СТА - ведущая юридическая компания в Дубае с офисами по всему мируhttps://www.stalawfirm.com/ru.htmlSTA Law Firm - Блоги - DIFCruCopyright 2024 STA Law Firm All Rights Reserved<![CDATA[Legal Updates to DIFC Employment Law]]> Legal Updates to DIFC's Employment Law

"Workers rights should be a central focus of development."

                                                                                                      -Joseph Stiglitz

Introduction:

The Dubai International Financial Centre announced the the Employment Law Amendment Law No. 4 of 2021, which changes the Employment Law. The DIFC Authority's Board of Directors recently announced new Employment Regulations, which align the Qualifying Scheme regime with the DFSA's Employee Money Purchase Scheme, resulting in only a single layer of regulation for these schemes. The revisions to the Employment Legislation explain the applicability of limitation periods to claims brought under the law, the accrual of vacation leave, the duration of the probationary period for short-term fixed-term contracts, and the definition of specific terminology used in the law. The Amendment Law also alters the Employment Law's essential workplace health and safety criteria to accommodate working from home arrangements.

Key Changes:

  • Limitation Period: The New Law maintains the six-month limitation period established by the Old Law, as well as the right of employees to file claims while they are employed. In respect to claims for improper deductions from, or non-payment of, payments owing to an employee, the New Law defines when the six-month limitation 'clock' starts. Except where the sums claimed are for maternity pay, paternity pay, pay for time off for ante-natal or adoption proceedings, sick pay, end-of-service gratuity, or contributions to any qualifying plan, the 'look back' period is certified to be two years.
  • Probation Period: According to the New Law, for employees hired on a fixed-term contract for six months or less, the probation period can't be more than half of the contract term. For instance, if an employee is hired on a four-month contract, their probation time may be limited to two months.
  • Annual leave: Employers and workers can agree on an amount of accrued annual leave to be carried forward under the New Law, as long as it is no fewer than five working days. The New Law further clarifies the Old Law's slightly unclear stance, confirming that the parties can agree on a larger carry-over sum. Following the Old Law's provision of statutory paternity leave, the New Law ensures that annual leave will continue to accumulate during paternity leave, whether for the New Law's five-day period or any longer time that the employer may provide.
  • Different working models: The Old Legislation expressly allows a third-party employee to be seconded to a DIFC firm. The employee's employment can continue to be regulated by a law other than the Old Law. The New Law now extends to secondees some statutory responsibilities and rights, including confidentiality obligations, following an employer's orders, and protection from discrimination and harassment. Under the New Law, short-term employees (defined as employees who work for less than 30 days in 12 months) are now protected from discrimination and harassment. The New Law confirms employers' duties when workers work from home, with companies being compelled to:
  • Equip the employees with information and training as well as safeguard their health and safety
  • Notify workers in writing of any hazards associated with their jobs and the preventive measures they should take at the time of hire and comply with their general responsibilities to protect the health and safety of all employees, as far as is reasonably possible (including those working from home).
  • Employers are not obligated to verify that any measures are in place at an employee's home in the event of a fire or the transit or use of hazardous products or chemicals.

    • Qualifying Schemes:

    Employers can use the default DIFC Employee Workplace Savings Plan (DEWS Plan) or an alternative plan (Qualifying Scheme) under the Qualifying Scheme savings regime, which went into effect in February 2020. However, following implementation, the DIFC Authority and the DFSA had difficulty evaluating applications from other eligible schemes run by foreign service providers.

    A Qualifying Scheme, as well as its trustee and administrator, must be created in the DIFC and governed by the DFSA, save where:

  • In another nation, the employer is required by law to make pension, retirement, savings, gratuity, or other similarly comparable payments to a system for those employees; or
  • The value of such payments (not including any revenue or contribution made by the employer or the group to the costs of managing the plan) exceeds the essential benefits provided under the New Law. The employer is paying the payments to a group scheme on behalf of the employees.
  • Employers in the DIFC who are currently using a savings scheme as an alternative to the DEWS Plan that does not meet the proposed new requirements will have a 12-month grace period to move to a different employee savings scheme going forward (from the date the new legislative requirements take effect).

