data Accuracy Obligations

      In the yellow and silver book under Sub-Clause 4.10 Site Data, there seem to be no obligations on an employer regarding an error in data provided by him. However, the responsibility for proper interpretation of information is put on the contractor as below text interprets:

       "The Contractor shall be responsible for (and) interpreting all such data."


      Further, it sets out:


      "To the extent which was practicable (taking into account the cost and time), the Contractor shall be deemed to have obtained all (relevant; and) necessary information as to (inherent) risks, the contingencies and (all) the other circumstances which may influence or affect the Tender or Works. To the same extent, the Contractor shall be deemed to have inspected and examined the Site, its surroundings, the above data and other available information, and to have been satisfied before submitting the Tender as to all relevant matters,…."


      The above words clearly indicate that the responsibility is put on the contractor as the contractor is responsible for obtaining necessary information. Which includes but is not limited to the form and nature of the site, including the hydrological and climatic conditions, subsurface conditions, and the extent and nature of the work and goods that are necessary for executing and completing the works for remedying of any defects. Though the provision states that when "taking account of cost and time" it becomes highly difficult to determine such factors of time and "practicability." Thereby rendering the provisions uncertain without laying down a clear responsibility on the employer for any information provided. Thus, the above clause and in fact the entire yellow book does not foresee any obligation on an employer for inaccurate information and even fails to place responsibility on an employer for correct information.


      Whereas the ENAA provisions under General Conditions 10.1 states that:


      "The Owner(s) shall ensure (at all times) the correctness and exactitude of (each and;) all information and or data to be (provided; or) supplied by the Owner(s) as described in Appendix 9-3 (Scope of Works and Supply by the Owner(s)) except when otherwise expressly stated in the Contract,"


      As such it is clear that the ENAA form makes it the responsibility of an employer/owner to provide correct data before and during the contract.


      Accordingly, the contractor bears a heavy burden of not only accessing accurate data provided by the employer but also bears the responsibility for any physical condition[1]{C}{C} Under the definition of unforeseeable{C}[2]When this occurs, foreseeability will depend again on examination by the contractor.


      Employer's Requirements

      As per Sub-Clause 1.9, an experienced contractor should give notice to the Engineer who will be entitled to the terms of Sub-Clause 20.1 [Contractor's Claims] when the contractor fails to discover errors in an employer's requirements. These errors would get overlooked while exercising due care and scrutiny of the Employer's Requirements under Sub-Clause 5.1 [General Design Obligations]. 


      Further, "the Engineer shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine (i) whether and (if so) to what extent the error could not reasonably have been so discovered."  


      The yellow book or other such forms having similar provisions place a heavy burden on the contractor to review the employer's requirements at the tender stage. Further, as per every variation[3]Bearing in mind that from time to time to examine the employer's requirements before providing a tender and examinations without emphasizing on the obligation of an employer for such errors or on the engineer while evaluating the requirements issued by the employer.  It is pertinent to note that providing the employer's need is a factor in the control of employer which is published as per his ideas and concept of the project along with all technical and quality consideration which must also be a proper valuation of the contract price. Therefore, it is the employer who must retain responsibility for the definition and description of the works. Failing such demarcation and allocation of liability creates doubts as to the practical implementation of such provisions. 


      The above provision of Sub-Clause 1.9 further seems contrary to clause 5.4 which states as:


      "5.4 Technical Standards and the Regulations: The design, the Contractor's (each and all) Documents, the execution and the completed Works shall (in totality) comply with the Country's technical standards, the building, construction and (also;) environmental Laws, Laws applicable to the product being produced from the Works, and other standards specified in the Employer's Requirements, applicable to the Works, or defined by the applicable Laws."


      The above states that the design and contractor's documents must be in accordance with employer's requirement. However, the responsibility of errors in employer's requirement is not enforceable or even actionable against the employer under this form of contract. Further, only if it is determined to be undiscoverable by the engineer the contractor will be entitled to cost and extension of time.


      The ENAA model form under General Conditions Sub-Clause 27.3 - Defect Liability states:


      "The Contractor's obligations under this GC 27 shall not apply to ..........................(3) any designs, specifications or other data designed, supplied or specified by or on behalf of the Owner, or any matters for which the Contractor has disclaimed responsibility hereunder ."


      The above clause excludes the liability of the contractor on design discrepancies, errors or omissions if such erroneous specification, drawing or such technical documents are prepared due to inaccurate information provided by or on behalf of the employer. The ENAA form also provides that the contractor shall make reasonable site examination and other data, however, puts the obligation on the employer for inaccuracy. This clause in is accordance with the principle of the risk of liability being placed on the party who can control such risk.


      Part II of this two series article will discuss Design obligations, force majeure, and other relevant provisions. 


      [1] Sub-Clause 4.12 provides. For example, "physical conditions" means natural physical conditions and those that are man-made. Further, other pollutants and physical obstructions which the Contractor may encounter at the Site while executing the Works. These include sub-surface and hydrological conditions but exclude weather.

      [2] in sub-clause 1.1.6.8 climatic conditions are not included. "Unforeseeable" is defined as unreasonably foreseeable by an experienced Contractor on the date of submission of the Tender.

      [3], 1.1.6.9 "Variation" means changes to the Employer's Requirements or the Works, which are instructed or approved as a Variation under Clause 13 [Variations and Adjustments].

       

       

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    Fri, 14 Jul 2017 07:00:00 GMT
    <![CDATA[Cargo Claims in UAE]]> Cargo Claims in UAE

    "The good seaman weathers the storm he cannot avoid, and avoids the storm he cannot weather."

    Cargo claims are primarily commercial rights. As the whole purpose of trade in maritime is to deliver cargo from point A to B, thereby promoting international trade and enhancing economies of the world, we would like to accentuate the legal implications of cargo claims in United Arab Emirates (the UAE).

    Many governing bodies around the World have enacted maritime legislation that incorporates the set of rules on the carriage of goods known as the Hague-Visby Rules. Thus, by bringing an odd form of uniformity, these differing legislations all provide a similar form of protection to cargo carriers. Following suit, it is interesting to note, that although the United Arab Emirates is not a signatory or party to the Hague-Visby Rules, Federal Law No. 26 of 1981 contains provisions that reflect similar concepts. Both the exceptions to liability and the necessity to exercise due diligence provided by the UAE law Mirrors Articles III and Article IV of the Hague-Visby Rules.

    In a contract of carriage, the carrier agrees to carry cargo from point A to point B, and the shipper agrees to pay the carrier for the service of carriage. The bill of lading is issued by the carrier or its agent to the shipper usually lays down the rules on the carriage of goods by sea. Generally speaking, the shipper delivers the original bill of lading to the consignee i.e. buyer of the cargo. The consignee presents the original bill to the carrier, at the port of unloading, who in return issues a delivery order to enable the consignee for collecting the cargo from the port. The cargo claim arises when there is a breach of contract of carriage by the carrier to carry the cargo with reasonable and due care.

    Governing Laws

    Under UAE Maritime Commercial Law [i] (the MCL) the bill of lading (the BOL) is considered valid evidence of a contract of carriage. Article 278 provides that any condition in a bill of lading which attempts to exempt or reduce the carrier's responsibility for loss or damage, contrary to the provisions in the MCL is void. The MCL provides for the liability of the carrier stating that the carrier shall not argue contrary to terms of BOL as against consignee who must be an innocent third party and is not a party to the BOL between shipper and carrier.

    Claim time barred

    Article 365 (1) provides for a general time bar of two years from the date of arrival of the vessel at the discharge port or the port of end of the voyage. A claim concerning a contract of carriage is time-barred after one year from the date on which goods were delivered or ought to be delivered. The passing of goods through port gates is the date in which the goods are deemed as delivered and the time that elapses until a claim is officially filed at a UAE court is what is to be counted. Further Article 365 (2) states: "in addition to any other causes for which the period of limitation for the hearing of a suit may be interrupted at law the said period shall expire upon the appointment of an average adjuster and in that event the new period shall run for the same period from the date of signing of the general average adjustment or from the date on which the average adjuster retires". MCL provides different time-bar provisions for other shipping activities, for instance, two years in pilotage and towage claims (Articles 314 and 317), etc.

    Carrier's Liability and Exemptions under UAE Law

    Article 275 provides the circumstances in which the carrier will be held liable or exempted from liability for the damages sustained during the time of delivery to the port of discharge. There is a general presumption that the carrier will be liable for damages sustained except for the circumstances provided therein.

    Fault or omission of shipper

    Pursuant to Article 275 (1) the UAE courts would generally exempt the carrier from liability which is consequent upon the fault and omission of the shipper or any third party to the contract of carriage. Usually clauses such as "Shipper's Load, Stow, and Count" or "Said to Contain" are contained in the BOL to protect the carriers. Such clauses are usually stated when there are containerized cargoes, and the carrier is not privy to the packaging activity of the goods to be carried. Usually the UAE courts do not rely on such clauses in a strict sense thereby holding carrier liable to damages of the goods which was handed over sealed to the carrier albeit the seal is untouched if the clean BOL was issued by carrier which guarantees that the goods in the containers are in conformity with the description stated in the BOL. Nevertheless, UAE courts would consider the facts and where the damages are caused due to stowing and packaging where the carrier is successful in evidencing that the stowage and packaging was carried out by the shipper and the same was defective the shipper may be made liable for such damages as per Article 275 (1)(n). This is also in line with Article 259 which provides for the express mention of clauses on the BOL. Therefore, if the carrier has reasonable ground to believe the shipped goods are not in compliance with the description provided by the shipper the carrier must expressly state the clause in BOL providing its reservations and the reasons thereof.  

    Force Majeure or Act of God

    Other circumstances under which the carrier may not be considered liable is Force Majeure or "Act of God" under Article 275 (1) (d) and (e) provided the same could have been foreseen or preventable and not inevitable. If the event is foreseeable or preventable, it becomes the duty of the carrier to take due care and precautions in preventing the damages presumed due to such foreseeable circumstances. The onus of proof is on the carrier to prove the assertions as stated above and to provide the evidence as to its location at the time of any dangerous weather conditions and as to weather's acuteness

    Limitation of Liability

    There are several provisions found on limiting the liability of the carrier. Albeit, according to the law, any agreement exempting the carrier from liability or negligence for damage caused to the cargo or reduces the liability for the same will be void against the endorsee/consignee who is the holder of the BOL. Article 276 (1) provides for a limitation of liability "to a sum not exceeding ten thousand Dirhams for each package or unit taken as a basis in computing the freight, or a sum not exceeding thirty dirhams per kilogram per gross weight of the goods, whichever is the higher limit." It further provides under Article 276 (2) that "If packages or units are grouped in cases, boxes or other containers and the Bill of Lading states the number of packages or units contained in each container, then each one shall be deemed to be a package or unit in connection with the fixing of the upper limit of liability and if the container is not owned or provided by the carrier and it is lost or destroyed it shall of itself be deemed to be an independent package or unit." However, pursuant to 276(3) a carrier's liability is not permissible to be limited if the shipper has particulars, before the loading takes place, of the nature and value of the goods and the particular importance attached to the preservation thereof.

    Articles 138 to 142 entitle a shipowner, charterer or operator to limit liability based on the tonnage of the vessel. The limitation is as follows: "a) AED 250 per tonne where only physical damage is caused; (b) AED 500 per tonne where the only bodily injury is caused; (c) AED 750 per tonne where both physical damage and bodily injury are caused". In 1997 UAE ratified the Convention on Limitation of Liability for Maritime Claims 1976 (the Convention) by Federal Decree Number 118 of 1997. The Convention under Article 4 provides that the right to limit liability is lost only when a claimant can prove willful intent or recklessness and with knowledge of damage on the part of the person seeking to limit. This provides an indisputable right to shipowners to limit their liability as observed by Justice Sheen in the "Bowbelle" [1990] 1 Lloyd's Rep 532. However, the translations in Arabic are not mandatory and appear to provide only discretionary provision. It is to be noted that Article 138 to 142 are not repealed as well. The UAE law being derived from Sharia law is based on the principle of providing damages equal to the loss sustained. This is pursuant to Article 389 and 390 of the UAE Civil Code which provides discretionary power to the judge in determining the losses sustained and providing compensation accordingly. However, Article 8 of the MCL recognizes that international conventions which have been ratified by the UAE supersede domestic legislation and consequently the Convention should override these provisions.

    Limiting liability caused by carrier/ship owner's fault is prohibited under Article 140. Additionally, both liabilities arising out of assistance and salvage, general average (GA) contributions, rights of master, crew and their heirs and claims arising from nuclear damage cannot be limited.

    The carrier can agree with the shipper and limit his liability by expressly setting out a clause in the BOL on the escalation of shipper's liability. The exception to the above clause is provided under Article 280 wherein the shipment in connection with costal or special circumstances of the carriage of a particular type of cargo justifies such an exemption. For an exemption to qualify as valid the following conditions must be satisfied: (a) The exemption must not be against the public policy (b) the agreement is in writing and on the non-negotiable receipt which clearly endorses the particulars therein. (c) The exemption must not be related to the due care supposed to be exercised by the carrier or its agent.

    Notice for Damages

    Pursuant to Article 280, the cargo will be assumed to have been delivered in the condition described in the BOL if no notice is served on the carrier. The notice must be given within seventy-two (72) hours from the delivery of cargo to the consignee as per Article 281. However, the BOL holder may seek damages without notice as per UAE Federal Law number 10 of 1992 Evidence law if they are successful in evincing the fact damages were caused by carrier or circumstances under which carrier is responsible for cargo.  No further notice is required where the joint survey was carried out. Pursuant to Article 363 the master must be notified in writing of the damages sustained to goods with the claim within 30 days of delivery of said goods. The cargo owners must be notified in writing within 30 days from the date the voyage terminated for losses sustained by the vessel in lieu of GA claim.

    Consignee's Title to sue

    Title to sue is usually proved by an endorsement on the BOL or by documents such as a bank statement stating that the BOL was endorsed by the bank where the bank is capable of making such an endorsement. The UAE Courts comprehend the fact that the BOL is either to the bearer, the order of the shipper, or in the name of the consignee. In such cases, proper endorsement of the BOL in consignee's favor is required and proves that he has title to sue.

    Claim and Joint Action against Owner and Charter

    Generally, the party who has agreed to carry the cargo/goods will be taken into consideration even if consignees bring a joint action. The party who contracted with the shipper can be an owner or charterer. The UAE courts will recognize the parties to the contract of carriage who have issued the BOL and specifically identify the carrier stated in the BOL. However, the UAE courts usually do not take the "identity of the carrier" clause on the reverse BOL into consideration against the interests of the consignee or endorsee.

    Arrest of Vessel for Cargo Claims

    The concept of maritime lien as applicable internationally is not applicable in UAE. However, Article 115 provides for the list of maritime claims under which arrest can be claimed before the UAE courts. Article 115(2) (d) and (e) provides that contracts relating to the use or exploitation of the vessel under a charter party or otherwise and contracts relating to the carriage of goods under a charter party, bill of lading, or other documents qualify as maritime debts. Thus the breach of carriage of goods will respectively qualify as maritime debts and the claimant can seek arrest by relying on the contention.

    Conclusion

    Cargo claims remain the most confused types of claims by the parties to the contract of carriage; parties are unaware of both the legal and practical reasons for claiming and the international legal implications when doing so. A failure in the cargo claims systems can prejudice economies from fulfilling their basic function of promoting trade. The STA maritime team has been advising carriers and other parties on their business activities and has expertise in assisting the marine businesses in the jurisdiction. We hope this article has been sufficiently informative.

     


    [i] UAE Federal Law number 26 of 1981 regarding the UAE Maritime Commercial Law

     

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    Wed, 14 Jun 2017 06:00:00 GMT
    <![CDATA[Delay Penalty in Construction Contracts]]> Delay Penalty in Construction Contracts

    "No construction project is risk-free. Risk can be managed, minimized, shared, transferred or accepted. It cannot be ignored"

    -Michael Latham

    Scope and usage of back-to-back contracts

    Back-to-back contracts are becoming an increasingly common feature of construction projects. Construction projects typically involve the collaboration of three parties at different levels: employer, main contractor and subcontractor. The employer prefers to enter into only one contract with a single party (the main contractor) which will act as a single point of responsibility regarding the project. However, in order to complete the project effectively and on time, the main contractor hires a number of subcontractors to perform specific tasks as part of the overall project. Subcontracting is permissible under the UAE Civil Code [i] unless the contract between the employer and the contractor prohibits so [ii]. Accordingly, the main contractor concludes separate contracts with subcontractors who carry out the work according to the specifications indicated in the main contract.

    Although there is no direct contractual link between the employer and the subcontractor, the main contractor, having assumed responsibility for all aspects of the project vis-à-vis the employer, will pass on its obligations and liabilities to its subcontractors through a contractual arrangement known as a back-to-back agreement. Note that even though the main contractor may have entrusted the performance of the whole or part of the work to a subcontractor, he remains responsible towards the employer for the whole of the work [iii]. This responsibility is reinforced by clause 4.4 of Fédération Internationale des Ingénieurs-Conseils (the FIDIC) Red book 1999 which stipulates that "the Contractor shall be responsible for the acts or defaults of any Subcontractor, his agents or employees as if they were the acts or defaults of the Contractor".