  • Fee: Employers asking for a Certificate of Compliance or an Exemption Certificate now have to pay a charge of USD500.
  • Deductions: Employees' capacity to make claims for improper deductions from their earnings have been regulated, and claims for overdue wages dating back two (2) years have been limited (subject to some exceptions).
  • Conclusion:

    The changes to the Employment Law and Regulations reflect the Centre's ongoing commitment to maintaining a transparent and robust legal and regulatory environment in line with international best practices.

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    Sat, 02 Apr 2022 17:28:00 GMT
    <![CDATA[DFSA New Regulations on Investment Tokens]]> DFSA's new regulations on Investment Tokens

    In a few decades, technologies have had the most significant impact on the life of people. It's not because of social media, drones & robotics, the Internet of Things, machine learning. Still, the changes are happening due to the underlying technology of digital currencies such as cryptocurrency, Bitcoin. Nowadays, we rely entirely on the mediators such as the government, banks, credit card companies, etc., for the growth and establishment of trust in our economy.

    Therefore, a protocol of digital cash was developed, which used an underlying cryptocurrency called bitcoin. This cryptocurrency enabled people to do transactions without mediators. Ethereum, Litecoin, Bitcoin Cash, Dogecoin, tokens are some of the virtual currencies.

    In UAE, Dubai Financial Services Authority's new regulations were introduced, which govern investment tokens in and from the Dubai International Financial Centre (DIFC). This article is about the new regimes on investment tokens by DFSA.

    Investment tokens in UAE

    Tokens are defined as "a cryptographically secured digital representation of value, rights or obligations, which may be issued, transferred and stored electronically, using Distributed Ledger Technology (DLT) or other similar technology." Crypto tokens (investment tokens) are a kind of virtual currency token that requires another platform.

    In October 2021, Dubai Financial Services Authority (DFSA) announced a new regime that standardizes the regulation of Security Tokens in DIFC. In March 2021, the first phase of the consultation paper was issued, which DFSA has digital assets regime. Initial coin offering (ICO) is how investment tokens are created and sold by crowdfunding exercise.

    The Dubai Financial Services Authority considers the tokens to be a part of financial instrument and scrutinizes concerning:

  • The protection of investors
  • Pre-requisite disclosure and demeanor by the service provider
  • Reliability of market.
  • A stable coin, also a cryptocurrency, will probably be enclosed in DFSA's second consultation paper.

    Types of investment tokens:

    The regulated tokens introduced by DFSA are Investment Tokens. There are majorly two types of investment tokens, they are:

    Security Tokens – Security tokens represent assets based on the block chain model. Alternative investments have been represented by the security token, which includes mathematical models such as stocks, real estate market, gold, art, etc.

    Derivative Tokens – These tokens are known as derivatives because they derive their value from other tokens. It represents market derivatives by tokenizing everything, such as futures or options.

    These two forms of investment tokens are tokens that bestow on the rights and responsibilities indistinguishable from those that were deliberated by security or derivative. In the DIFC, this token investment plan will apply to all the firms that want to issue investment tokens.

    Key features on investment tokens:

    • Investment tokens provide direct admittance to trading venues. Originating from the current transitional model of trading, the retail client is the most critical deviation.
    • It clears the way for the entrance of trading of Investment Tokens on DFSA regulated exchange.
    • Those who hold Investment Tokens in the digital wallet provider category put a place for additional requirements.
    • It offers additional requirements for investment tokens in asset organization activities and financial service providers who advise, deal, and arrange.
    • Disclosure of documents used for offering and marketing investment for brochures.

    Audit requirement:

    As per the new regulation of UAE on investment tokens, all the authorized firms must conduct a technology audit for better enablement of investment tokens that includes holding or controlling the investment. It relies on Distributed ledger technology (DLT) or any other similar technology for enabling financial services concerning Investment Tokens.

    Concerning the compliance of an authorized firm, a third-party expert should carry out the technology audit with the assistance of technical resources and requirements imposed by the government on it. A written report of the audit must be submitted to Dubai Financial Services Authority (DFSA) by the auditor. The authorized firm has an encumbrance to satisfy the Dubai Financial Services Authority regarding the professional overseeing the relevant audit.