    So what are back-to-back agreements? Back-to-back agreements refer to the duplication of terms and conditions in a contract at different levels of the project.

    While back-to-back agreements are said to be very convenient and time efficient, they can create complex issues at a later stage as a result of poor drafting. Poorly drafted contracts can be difficult to interpret and can give rise to time-consuming, expensive disputes [iv]. This article seeks to discuss the different approaches that one can adopt while drafting a back-to-back agreement and will throw light upon some clauses which require careful consideration and appropriate drafting.

    Structuring Back-to-Back Contracts

    Drafting a back-to-back contract is not an easy task. It requires careful consideration as to which specific terms shall be passed down the chain as part of this arrangement. There are two ways of structuring a back-to-back contract:

    Incorporation by Reference  

    Incorporating particular terms of the main contract by reference and expressly excluding or varying other terms (e.g. those relating to price). In other words, the main contractor simply mentions in the subcontract that the terms of the main contract apply to him and the subcontractor. However, in some jurisdictions, simple references are not recognized by courts. In a Scottish case of Watson Building Services Ltd v Harrison, the court refused to apply a condition laid out by the main contractor for making simple references to the terms of the main contract clauses.

    Although the approach incorporation by reference might seem very convenient to the parties as it saves time and is cost-effective, all that glitter is not gold. Such an approach can result in ambiguity and limit the main contractor's attempts to pass down risks to the subcontractor. For instance, a provision stating that "all references in the main contract to the 'Employer' and 'Main Contractor' are to be read in the subcontract as being references to the 'Main Contractor' and 'Subcontractor' respectively", may not be appropriate for every obligation. The clause is unclear as to what terms of the main contract which have or have not been incorporated in the subcontract. This could result in rendering an essential term of the contract either ineffective or subject to an interpretation that was never intended by the parties.

    In the above Scottish case, the subcontract provided that "this sub-contract is placed with your subject by and large to the same terms and conditions as the main contract". The respective judge held that the wording "'by and large' is anybody's guess and anybody's guess is likely to be wrong, and it is not for me to guess which clauses of the main contract are to be 'by and large' incorporated [in the subcontract]". Accordingly, such provisions may not achieve the intended purposes of a back to back agreement.  

    Adopting this approach without enough care and caution can create greater problems than originally thought. The drafters should be very careful, as it can be very complicated to identify every single clause in the main contract that is relevant for the subcontract. This eventually calls for cross-referencing between the main contract and subcontract. Similarly, where there are long and detailed main contract specifications, it can be very complicated for the subcontractors to separate the relevant clauses from the irrelevant ones. The subcontractors can be subject to risk by taking on matters that are inappropriate given the size and scope of their particular subcontract.

    Hence, it is crucial that the clauses to be adopted in the subcontract from the main contract are clear in demonstrating that the parties meant to incorporate the particular clause/(s). An example can be "the following [clauses of the main contract] shall be deemed to form and be read and construed as part of the subcontract". Further, these issues can also be managed to a certain extent by drafting a stand-alone contract discussed below.

    Stand-alone contracts

    A stand-alone contract is achieved by drafting independent terms specifically tailored for the subcontract. The benefit of this approach is that while executing subcontracts, the parties need not cross-refer the main contracts for every clause and clarification. They only need to adhere to the provisions of the main contract defining the relationships of actual parties to the project.

    On the other hand, drafting a standalone agreement is not an easier task. Considerable care should be taken while drafting so that only the correct terms are passed on to the subcontract, and they shall be phrased accordingly. Drafters shall also make sure that the provisions especially relating to timings, payment terms, exclusion of liabilities on subcontractors, termination, and compensation are properly coordinated between the contracts at different levels.

    Common Drafting Issues

    Irrespective of the type of drafting method that drafters opt for, there are several matters that require our attention:-

    Terms of Payment

    Care needs to be taken when drafting a general back-to-back clause concerning payment terms. Consider a situation where a back-to-back provision provides terms of payment as mentioned in the main contract. Now, that can be read as Pay when paid and/or Pay if paid. In many jurisdictions, such as England and Wales, conditional payment provisions are not enforceable in construction contracts [v].

    In our view, it is unfair for a subcontractor to not get paid for completed work due to the main contractor not being paid by the original employer. In the UAE, conditional payment clauses are valid and enforceable, whenever there are such agreements between the parties. However, in many UAE court judgments, it is provided that the main contractor shall be responsible for the act of the subcontractor; and that the subcontractor shall be paid by the main contractor once he finishes his work. This aspect is irrespective of whether the main contractor has finished his work or not, or received his payment from the employer or not.

    In the Court of Cassation Case Number 281/95, the subcontractor had completed his job, and the contract stated that "any payment to the subcontractor would only be due and payable at the time that the payment is received by the main contractor from its client". The Dubai Court of Cassation held that "the sub-contractor will only be entitled to a proportional payment during the performance period from any payment received by the main contractor from its client, the same does not apply when a sub-contractor has completed all his work and delivered the project to the main contractor. A sub-contractor has no obligation to wait for payment until the main contractor has been paid".

    Moreover, subcontractors generally do not wish to get into such clauses, as they expect payment as soon as they have completed the work as per the subcontract. It is also not advisable for subcontractors to accept back-to-back payment terms because they contain a high risk of the subcontractor not being paid. Very often main contractors are not paid by the employer. Sometimes employers face financial issues leading lack of payment to the main contractor. A subcontractor should, therefore, attempt to negotiate the removal of back-to-back payment terms under a proposed agreement. If this is not possible, the subcontractor should negotiate a modification of such back-to-back payment terms or provide for some exceptions. For instance, a subcontractor could accept back-to-back payment terms with the following exceptions:

    i.              When the main contractor breaches its obligations towards the employer and the subcontractor had no association with the breach;

    ii.          Where the employer was refusing payment to the main contractor for no apparent reason, such as if there were no legitimate force majeure events preventing the employer from making payment to the main contractor

    Contractual deadlines

    It is essential to make sure all deadlines in subcontracts are coordinated with deadlines of the main contract. This may include, but is not limited to, the material and shop drawings submittal dates, claims notification periods, completion dates, notices, and delivery. Clause 20.1 of FIDIC provides that a contractor must give notice within 28 days of an event if he considers himself entitled for extra cost or money.

    The drafters should ensure that the deadlines in the subcontract are shorter in duration than in the main contract. The subcontractor must, in turn, allow his subcontractors (if any) an even shorter period. This is to allow the main contractor time for inspection and corrections before the original deadline reaches under the main contract.

    Also, the provisions of notice of default will require a thorough review. Gaps in the claims procedures across the two contracts are risky to main contractors. This is because in main contracts the main contractor's right to claim in full against the employer will be subject to complying with the main contract notice requirements. Those notice requirements should be adequately reflected in the subcontract.

    Termination

    The termination of the main contract for any reason shall terminate the subcontract as well. The drafters shall clearly provide that in the event of a suspension or termination of the main contract, the subcontracted work will be suspended or terminated similarly.

    Clause 15.5 of FIDIC introduces termination by employer for convenience, which enables the employer to terminate the main contractor agreement at any time. If the subcontract does not incorporate such a clause, the main contractor will find himself liable to the subcontractor. Similarly, the subcontract shall provide that "in the event of termination, the subcontractor should have no claim against the main contractor except where the breach on the part of the main contractor gave rise to the suspension or termination". However, any such termination should be performed in good faith as per Article 246 of the UAE Civil Code, i.e. without prejudicing the rights and entitlements of the subcontractor. The drafters shall provide, in particular, that "subcontractors shall be entitled to certain compensation for loss and damages if the termination of the main contract came as a direct result of the main contractor".  

    In a back-to-back arrangement, any dispute arising between the employer and the main contractor is consequently reflected in the relationship between the main contractor and subcontractor and vice versa. Depending on the nature of the subcontract, claims that usually go up and down the chain relate to defects, performance, failures, variations, and delays.

    In all cases, the main contractor would like to make sure that he is not exposed to a liability regarding matters which are outside of his control, which, in turn, cannot be passed on to the subcontractor. The major concern for the main contractor will be to ensure that he is not subject to different judgments by different tribunals constituted under two different contracts with the employer and subcontractor at various levels in a project.

    To avoid this, drafters should make sure to incorporate such terms in the subcontract like: "the parties agree to cooperate with each other to resolve the main contract dispute first; and that the subcontractor shall stay the dispute with the main contractor under the subcontract until the main contract dispute is resolved". Such a provision may help in better dispute resolution.

    Furthermore, dispute resolution terms cannot be incorporated by reference to the main contract conditions [vi]. The arbitration clause shall be in writing [vii] and cannot be back-to-back.