    Investment Token would apply to:

    • Parties interested in trading, holding, or issuing investment tokens from DIFC would be covered under this regulatory framework. Firms that are authorized and wish to undertake the services of investment tokens would also be included in this framework.
    • For doing the activities related to Investment Tokens and to procure the approval and authorization, it is required that the parties willing to trade in Investment Tokens should mandatorily submit a detailed analysis to the DFSA.
    • It also guides in clearing out about the token that which type of token it is; whether it is an Investment Token or any other kind of token to the person or company who wishes to carry out any activity regarding this.
    • Furthermore, anyone who needs approvals and licenses for financial activities regarding crypto-assets will be issued by Dubai World Trade Centre Authority. This framework was allowed by DFSA. Cryptocurrencies like bitcoin, utility tokens, investment tokens, and stable coins are expected to cover under this.

    Rules and regulations for digital wallets:

    Digital wallets are those kinds of wallets where tokens are stored that can be retrieved by using an amalgamation of both public and private cryptographic keys. The digital wallet service providers must ensure that:

  • The Distributed ledger technology should be flexible and consistent.
  • The digital wallet should identify that which investment token belongs to whom
  • There must be a proper procedure that should be specified to clients. It should maintain appropriate records and data of clients in respect to transactions of investment tokens.
  • Conclusion

    As the investment tokens are a part of the first phase of the digital assets regime, it is relevant to investment advisors, asset managers, ATS operators, fund managers, and custody providers. In the future, the investment token I will enhance the opportunity for innovative fintech by licensing tokenized crowdfunding platforms and Digital wallet providers. The second phase of cryptocurrencies will be coming soon in the form of Utility Tokens Stable coins.

     

     

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    Sun, 05 Dec 2021 13:51:00 GMT
    <![CDATA[Economic and Fraud Provisions in Middle East]]> Economic and Fraud Provisions in the Middle East

    "There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud."

    - Milton Friedman

    Economic fraud is a term that has been repeated over the years, so much so that the consequences it bears do not have any precedence or impact on the ones that hear it. For many companies and capitalist machinery, this term essentially triggers them to explore options to hide their fraudulent tracks and continue operating in the same manner. To have governments help them cover the tracks in certain jurisdictions ultimately defeats the purpose of the assignment.

    Despite the incongruent activities of individuals, companies, and governments from the expected norm of justice in many jurisdictions, other countries are tenacious to implement a regulatory framework that will eradicate such fraudulent activities in the market. This article will discuss the economic and fraud provisions established in the Middle East, their effectiveness, and the scope of reach it possesses about financial crime.

    What are the Economic and Fraud provisions in the Middle East?

    If one area of the economy has seen a steady increase in the past years, it would be the economic fraud prevalent in society. Regardless of the number of provisions that jurisdictions and international organizations establish to combat financial fraud, none of them seems sufficient. The parties involved in economic fraud and other fraudulent practices are constantly evolving to cover their tracks efficiently.

    Infamous scandals like Bernie Madoff and the Ponzi scheme leave one in absolute awe as it remains unclear, what is the culprit: the crime or the criminal? Many innocent parties, including employees and clients, were adversely affected by the ill-doings of these financial schemes. After the outburst of many scandals and its impact on many innocent individuals, jurisdictions are trying to fasten their pace to stay a step ahead of wrongdoers and hopefully eliminate the potential threats in the market.

    The introduction of new anti-economic fraud regulations has paved the way for potential investors to feel a sense of security over their investments within the market, along with the ability of the regulations to enforce justice. Over time, people have understood that the formation and establishment of an anti-fraud legal framework are not sufficient to ensure peace and harmony in the market, an iron fist must be imposed on fraudulent parties and companies to deter them from doing such activities in the future and serving it as a lesson for other participants in the market who bear similar intentions.

    The types of economic fraud can be quite varied and are spread across different industries and the scope of nature. These could include housing benefit fraud, tenancy fraud, council tax fraud, blue badge fraud, social care fraud, business rates fraud, insurance fraud, bribery, and money laundering. These are just a top layer of economic crimes prevalent in an ocean of fraudulent activities in the market. The crimes that are more coherent to the wrongdoings in the market include not declaring the business location, stating that a property is not in use while it is, dishonestly requesting for an exemption to pay for charges that are owed, or any unauthorized movement of money to make ill-gains.

    Often, economic crime is caused not by companies but by customers towards companies. The highest reported crime boost in the Middle East is through customer fraud and procurement fraud, which have proved to be the most disruptive fraud within an economic crime. In a survey conducted on a global platform, the number of customer frauds was comparatively more in the Middle Eastern region.

    In an ongoing effort to combat fraud together, many companies in the Middle East began investing in more stringent controls and implementation of the rules to avoid economic crime, while many others conducted a thorough examination into reasons after the occurrence of a crime in the company. Another issue that stands alongside customer fraud about its prominence is procurement fraud. This fraud entails the practice of favoring associates with vendor and supplier contracts.

    All these efforts are measures taken to mitigate the risks involved and ensure that proper prevention is taken by instilling the right technology and talent to deviate from any fraudulent prone routes.

    However, it is not easy to ensure that accountability will be maintained and transparent feedback is provided. Another limitation of this procedure is that advanced technologies to combat financial crime can be costly, which would further deplete if the company possesses insufficient resources to acquire and install the platform and is not equipped with properly trained employees to manage the technology. The lack of proper expertise to handle the in-place technology could attract various cyber threats, which allows a wrongdoer from any part of the world to infiltrate the company's system.

    With this in mind, companies must equip themselves from the arsenal of defenses to protect themself and the financial and reputational facets of the company. The extent of damage that infiltration of the company's system can cause to the operations is quite unfathomable. It would be better for companies to leave their vault of secrets wide open than installing an IT platform that is managed poorly. The necessity of combating such insecurities is proliferating and must be countered at the earliest. One would like to believe that the efforts of the legal jurisdictions in the Middle East to battle economic crime are practical and promptly applied. However, many of the jurisdictions still fail to provide a proper implementation of the provisions established against economic crime.

    The readiness of companies in the Middle East to confront the indecisive nature of economic crime and report any issues as they arise is still moving at a stagnant rate. The stark increase in cyberattacks and its potential threats is not a mystery to the companies in these regions. Nevertheless, they decide against preparing themselves in defense of such risks and attacks. The firms in the region and the governmental organizations must understand the types of threats that could arise in the economy and the nature of such economic crimes. Although this would seem like an insignificant step, this particular action could help achieve a more profound revelation of the gaps and vulnerabilities of the economy and its protective framework.

    Many would argue that the relationship of the Middle East with economic crime and fraud dates back ages. All the glitz and glamour and the boom of economies are incongruent with the fraudulent activities occurring within the firms and regions. A region's legal systems cannot enforce the regulatory frameworks established to fight against economic crime if the country's government does not implement the rulings.

    To know more about Economic and Fraud Provisions in the Middle East in Singapore Click here 

     

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    Thu, 30 Sep 2021 14:28:00 GMT
    <![CDATA[Leasing Law DIFC]]> Leasing Law DIFC

    "But land is land, and it's safer than the stocks and bonds of Wall Street swindlers."

                                                                                                                           -Eugene O'neill

    Introduction

    Property holding has been one of the most attractive markets in the world for the longest time. It is considered every man's dream to own a piece of land, and every person's end goal to have a nice home they can inhibit. While over the last decade, the number of property owners has skyrocketed, those that cannot afford to have always looked to the cheaper and less tedious option of leasing. Countries worldwide have long-standing drafted legislation in relation to owning, leasing, and other aspects of Property related transactions due to the constant long-standing high demand of market interest in the same.

    Up keeping with the times, the UAE has also provided for ownership of the property through freehold for personal and business purposes as per specified terms and conditions. DIFC has provided for such regulations since 2007, which has been extensively amended as per new practices over time.

    Real Property Law

    DIFC, the free zone market in Dubai, has an established Property Law, which was implemented as Law Number 4 of 2007 that governs the ownership of freehold property within DIFC. In 2018, The Real Property Law Number 10 of 2018 was established, which repealed the aforementioned Law and was brought into force; which provides for guarantee title to Real Property, facilitating dealings with real property, and defined the powers and functions of the Registrar in relation to the Real Property.

    While this major amendment provided for better-specified regulations and rules, the Law only had a subset of regulations in terms of leasing of Property in the Free Zone area under the new amendment. The regulations provided for as per the Real Property Law briefly states Leasing, Registration, Requirements, Variations, Expiry and termination, and a few other clauses in roughly over a page. The current law in place provides regulations for retail leases, but more explicitly for residential leases located in the area since provisions are detailed in the Real Property Law for retail.

    Leasing Law 

    Due to the attraction of leasing with Freehold area properties, DIFC introduced a new Leasing Law enacted by the Ruler of Dubai, Number 1 of 2020, which came into effect in January 2020. This law establishes various legislative changes in par with international practice standards. This law sets out in detail the statutory obligations on the lessee and lessor, condition report requirements, dispute resolution, and various other aspects as elucidated in detail below.