    Conclusion

    To conclude, back-to-back contracts can be effective in construction projects, provided they are handled and drafted with care. It is important to be aware of the risks associated with the use of this technique. There is no one-stop shop solution for various drawbacks associated with back-to-back arrangements. However, whatever approach to drafting a back-to-back contract is taken, the parties should ensure that the subcontract is properly drafted. Drafters should, in turn, make sure that each term incorporated into the subcontract by way of back-to-back arrangement has the result intended by the parties. In any case prices, deadlines, termination and dispute resolution must be agreed separately for each case, and drafters should pay special attention to circumstances related to these issues.


    i. All references to articles are references to the UAE Federal Law No.5 of 1985 (the Civil Code), unless provided otherwise. ii. Article 890 (1), UAE Civil Code iii. Article 890 (2), UAE Civil Code iv. Bringtin Engineering Ltd. v Cheerise Asia Ltd. v.  Section 113 of the UK Housing Grants, Construction and Regeneration Act 1996 vi.  Roche Products Ltd v Freeman Process System Ltd vii. Article 203 of the UAE Civil Procedure Code  

     

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    Sun, 08 Jan 2017 12:00:00 GMT
    <![CDATA[Post-Closing Transactional vs Ongoing Enterprise Due-Diligence]]>  Post-Closing Transactional vs Ongoing Enterprise Due-Diligence

    "Diligence is the mother of good fortune."

     -        Miguel de Cervantes Saavedra

    Introduction

    In July 2016, the Australian Securities and Investments Commission (ASIC) stated that it's review of 12 initial public offerings (10 of which were small and mid-sized companies), found incredibly poor due diligence processes. These companies often seem to lack documentation to back up the claims they make in their prospectus. This is a very worrying sign for investors and tells us of the immediate need to promote better due diligence practices.

    With the surge in an ever growing landscape of corporate litigation, shareholder activism and a number of disclosure obligations, smaller and mid-sized companies are now seeking the smartest route forward in their growth strategies.  In such situations, companies cannot afford to make a mistake in acquisitions and assume unanticipated liabilities. At the same time, companies do not want to overburden the targeted acquisitions with diligence requests that might disrupt the deal.  Hence, to succeed amidst these competitive conditions a professional process of critical analysis is vital for positive acquisitions or partnerships. It prepares buyers as well as investment partners and lenders with a clear understanding of the story. This needs to be executed by a due diligence process that is planned and implemented in a systematic manner so that there is no space for an unnecessary intrusion.

    The notion of due diligence is often misconstrued to apply solely to mega-deals between large companies. Small and mid-sized companies generally have less sophisticated financial reporting, which could be a prerequisite when a company is trying to secure sources of funding for a transaction. Clearly, due diligence is a necessity in all matters.

    In order to clarify the aforementioned misconception, it is important to define the term. Due diligence is a program of critical analysis that organizations undertake prior to making business decisions in areas, such as corporate mergers and acquisitions, or major product purchases and sales. This process analyzes an organization's previous financial performance records and other necessary reports that help provide business owners and managers with authentic background information on the planned business deal. This, in turn, helps them make cognizant decisions on whether they must carry on.

    Types of Due Diligence

    Commencing the process of due diligence appropriately is of paramount importance. Appointing skilled members to the team is, hence, critical to ensure the information gathered is understood and evaluated precisely. The identification of these team members takes time and money. Buyers must keep an open mind in order to not misjudge the risks and liabilities involved in the transaction.

    After the due diligence investigation has been completed, there are two important steps that must be followed. The first is to create a detailed written report of the investigation conducted. The results obtained must be analyzed thoroughly. This will be important for both parties to develop a plan incorporating the information into the transaction agreement. The second step is as important as the first one but is often disregarded. This step deals with analyzing the information and determining any impacts on the proposed transaction. One must be cautious while dealing with such circumstances. For these purposes, an action plan must be developed to manage the information disclosed. If any buyer determines that information disclosed by the seller is not substantial, he may be precluded from a subsequent claim for recovery based on those liabilities.

    There are two main due diligence processes that need to be considered by organizations: post-closing transactional due diligence and ongoing enterprise due diligence. An organization's post-closing transactional due diligence is designed to check whether key assumptions used to rationalize the transaction are being comprehended. If they are not, the management can be informed and steps for redemption can be taken as soon as possible. It also makes sure that the target company is being integrated into the organization competently.

    Several factors lead to discontent in an acquisition and one of the major factors is the lack of due diligence. In recent years the importance of ongoing due diligence has escalated to a new level by new legislations such as the Sarbanes-Oxley Act of 2002. Ongoing enterprise due diligence is mainly focused on to meet the needs of an organization. It must be viewed as a dynamic process that changes depending on the circumstance of the organization.  An organization's ongoing enterprise due diligence must be structured in such a way that it ensures the organization avoids redundant losses and expenses. The organization's governing body, including the board of directors, trustees or governors must be able to exhibit that it is involved in effective oversight and that job-and-bonus- threatening hostile events are actively being avoided. Ongoing monitoring of the organization's operations and plans is very important while dealing with customers and suppliers.

    Importance of Due Diligence

    This process is crucial to the ongoing success of an organization. This also makes sure activities within the organization are all in compliance with the corresponding law. The due diligence team should keep in mind that apart from taking necessary steps in helping the organization, it must also take steps to keep up with the current trends in new legislation and take proactive action to work on recommendations.

    Hence, organizations that are planning an acquisition or merger should plan to assign sufficient time and resources to discover potential problems with the seller. A failure in reviewing the documents carefully might result in a clash of agreements between the buyers and the sellers. Further, if any action of fraud is discovered after the sale is completed the buyer might be prohibited from bringing an action to court.

    If a serious problem has arisen in an organization, the senior officials are usually the ones who suffer the repercussions. Due-diligence, however, could have furrowed out the problem and the individuals involved could have been terminated. For many senior officials meeting the financial goals is the most important test. It could be very exasperating to motivate the junior workers to achieve high performance and yet suffer due to unexpected liabilities that could have been avoided by due diligence.

    Even after the due diligence processes have been conducted, in order to make sure that none of the provided financial information changes negatively and affects the ongoing relationships of a transaction, Investors, and business partners have to initiate constant monitoring to ensure everything is functioning in order.

    Monitoring is also a useful way for investors and business partners to stay conversant of the current status of litigation or negative events established during the course of initial due diligence processes. If an organization is found to be involved in litigation matters, investors and business partners should consider monitoring these issues until they are resolved. This monitoring can be useful in determining any financial responsibility ordered to be paid by the organization. This is also a method to determine whether the decision-makers of an organization remain the same as when post-transactional enterprise due diligence process was being conducted.  

    Conclusion

    In conclusion, in the midst of the current economic crisis, increasing regulatory and media scrutiny, post-closing transactional and operative ongoing due diligence processes remain as valuable tools to ensure that business transactions, relationships, or investments are not jeopardized. These are not only in the best interest of the organizations as a whole but, also in the rational self-interest of senior management. Both these processes require effort and operational discipline to plan and implement. Monitoring these processes also provides an insight and indications of the current standing of a potential business partner. This up-to-date insight attained through monitoring provides the investors and business partners with the knowledge they need to make decisions that will help in the growth of the business and minimize the potential risks.

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    Sun, 08 Jan 2017 02:00:00 GMT
    <![CDATA[Be Aware, else Beware (Part I of II)]]> Be Aware, else Beware

    (Part I of II)

    'Ignorance of the law excuses no man; not that all men know the law, but because it's an excuse every man will plead, and no man can tell how to refute him'

    -  John Seldon

    The law has provided that an ignorance of a fact would be excused. But can a person be excused for his ignorance of the law? In 1974, a tenant had damaged the wall panels and floorboards of his rented apartment. He thought that he had damaged his own property since he had installed the fittings himself. Evidently, he was ignorant of the fact that the ownership of the fittings had transferred to the owner of the house. However, the British Court of Appeals acquitted the defendant and excused his ignorance of law due to the lack of men's rea or guilty intention in conducting his actions. [i]

    Ignorance and mistake are terms of ancient coinage. However, a precise distinction has to be made in order to determine the mistakes which could be excused by law and which cannot be. Judiciaries around the world have laid down impeccable guidelines and principles regarding the extent of ignorance which could be acknowledged by the law. The ambiguity of the different statutes pertaining to 'ignorance of law' has further extended the plight. However, ignorance is a voluntary misfortune. Further, the term ignorance of law is best known as a component of the maxim ignorance of the law is no excuse, which was derived from ancient Latin maxim ignorantia juris non excusat. This phrase captures an imperative concept about the culpability of a crime as it stems from a time when criminal law was grounded in morality along with a shared understanding of wrongfulness which has been referred to by the law as wrong in their essence. This legal principle holds that a person who is unaware of a law may not escape liability for violating that law merely because he or she was unaware of its contents.  The essential public character of a law requires that a legal provision, once properly promulgated, must apply to everyone in the jurisdiction alike,  thus excluding the possibility to justify one's conduct on the grounds that he was simply not aware of the law!

    The Jurisprudence

    Is it necessary for courts to always go back to the ancient Latin periods in order to perceive the existence of modern country and its control over the judiciary arena resulted in the existence of many principles to ensure that authorities will refrain from arbitrarily taking over an individual's rights and emphasizing the fundamental principles of legitimacy and justice. The essence of these principles set out that no act of a person would be considered as a crime unless the law has explicitly forbidden the same and has consecutively prescribed for a penalty. This implies that the law will be the fundamental source which describes the illegal capacity of an act. Federal Law Number 3 of 1987 on the Issuance of the Penal Code (the Penal Code) and Federal Law Number 5 of 1985 on the UAE Civil Code (the Civil Code) has embedded the provisions for 'ignorance of law'. Article 42 of the Penal Code and article 29 of the Civil Code has provided that 'ignorance of law' would not be excused in regard to the criminal and civil offenses respectively. Therefore, a person cannot claim the defense that he did not have any knowledge about the law of the land.

    The wisdom of this principle lies in the fact that the action which constitutes a crime should be known to everyone alike and should be profoundly set out in the law and no punishment may be applied on any doing whatsoever unless there is a text that states that such doing constitutes a crime and raises prescribed penalties. Thus if there is no text stating a prescribed penalty for a particular doing, the judge cannot consider such a doing as a crime even if he is convinced that such an act contradicts the concepts of justice, morals or religion. Moreover, the judge may only impose the penalty which is set out in the law, after taking into consideration the overall mitigating and aggravating circumstances of the case. What is stipulated is that the law should be known to everyone alike so people can be prompted to comply with it and to avoid any actions which may be considered as a crime. Once the above-mentioned provisions are complied with and come into existence, they should be made applicable, without exception to all people alike, regardless of the fact that they did or did not know converse themselves with the relevant provisions. It is thus unacceptable for anyone to claim ignorance of the law or a lack of understanding in a provision or claim, nor claim a misunderstanding of the law, thereby referred to b the term unacceptability of apologizing for 'ignorance of law'

    While some may deny the notion of this principle, it is imperative to note that its consideration falls much in line and in balance with legalities of a society. If people will be excused for their ignorance of the law, chaos will prevail everywhere as everyone will be entitled to claim so in defense of their crimes. The above-mentioned law, therefore, does not in any way come in conflict or contradiction to the principle of justice and equality before the law. Legal awareness is a supposed presumption and hence no person is liable to argue an ignorance of the law as a result of his/her personal sickness, illiteracy, or being absent in a country during the formation of the legal ruling.  The questions arise- is this principle applicable on all branches of legal rulings or is it restricted only upon the legislation alone? Are there any room for the acceptance of misunderstandings of this principle and if so what may be applicable? With regard to the scope of applying this principle, there is no dispute that the principle is applied to all legal rules whatever the source of the legal rules may be. Whether it is legislation, religion, tradition or the principles of Islamic Sharia, all principles are applied in fairness regarding whether these rules are imperative, supplementary or explanatory. The dispute, however, arose about the application of this ruling, on the concept of apologizing for the ignorance of the law and the idea on the possibility of annulling a contract as a result of what occurs to one of the contract's party when misunderstanding the law. The supporters of this view thought that the active forms a departure from the principle (prohibiting the apologizing for the ignorance of the law) and this apology would be accepted in a case of misunderstanding the law. However, there should exist a clear differentiation between the idea of apologizing for the ignorance of the law and the idea of misunderstanding the law in this regard.

    The idea of misunderstanding of the law is different from the idea of the ignorance of the judgment of the law mainly because to undertake it, we should exclude the judgment of the law and put it aside. Therefore if a person claims that is unaware of the judgment of the law, the likely result would be a disposition of the application of the judgment of the law upon him. This is in opposition in the case of misunderstanding the law because if the person misunderstood the law and adhered to this misunderstanding, this does not necessarily imply that he/ she did not adhere to the legal rule in which the misunderstanding occurred and subsequently does not wish it to be implemented upon him. In fact, he adheres to the application of the rule in which the mistake occurred and thus the rule remains valid for him despite his ignorance of it. Such is applicable in the case of the heir who sold his share in the estate with the impression that he is inheriting a quarter of the share when in actual terms it was actually only half. In this case, it is considered that the heir misunderstood the law thus allowing him the opportunity to cancel the sale. Therefore, if the seller adheres to cancel the sale based on his misunderstanding of the law, then he adheres to apply the legal rule which he was unaware about and the exclusion of its judgment on him will not be required as in the case regarding the principle of apologizing for the ignorance of the law.

    Conclusion

    The maxim which states that ignorance of the law is no excuse is generally applied in the criminal cases due to the existence of a criminal intent in the mind of the accused. Every person is presumed to have knowledge about the law of the land. Therefore, the public should ensure that they have an understanding of the various laws in the country in order to conduct their actions without any legal predicaments.

    In order to paint a clearer picture for the reader, Part II of this Article shall further elaborate on the application of the maxim 'ignorance of the law is no excuse' and the techniques which have been used by the judiciary in interpreting the same.


     [i] [1974] All Eng. Rep. 632 (CA)

     

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    Sat, 07 Jan 2017 12:00:00 GMT
    <![CDATA[Electronic Registration of Cases- Advantages and Legal Issues]]> Electronic Registration of Cases- Advantages and Legal Issues

    "The Internet is becoming the town square for the global village of tomorrow."

    -Bill Gates

    Introduction

    Dubai has evolved to become the marketing and commercial hub of the Middle Eastern region. A surfeit of investors, traders and tourists flock into the Emirate on a daily or rather an hourly basis. All of Dubai's biggest and most commendable feats have been due to its ability to take calculated risks and introduce the novel, bespoke and contemporary ideas. However, one could believe that disputes and legal matters within the region would eventually increase given the voluminous domestic and cross-border trade, an influx of investors and with the entry of diverse workforce. Therefore, this has simultaneously aided in the elevation of the number of lawsuits in the Emirate.

    To overcome these hurdles resulting from increased law-suits the Dubai Courts recently launched an innovative service named Al Salfa which allowed parties to register their cases online and thereby removing the barrier as to physically submitting claims before the court. This is the first program of its kind in the Emirate and is currently the basis on which cases are currently registered in Dubai. This new program promotes efficiency, speed, and ease, allowing users to register their cases at their convenience. In the first instance, this program was introduced in the year 2010 and was available only to registered law firms and lawyers in Dubai. Soon enough, however, this E-service became available to all clients, enabling them to register all types of cases, orders on petitions, provisional attachments, and summary actions electronically. Virtually every matter including real estate disputes, commercial, labor, civil and personal affairs could be instituted under this new online system. Further, the authorities have also permitted orders upon petitions of all kinds, precautionary attachments, and other urgent matters to be instituted electronically.

    The governmental authorities, on the other hand, began to make use of Al Salfa by registering legal delegations, such as delegations in execution or notification. In fact, this service was embraced by the Free Zone Authority in Jebel Ali as well to register all it's labor cases through Al Salfa, thereby saving workers the time and effort it would cost them if they were sent straight to Dubai Courts.

    On their website, the Dubai Courts clarify that the method of online registration, uploading of the statement of claims, and the documents attached thereto shall be reviewed by specialists at the E-services section. The competent authorities, then, would review the details of the case and the papers attached thereto to ensure the validity of the claims and electronically communicate with the suitor to update him on the status of his application.

    Need for Intervention

    As advantageous and easy to use this new service is, legal problems do arise on its application, which we will further explicate in this article. We will review these problems and propose solutions that may be contributed towards the resolving of these problems, hoping that these problems will gather enough attention to lead to registration of cases in all courts, free of any legal problems that may affect the rights of the litigant.

    The positive characteristics of electronic registration of cases via the Al Salfa program are numerous. Cases can be registered at any time and from any place in addition to the smoothness and rapidity of obtaining files and information, saving time, environmentally conscious reduction of paper waste, avoiding overstocked lawsuit files and reducing crowding in court buildings. Furthermore, this service is even available to specialists, judges, executives, bailiffs, secretaries and litigants. In the manual registration of claims, we see problems arising with names of companies that do not actually exist due to its legal form or a change in its name. Electronic registration removes this hindrance as well, as names and addresses are audited in order to establish the actual existence of natural and legal persons before judgment is passed.