    A lease shall not be considered legally valid as per the Act if it is not in writing, and it is required to state the following:

  • Lease Term; 
  • The rent payable by the Lessee; 
  • The dates of payment of rent; 
  • The permitted use of the Leased Premises; 
  • A description of the Leased Premises accompanied by a Lease Plan where available; and 
  • The identity of the Lessor and Lessee.
  • It is mandatory that the Lessor and Lessee make sure the above-mentioned terms are stated in the rent agreement as agreed between the parties, as this is the first step to a legally valid lease. There are various rights and obligations provided to the parties, dependent on the nature of the lease. Below mentioned are some in regards to the residential lease of property.

    Security Deposit

    As is the case with most provisions, various protections have been provided to the Lessee against abuse of power by the Lessor. While security deposits are not mandatory, the new Act provides for a maximum percentage in relation to the imposition of security deposits. The Lessor may not collect from the Lessee more than 10 percent of the annual rent as a deposit. If there is an increase in rent, the Lessor is entitled to demand a higher rate of a security deposit under the 10 percent bracket to reflect the hike. Whereas, in the event of a rent decrease, Lessee can demand part of his security as applicable, back from the Lessor.

    It is required that the Lessor must pay the Registrar the security deposit within 30 days of receiving such amount from the Lessee, along with the form and written confirmation from the Lessee. Unless explicitly provided, Lessor may not convert the security deposit to payment of rent.

    Rent 

    The new Act also provides protection from sudden increases in rent, which eases the issue of a hiked price for the tenant. If the rent specified as per the lease does not provide for a time period, it is generally required that the Lessee pays in advance in four quarterly installments for every 12 months. In the event of a rent increase for the apartment, it is now obligatory that the Lessor informs the Lessee of the increase at least 90 days prior to the expiry of the existing lease so that the Lessee can adjust his finances accordingly or evacuate, as required. A lessor is also not entitled to increase rent before the lease ends. It is to be noted that the Law does not prevent the Lessor from collecting rent in advance if agreed upon.

    Obligations of the Lessor 

    A lessor is not permitted to disconnect utility services or preventing the Lessee of privileges provided with the leased premises. It is to be noted that a lessor could be liable for such actions as the Lessee could refer such a case to the police or before a competent court.

    A lessor shall sign a release form as prescribed by the Registrar in the event of expiry or early termination of the residential lease.

    It is obligated upon a lessor to make payments of: 

  • ¾ All charges in regards to supply or use of utilities such as gas, water, district cooling, and sewage disposal, unless agreed otherwise.
  • ¾ All installation in relation to a utility service of the premises.
  • ¾ All utility charges not based on the quantity of a substance or service that is supplied to.
  • ¾ All services charges under the Strata Title law and Master Community Service Charges.
  • In the event of a repair, the Lessor is liable to carry out specified repairs if there has been a written notice provided by the Lessee that such repairs are required, and a notice for such have been provided. If the Lessor does not do the needful within 60 days of the notice being provided, then the Lessee may obtain a court order mandating the Lessor to do so. In case of urgent repairs, a lessee may obtain a court order if the Lessor cannot meet the cost or refuses to pay or fix such repairs.

    It is at the liberty of the Lessee to terminate the contract by court order if any material obligations to be made by the Lessor is not made within thirty days of notice for such obligations provided by the Lessee.

    Obligations of the Lessee 

    The Lessee shall sign a release form as prescribed by the Registrar in the event of early termination or expiry of the residential lease.

    Two signed copies of a condition report specifying the state of repair and general condition may be provided by the Lessor, and it is mandated that the Lessee provides a response within 20 days as to whether he is okay with the condition of the residential space or if not, what needs to be changed as per him.

    The Lessor has a right of entry in the event of him selling the property to showcase it to prospective buyers. If the lease is nearing its end and the Lessee is not in agreement on the renewal of the contract, then the Lessee has the right of entry to show the property during the last thirty days of the term.

    No damages that constitute fair wear and tear shall be liable for by the Lessee. If damages were caused due to failure on the part of the Lessor, this shall not be the responsibility of the Lessee. If reasonable care has been taken by the Lessee to avoid damages, then the exclusion of liability is extended to the Lessee.