    Despite the clear upsides to the usage of this service, the legal problems that arise from the application of this program might affect the validity of claims and procedures, leading to a judgment that doesn't accept a lawsuit or challenge.

    According to the laws stipulated by the Dubai Courts, there is a specific time period during which filing of lawsuits or registration of appeals is permitted and valid. The problem arises when we realize that electronic registration of cases is not technically done on the same day since it is subject to aforementioned reviewing and auditing, which could take months depending on the type of case that is filed.

    The dilemma here is to figure out if the date of electronic submission is to be considered as the date of registration of a case or not.

    Fortunately, however, the Court of Cassation resolved this dilemma by deciding that the date of submission of an electronic application should be taken into consideration [i]. Furthermore, Federal Law Number 21 of 2015 Establishing Judicial Fees of Dubai Courts (the Amendment), states in Article 162(1)"The appeal shall be filed by virtue of a memorandum submitted to the Case Management Office at the competent court of appeal. The memorandum shall be immediately registered either in the relevant register or electronically…" Thus, in accordance with the aforementioned law, the date of submission is formally considered the date of filing the appeal, thereby conforming to the time period restrictions on cases, as stipulated by the law.

    In order to file a challenge before the Court of Cassation or Court of Appeals, one must deposit a security with the treasury in order to ensure the validity of the deposit and for orderly compliance.

    Under Article 37, the Amendment, it is stated that [ii]:

    {i.         - The claimant, upon submitting the challenge by appeal in the lawsuits relating to rights, should deposit a security amounted to (AED 1000) in the court treasury.

    {.          - The claimant, upon submitting the challenge by cassation in the lawsuits relating to rights, should deposit a security amounted to (AED 3000) in the court treasury.

    Given that matters were manually registered prior to the launch of Al Salfa, there were no problems depositing a security in person. The Court of Cassation has decided in several judgments that in cases where a petition was challenged before the Court of Cassation and where such petition did not carry a proof of payment towards applicable fees, such petition would not be accepted as a challenge by the court [iii]. (unless the claimant is not exempted from paying the fee as decided as per the provisions of the law.) However, the aforementioned Article 162 of the Amendment doesn't mention the deposit form of security required for an appeal when matters are registered electronically, nor makes any reference as to any such requirement. This legal conundrum, to us, is one of the most concerning contradictions that arise due to the application of the Al Salfa E-service.

    Conclusion

    As we see, the creation of an E-service like Al Salfa has definitely eradicated several cumbersome problems when it comes to registering cases manually and has proven incredibly advantageous to its users. It is a fascinating and commendable service that does its users a whole lot of good. However, there are some legal complexities that might complicate the usage of this service and encumber it with a sense of powerlessness.

    As a solution, our proposal to a concerned legislator would be the amend the law relevant to the judicial fees of Dubai Court in order to not contradict the Law of Civil Procedures [iv], or perhaps, to cancel the condition of depositing a security upon submitting the statement of appeal. This would be a good way to avoid any doubt regarding the acceptance of appeals that are registered electronically.


    [i] Judgment issued by the Court of Cassation in Dubai on 7/2/2016 in challenge number 709/2015-comemracil.

    [ii] Federal Law no. 11 of 1992

    [iii] Judgment issued by the Court of Cassation Dubai on 15/6/2010 in the challenge No. 144/2010- commercial.

    [iv] supra

     

     

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    Sun, 01 Jan 2017 12:00:00 GMT
    <![CDATA[Extension of Time in Construction Contracts ]]> Extension of Time in Construction Contracts 

    The construction contracts are generally prepared as per Fédération Internationale des Ingénieurs-Conseils (the FIDIC) red books 1987 and 1999, yellow book and silver book contract forms specifically in UAE to deliver projects. The legal provisions applying to such contracts are UAE Civil Code, Federal Law No. 5 of 1985 as amended. The construction contracts are governed inter alia by Articles 872 to 896 and contractual provisions depending on its consonance with laws.

      This Article accentuates the entitlement of the contractor/subcontractor to "Extension of Time" (the EOT) under construction contracts. Just as liquidated damages are meant to discourage contractors from undue delay in completion of projects and entitle the employer (which is a misnomer for owner) for compensation, Extension of time can be considered an encouraging clause to claim for any undue delay caused in the completion of construction due to events which are not attributable to the contractor. In sum, EOT clauses are embedded into contracts on the notion that no party should gain from its own breach or default.   The important clauses and/ or principles to be considered when dealing with this subject are completion time, preventive principle, time bar clause, time at large, the extension of time clause and liquidated damages clause. For the sake of commercial certainty, the completion date is usually found in contracts and these are effectively based on practical considerations of the project. Accordingly, the contractor is under the legal obligation to comply with the agreed time- limit and handover the project. Time being of the essence in contract, failure by the contractor to handover within the agreed time-frame could trigger a claim for liquidated damages from the employer.  However, the wide range of activities and circumstances may lead to the uncertainty of completion of the project as it is difficult to be accurate about completion in mammoth projects due to reasons ranging from force majeure, variations, the supply of labor, delay in procuring materials etc. by a party or parties to contract. The preventive principle is the common law principle applied to protect contractors (from potential claims involving liquidated damages against them) from the delay caused by the act of employers who prevent (deliberately or otherwise) timely   completion of project work(s). The result of such principle is to have an extension of time clause so as to prevent the employer from being incapacitated to extend completion time and potentially to enable the contractor to establish that the completion time has become at large. Hence it is in the interest of not only contractor but also of the employer to have an EOT clause. As "Time at Large" means the contractor escapes the liquidated damages clause and his obligation is now to complete within a reasonable time.   Generally speaking, construction contracts provide for a clause whereby contractors may be allowed to extend the date of completion in the event that a notice is served to the employer consistent with the provisions of the contract. Failure by the contractor to meet notice requirement could entail a claim against the contractor for liquidated damages. The construction contract providing for a clause on extension discussed above is also referred to as "Time Bar clause". These notices become the condition precedents to the claim of EOT.    The circumstances giving rise to the entitlement of EOT are as follows:    1. Employer's Acts of delay: Preventive principle aim at safeguarding contractors from potential claims for liquidated damages for the delay caused on account of acts of the employer. In the context of the United Arab Emirates, the corresponding provisions for safeguarding contractors can be found under Article 247 of the UAE Civil Code which reads as under:-    "In contracts binding upon both parties, if the mutual obligations are due for performance, each of the parties may refuse to perform his obligation if the other contracting party does not perform that which he is obliged to do."1    This Article works against the employer and entitles the contractor for EOT against the acts of delay attributable to the employer for breach of its obligation to work in good faith while performing his contractual obligation. Another provision of the UAE Civil Code which has the effect of preventive principle is Article 287 which reads out as under:-   "If a person proves that the loss arose out of an extraneous cause in which he played no part such as a natural disaster, unavoidable accident, force majeure, act of a third party, or act of the person suffering loss, he shall not be bound to make it good in the absence of a legal provision or agreement to the contrary."   In the context of the above Article 287, we can note that the limitation imposed by this Article has the legal effect only and only in cases where parties have no agreement to the contrary. F  This covers all external reasons that are not caused by contractor subject to the contrary being agreed in the contract terms.   2. Payment   Payment mechanisms in construction contracts are regulated by and based on generally accepted business customs. These may include – bank guarantee(s), bonds, or payments by employers on the installment basis. These payments may effectively be linked to construction milestones requiring contractors and qualified engineers to submit their timesheets in an agreed form and timeline. To protect larger interests of employers, contracts also have defects liability clauses in construction contracts. The defects liability clause has the legal effect of employers retaining an agreed percentage of contract consideration.   Speaking of payments and accepted business customs, contractors and sub-contractors may also be paid on 'pay when paid' basis which is generally referred to as a "back to back" contract arrangement. Under this scheme, the contracts between contractors and sub-contractors mirror the clauses found in the contract signed between employers and contractors. In the United Arab Emirates, the Muqawala form of contracts falls under the above scheme.   In absence of any such provision, the law lays down under Article 885 and Article 891 of the UAE Civil Code to this effect as follows:-   "The employer shall be obliged to pay the consideration upon delivery of the property contracted for unless there is an agreement or a custom to the contrary." "A sub-contractor shall have no claim against the employer for anything due to him from the first contractor unless he has made an assignment to him against the employer."   Back to back payment terms provide advantages to the main contractor. For instance, the entitlement of subcontractor for EOT may not provide EOT to the main contractor from employer thereby exposing the main contractor to double liability in absence of back to back payment term. The double liability includes granting EOT to the subcontractor and paying liquidated damages to the employer at the same time. In view of the judgment the lumpsum contracts have to be executed as per the agreed plan and are not subject to variation as the intention of the law is to protect the employer who is a person with little technical experience. However, the court held that the same does not apply between contractor and subcontractor as they both have equal technical aptitude and know-how.   Article 247 of the Civil Code is also relevant when speaking of payments. Thus unpaid contractor can slow down or even suspend the work lawfully with maintaining entitlement to EOT as delayed payment leads to delayed completion and does not render the contractor liable.   3. Variations/ Additional work in scope and nature of work   Variations are common to the construction industry. FIDIC based contracts also provide for broad variation clauses to accommodate the rights and interests of parties concerned. Whilst FIDIC form of contracts are generally relied upon as templates by construction professionals, parties are an absolute discretion to amend and modify these clauses to best fit and suit the requirements of the project and/or the parties. The effect of variation clause may impact several considerations but it certainly has an impact on pricing in most cases. Under the fabric of Islamic sharia, the emphasis is placed on the term 'gharar' which prohibits loss to one of the parties and unjust enrichment to other thereby giving rise to 'extension of time' to recover additional charges.  The variations have several impacts on the EOT. The variations which may lead to uncertainty and loss to other party and unjust enrichment of other can be considered to be prohibited as per Islamic principle of "gharar" and hence entitling EOT for recovering additional charges. Article 887 of the Civil Code dealing with lumpsum muqawala contracts provides as under:-   "(1) If a muqawala contract is made on the basis of an agreed plan in consideration of a lump sum payment, the contractor may not demand any increase over the lump sum as may arise out of the execution of such plan. (2) If any variation or addition is made to the plan with the consent of the employer, the existing agreement with the contractor must be observed in connection with such variation or addition."    The condition imposed in Article 887 implies amending the remuneration and the completion time as per the variation and observing the terms of the contract in relation to the variation. If the variation has caused the critical delay in its work schedule the contractor may be entitled to EOT provided it is notified in a timely manner. The contractor can also raise the dispute in the manner stated in the contract for dissatisfaction on engineer's assessment of invoice raised, quality and quantity or reasonable rates of such variation.   4. Actual loss    The contracts may have pre-determined value for damages however as the court has right under Article 360 part 2 to adjust the compensation to be equal to actual loss the contractor can be impliedly said to have been granted EOT for the delay which did not cause any loss to the employer.   5. Other reasons entitling EOT    The various other reasons that are considered by the courts for granting EOT are stated as follows: Article 249 of the Civil Code considers unforeseeable exceptional events that have public nature occur and renders performance of the obligation arduous although being possible but in a way threatening the obligor with severe loss. In such event, the judge may reduce the oppressive obligation to a reasonable level if justice so requires, and any agreement to the contrary shall be void. This prevents the contractor from unreasonable events or factors that may affect its performance or completion of the project. This effectively saves the contractor from to weighing each party's interest, as a rule of public policy. It is pertinent to note that this is different from the case of force majeure. In fact, this Article defines a borderline between force majeure and unforeseen contingencies.  Consequences following force majeure are stated under Article 273 of UCC. The Article has two parts one automatically cancels the contract in case of force majeure rendering the performance impossible. The second part of the Article states that in case of partial impossibility or temporary impossibility that part of the contract shall be extinguished and obligator has right to cancel the contract on informing the oblige. In case of defaults of the subcontractor, the contractors are acquitted of their liability in delays. Though it is not specifically laid down in provisions, the judges (Dubai Court of Cassation, 266 of2008 decided on 17 March 2009) consider the fact on the case to case basis as relieving from delay liabilities attributable to a subcontractor as preferred by the Engineer or the Employer.    FIDIC form entitling EOT for cause of delays    The FIDIC forms considers various factors such as Change in the amount or nature of extra or additional work, any cause of delay referred to in the FIDIC Red book 1999 conditions such as stated under (i) clause 4.7 - Delays that result from inaccurate plot reference point and levels; (ii) 8.4(d) - unpredictable shortage of material and manpower caused by epidemic or actions of government (iii) 8.5 - unpredictable Delays caused by Authorities provided that the Contractor has diligently abided by its procedures (iv) 10.3 - Employer's Prevention of the Contractor's to conduct the Completion Test (v) 13.7 - Modification for any increase or decrease in cost resulting from changes in Laws (vi) 17.4 Employer's risks' consequences (that cause loss or damage to the documents of the contractor or his works or goods) (vii) 19.4 - Force Majeure.  The other causes of delay considered for entitling EOT under FIDIC 1999 red book inter alia are exceptionally adverse climatic conditions, any delay, impediment or prevention by the employer and other special circumstances which may occur, other than through a default of or breach of contract by the contractor or for which he is responsible. The specific provisions provided under FIDIC are under subclauses such as 6.4 for delayed drawings, 12.2 for unforeseen conditions or physical obstructions, 36.5 for delay in certain tests requested by engineer, 69.4 which entitled EOT for delays which are resultants of reduced speed of works or suspension due to non payments, 40.2 for delays due to suspension instructed by engineer and 42.2 delays in giving possession of the site. It is pertinent to note that the condition stated in the contract such as written notice, instructions in writing, procedural requirements stated in the contract and so on need to be complied with for claiming EOT. The judgments passed on this subject are uncertain, wide-ranging and diverse as the facts of the case and judge's discretion are of enormous consideration.   Conclusion:    General clauses which are rendered vague and ambiguous due to poor drafting provide room for interpretation. This principle is clearly laid down in Article 265 of the Civil Transactions Code:   "(1) if the wording of a contract is clear, it may not be departed from by way of interpretation to ascertain the intention of the parties.  (2) If there is scope for interpretation of the contract, an inquiry shall be made into the mutual intention of the parties without stopping at the literal meaning of the words, and guidance may be sought in so doing from the nature of the transaction, and the trust and confidence which should exist between the parties in accordance with the custom current in dealings"   In view of the fact that most of the construction contract disputes are predominantly due to payments resulting from EOT or liquidated damages. Express terms need meticulous drafting expressing clear intentions of parties.   ]]>
    Mon, 04 Jan 2016 12:00:00 GMT
    <![CDATA[Hotel Management Agreements and UAE Law]]> Agreeing with your spouse to reimburse him or her after a shopping trip? A contract. Buying a plane ticket? A contract. Signing an offer letter from an employer who has offered you a job? A contract. A multi-page complex document laying out the terms and conditions of a high-value corporate deal? A contract. 

    Does contract law really serve any purpose? If so, why do businessmen often resort to and rely on 'a man's word' knowing that a transaction may involve inherent risks? I Even in the current investment climate, are contracting parties now employing more sophisticated or advanced risk planning and management policies or pleasantries and ambiguity in contracts still continue to operate?  If the objective of contractual clauses is to cement the relationship between the parties then why is such binding effect often flexible and informal? Would imposition of strict legal sanctions disrupt the relationship of two contracting parties? The term contract as per standard contract law textbook theory is nothing but the meeting of 'wills' or 'minds'. If the will is really free, why can it not change its mind? ii Will holding parties strictly to their promises, ' operate harshly and unfairly in many instances?'ii

    By way of example, in the infancy stage of a transaction, the parties are willing to accommodate the needs and demands of the other. But as with all infants, they grow up to be toddlers who now demand more and eventually into teenagers who cannot agree on anything. This is where future planning and drafting of agreements that rely on contract law plays an important role. Contract law indisputably forms the nucleus of most arrangements as it dictates, supports and controls the millions of agreements that collectively make up our economic nexus. Commercial transactions require parties to assure each other of certain rights and obligations. This is where Contract law comes into play- both when drafting the terms sufficiently so as to ensure that the contract will be upheld in a court of law and in the case where either party defaults on its obligations.

    In order to understand how different a real deal is from a paper deal, sophisticated investors who have clear requirements often engage seasoned counsels and financial advisers in the planning process. When speaking of sophisticated and complex investments, the hospitality industry becomes a dire favorite discussion, primarily because the complexities and stakes involved in building, operating and managing a hotel property are intricate.
    the law comes into play- both when drafting the terms sufficiently so as to ensure that the contract will be upheld in a court of law and in the case where either party defaults on its obligations.   Dubai's thriving hotel industry recorded an average occupancy of approximately 85 percent in 2014. The statistics suggest that Dubai's, and on a broader note UAE's, hospitality landscape presents a significantly healthy prevalence of hotel operation and hotel management agreements therein.  
     