    Fair wear and tear has been defined under definitions as "damage to carpets, decorations, fixtures, fittings and furniture that would reasonably be expected through ordinary day-to-day use during a tenancy for the term of a Lease in respect of the type of tenants, who do or did occupy the Leased Premises, in comparison to their state at the outset of the Lease."

    Termination

    Termination of the lease has various conditions that have to be fulfilled to do so. While the Real Property Law has provisions wherein the Lessor may immediately terminate an agreement if there is a failure of rent payment within a span of 30 days post the mandated date of payment, the provisions are slightly different with the residential lease.

    As per the residential lease, if the Lessee has not paid rent for the period of 30 days exceeding the agreed-upon date of payment, the Lessor is required to file for a court order to evacuate the Lessee.

    The Lessor is required to do the same in case of the Lessee being insolvent, using residential permits for an illegal purpose, or having abandoned the residential premises for a period exceeding three months.

    It is to be noted that these aforementioned conditions are exclusive to a residential lease, hence do not apply to retail leases.

    Conclusion

    These laws have been introduced to cover the ground in terms of leasing space in the Dubai Free Zone, and such explicit regulations leave no room for doubt for the tenants staying in the area. The provisions of this law help clear the air on any grey area that could be applicable to residential leasing activity. While these regulations have been introduced to attract foreign residents into this already lucrative area, this has also provided for guidelines and responsibilities to be taken care of by either party concerned. These laws provide a safeguard to tenants who might be in the dark in regards to the various aspects of leasing.

     

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    Sun, 07 Mar 2021 08:26:00 GMT
    <![CDATA[Legal Entitlement to Interest-UAE Law]]> Legal Entitlement to Interest under UAE Law, and applicability

    "Interest on debts grow without rain."

                                                             -Yiddish Proverb

    Paying off the debt is the secret to financial success, but what happens when the debt is not paid off in time? Is it better to pay off the highest interest accounts first to settle the debt?

    The Late Payment of Commercial Debts (Interest) Act 1998 in England and Wales, compensates the creditor for the late payment of debts as well as deters late payment. It is applicable to the commercial supply of goods and services where there is no provision for interest in the Terms of Business. Unless the contract states a provision for the substantial remedy for late payment, debts shall carry statutory interest at a rate of 8 percent above the Bank of England base rate together with compensation at the rate of £40 – £100 per invoice.

    When pursuing a debt, a claim for interest on the monies due is added. But what about in the United Arab Emirates? The right to claim an interest in the United Arab Emirates (UAE) could be perplexing for contracting parties in the UAE, since Shari'a Law prohibits the payment of interest (termed "Riba"), whether compound or simple.

    The Sharia Law pursues the objective of instituting justice and annihilating exploitation in business transactions, by proscribing all sources of unjustified enrichment and all dealings in transactions that contain excessive risk or speculation.

    These principles of Sharia Law reflected in the UAE Federal Law Number 5 of 1985 ("UAE Civil Code") and Article 409 of the UAE Federal Law Number 3 of 1987, ("UAE Penal Code") make usury amongst natural persons a criminal offence, with the penalty being possible imprisonment and/or a fine.

    As per Article 204 of the UAE Civil Code, where the subject matter of the disposition or the consideration is money, its amount and type must be specified without altering the value of that money at the time payment has any effect.

    Article 714 of the UAE Civil Code provides for anti-usury concerning lending and states that where the loan contract provides for a benefit which is in excess of the essence or subject matter of the contract, otherwise than a guarantee of the lender's rights, such provision shall be void, but the contract shall remain valid.

    However, following the global era of banking and finance, the Constitutional Department of the Federal Supreme Court of Abu Dhabi, in its metamorphic Decision Number 14/9, (28 June 1981), entitled the charging of simple interest in connection with banking operations and stating that economic necessity requires the charging of simple interest by banks. Further, Judgment Number 245/20 (7 May 2000) of the Federal Supreme Court of Abu Dhabi equally endorsed simple interest and considered the contractual interest received by the banks as lawful.

    The UAE Federal Law Number 18 of 1993 Issuing the Commercial Transactions Law ("UAE Commercial Code") expressly permits the interest on any delayed payment. The interdiction in Article 714 of the UAE Civil Code is generally acceptable to be not applicable to matters governed by the UAE Commercial Code.

    Article 76 of the UAE Commercial Code, in respect of commercial transactions, entitles a creditor to receive the interest on a commercial loan as per the interest rate stipulated in the contract. However, when such rate is not stated in the contract, it shall be calculated according to the interest rate prevailing in the market at the time of dealing, provided that it shall not exceed 12 percent until full settlement.