    As the Middle East began to develop in the 1970s and 1980s and the subsequent need for hotel accommodation arose, the large international chains were first on the scene. Given the open and predominantly empty market, such chains were free to enter into management contracts on their own terms. Yet as development continued and the tourist industry flourished in the 1990s, competition increased and owners began to insist on retaining more control over their properties in order to maximize their operating profits in the booming market. Predictably, the growing market attracted further investment, thus having the effect that the number of operators in the Middle East increased. Strong competition within the industry has consequently resulted in incentive fees, shorter contract periods, fewer renewal options and strict performance clauses. The dynamics of the hotel industry and hotel management contracts have clearly witnessed a dramatic change in recent years. The first installment of this two-part series aims at covering some of these changes along with the broad areas of hotel management agreements in the UAE. In Part II (to be covered under Court Uncourt Volume II, Issue III) we will be looking at the different forms of hotel management arrangement in UAE and Qatar.

    Unlike in the past, where American and European hotel operators predominantly had a fair share of the footprint in managing hotel industry across the World, today developments in the field of science and aviation have increased opportunity for travelers globally, thereby increasing demand for hotels and a subsequent dilution in the once prevalent dominance. Although the power of international brand name continues to enjoy its privileges, competition in the hotel management industry has evidently resulted in the entry of new players, new ways and productive means of negotiating the hotel management contract with the owners. This competition is indeed healthy and allows operators and owners to fully determine the synergies and prospects before executing the deal. Based on experience, let's take the case of a hotel management contract that is due for renewal.

    ABC is the owner of a plot and appointed JKL as their hotel operator almost fifteen years back. The term of the hotel management contract was limited to fifteen years, and ABC and JKL will now need to sit and re-negotiate the terms of renewal. The emphasis here is on the 'renewal' process and technicalities surrounding therewith. Prior to or during the course of renewal, each party is likely to have thought over the renewal process and those terms of negotiating the contract that will serve their best interest. During the process, each party is advised by their counsel on conditions precedent for renewal under the present contract. One of such conditions agreed mutually by owner and operator is refurbishment of the hotel property. The Parties are now posed with some serious questions including but not limited to the following:-

  • Treatment of employees during the refurbishment – whether the employees must be terminated from the existing payroll, be retained or whether only key employees must be retained;
  •  Role of the operator during the refurbishment process and payment of management fees if the contract is silent in this regard;
  •  The possibility of the operator entering into a non-disturbance agreement with the owner for the smooth operation of the hotel property and to ensure revenue generation is not hampered;
  • and Provisions relating to the sale of the hotel by owners and valuation of the hotel property
  • The hotel management agreement, considered by many as cliché, is, in fact, one of the key documents that act as a moderator in defining the ownership and operation roles. Regardless of ABC and JKL's respective positions, both are subject to the effects of the way in which the hotel is managed, and thus would mutually benefit from a contract structured in such a way so as to include the following provisions:-

    • The term of appointment;
    • Operator's fees; 
    • Operator's obligations and guarantees;
    • Owner's obligations;
    • Reserve Fund – Furniture, Fixtures, and Equipment;
    • Capital expenditure and insurance;
    • Termination and events of default;
    • and – Dispute resolution procedures

    There is no denying that Dubai is set to see vigorous growth in the hospitality sector by 2020. The year 2014 saw positive amendments for the licensing of hotels in the region. Dubai Department of Tourism and Commerce Marketing (DTCM) formed a specialized office to oversee the licensing and approval procedure for hotels, and at the same time, the period for preliminary consent was reduced to two months, as opposed to the earlier six months period. The Government now aims to provide land for development of three and four-star hotels on favorable terms. It also aims to waive off the ten percent Municipality tax for hotels that are due to be operational by 2017. As such, foreign investors have varied options ranging from choosing a joint venture partner or owning and managing properties in designated areas.

    While the options seem too many and too lucrative, a prudent party to such contract would not ignore the conservative nature and the infancy stage of legislative reforms within the hospitality domain in this part of the world. As the introduction to this article suggests- it is never the 'getting in' of a contract which causes trouble, but the 'getting out'. Dubai has and continues to witness its fair share of court battles between parties that were once allies in hotel operations. Regardless of internationally acknowledged boilerplates, the need to intrigue local and legal customary usage remains a driving force for successful ventures in the UAE.

    ]]>
    Fri, 10 Jul 2015 12:00:00 GMT
    <![CDATA[Hotel Management Agreements in the UAE ]]>

    While driving back from work yesterday I noticed a renowned hotel brand had popped up in my community out of nowhere. A few days back that same building was supposedly a mixed-use development, but it now boasts the logo of a luxury hotel chain. As discussed in the first installment of this series, statistics show that Dubai hotels welcomed 11.6 million guests in 2014 alone – in addition to this the global economy is recovering, and the recent development in my neighborhood therefore shouldn't come as such a surprise. 

    When driving past the hotel in question, it is abundantly clear that it has some way to go before it is ready to open its doors for business. Scaffolding is still in place, there are no glass panes in the windows and the surrounding areas are yet to be landscaped. Yet although the work of the various hotel employees may not start until the first rooms are occupied, other professionals have their work cut out before the construction boundaries have even been set up. This includes the lawyers, whose involvement in hospitality projects starts from the very scratch. Almost without exception, hotel projects will require lawyers to negotiate and draft any agreements for the sale and purchase of the hotel plot, joint ventures between the landowners and developers, franchising arrangements, construction contracts and so on. As a consequence of this, lawyers are often witnessing to the complexities surrounding the regulatory requirements of the hospitality industry which can lead to legal hassles. In our last issue of Court Uncourt we examined hotel management agreements (HMAs), focusing particularly on cases of hotel renovation processes. In this article, we shall discuss the essential elements of a well-drafted HMA, and additionally address the procedure for converting an existing property in a hotel property.   In terms of governing bodies, the UAE hospitality industry is largely governed by the Abu Dhabi Tourism Authority (ADTA) and Department of Tourism and Commerce Marketing, Dubai (DTCM) in Abu Dhabi and Dubai respectively. In response to the question of whether a residential or commercial building can be converted into a holiday home or hotel, yes - this is possible, subject to the approval of the governing body. A number of compliance procedures need to be followed if your project involves this scope of work. For instance, if you have agreed with a building owner to long lease the property and operate the same as the hotel, you will be  poised with questions relating to:    (i) the treatment of tenants;  (ii) type of rights granted (whether in rem, in personam or quasi-rem rights); and  (iii) due procedures to be followed for the issuance of the approval   Each of the above questions is answered in a legal due-diligence which precedes the process of application to the authorities and grant of related approvals. Both ADTA and DTCM have set out a list of general information along with respective application forms for such an approval which have to be duly provided. As with any commercial unit, the process involves fresh approvals from a health and safety point of view.    i. Business tenancy  One of the most imperative conditions for a well-drafted HMA is a clear demarcation between management and leasing rights. To put it simply, tenancy rights are restored in a person by signing an agreement for uninterrupted use of a property for a defined term. Management agreements, on the other hand, are an assignment of rights to manage on the terms and conditions set out by the owner. When negotiating an HMA one must exercise due care to understand if any indirect tenancy rights have been vested with the operator.  The considerations in this regard evolve due to the fact that several legal implications arise when an indirect tenancy is created.  Firstly, if the operator is able to prove that your HMA is, in fact, a long-term lease agreement instead of an HMA the nature of your contract is heavily affected. The contractual terms may, therefore, be subject to provisions of prevailing tenancy laws instead of the Federal Commercial Transactions Law. Secondly, the direct effect of the former would have a knock-on effect on the dispute resolution clause. Tenancy disputes are not within the ambit of arbitration and must be submitted to the rent committee, who by law have exclusive jurisdiction over any rental disputes. Naturally, the rent committee (s) have limited exposure in the interpretation of contracts as against the courts or arbitral bodies. Thirdly, an owner who may be holding a leasehold title for the land cannot legally enter into a tenancy agreement without a prior approval for sub-letting the land. In the absence of such clear sub-let provisions in the principle tenancy contract, the owner may face legal implications for assigning a title not owned by him.    ii. Exclusivity and division  Negotiation of HMAs reaches dead ends where operators and owners argue on the exclusivity of management rights. Most contracts restore unfettered management rights on the operators while financial rights are restricted. Such provisions create a general imbalance between the rights and liabilities of the parties. An HMA is required to make provisions relating to financial activities based on the feasibility study of the hotel project. In the event of a dispute between the parties, the death of a party or any such unforeseen event, the cash flow for hotel operations must not be affected. That said, key considerations including capital and reserve funds should be addressed in an HMA.    It is therefore imperative to exercise caution and consult seasoned attorneys when negotiating and drafting an HMA. There are several aspects of the agreement that can have a significant impact on the operational and financial functions of a hotel. We at STA will continue to bring forth aspects of the burgeoning hotel industry – just think of us as the legal chocolate on your hotel pillow.     ]]>
    Fri, 08 May 2015 12:00:00 GMT