    Additionally, Article 77 of the UAE Commercial Code states that where the rate of interest is stipulated in the contract and the debtor delays the payment, the interest on the arrears shall be calculated on the basis of the agreed rate until full settlement. Similarly, Article 88 of the UAE Commercial Code states that unless otherwise agreed, where the commercial obligation is a sum of money which was known when the obligation arose and the debtor delays payment thereof, he shall be bound to pay to the creditors as compensation for the delay, the interest fixed in Articles 76 and 77 of the UAE Commercial Code.

    Article 90 of the UAE Commercial Code states that the interests on arrears for delay of payment of commercial debts are due upon maturity unless otherwise provided in the law or in an agreement.

    Further, as per Article 409(3) of the UAE Commercial Code, the borrower shall be bound to repay the loan along with its interests to the bank within such time limits and according to such conditions as are agreed.

    The interest is categorized more under damages, rather than being regarded to be an 'unjust gain' under the contract; however, accrual of interest on arrears is not conditioned upon the creditor proving that he sustained the damages as a result of such delay as per Article 89 of the UAE Commercial Code.

    Furthermore, as per Article 91(1) of the UAE Commercial Code, a creditor may claim complementary damages in addition to the interest on arrears without it being mandatory or necessary for the creditor to prove that such damages resulted by the debtor's fraudulent conduct or gross fault. It is worth noting here that should the creditor while claiming his right cause, in bad faith, the persistence of the dispute, the court holds the right to reduce the interest or not award any interest at all for the period of the unjustified prolongation.

    The UAE laws do not recognize and do not permit compound interest, although it may be charged by commercial banks and financial institutions in the UAE. However, the Islamic banks and financial institutions (governed by Federal Law Number 6 of 1985) apply the Islamic Shari'a Law and thus prohibit the application of compound interest.

     

    ABUDHABI  

    Articles 61 and 62 of the Civil Courts Procedures Law number 3 of 1970 of Abu Dhabi as amended by Law Number 3 and Law Number 4 of 1987, stipulated that the interest may be calculated in respect of an awarded sum as of the due date of the amount or any other subsequent date until final payment or any preceding date provided that the interest rate shall not exceed the agreed or else the applied rate at any stage before initiating a lawsuit. And in the absence of the agreement, the rate may be determined at the court's discretion on condition that the rate shall not exceed 12 percent per annum in respect of commercial transactions and 9 percent in respect of non-commercial ones. Federal Law Number 11 of 1992 in respect to Civil Procedures invalidated all previous laws, decrees and instructions in the same respect; however, excluding the provision in respect of interest where it stated that such provisions should apply and continue to be effective.

    In Judgment Number 245/20 (7 May 2000) by the Federal Supreme Court of Abu Dhabi, the court held that the simple interest should be calculated and awarded on the basis of the agreed rate until full repayment even if it exceeds 12 percent per annum and only limiting it up to a maximum of 12 percent per annum in the absence of such agreement.

    The interest is calculated on the "Principal Indebtedness", and the delay interest is calculated on the "Outstanding Principal Indebtedness". The total awarded amount of interest shall not exceed the "Principal Indebtedness" and shall be simple interest.

    Dubai International Financial Centre (DIFC)

    Interest is claimed under DIFC law and under Article 39 of the DIFC Law Number 10 of 2004 which specifically permits the interest to be recovered on a judgment for damages with interest beginning from the date of the judgment. The rate of interest is fixed as per the rules of the DIFC Court or at the discretion of the DIFC Court.

    Correspondingly, there are no restrictions on claiming an interest under the DIFC Arbitration Law and no mandatory or customary rates. The arbitral tribunals generally tend to award interest at between 9 and 12 percent per annum, but this is matter specific.

     

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    Wed, 03 Mar 2021 16:09:00 GMT
    <![CDATA[Collective Investment Law - DIFC]]> The Collective Investment Law (DIFC Law No. 2 of 2010) – An Overview

    Collective Investment Law of 2010

    The Collective Investment Law (DIFC Law Number 2 of 2010) came into force on 1 July 2010, and applies in the jurisdiction of the Dubai International Financial Centre. The Collective Investment Law defines the arrangements which, according to the Dubai Financial Services Authority (DFSA), amount to Collective Investment Funds; this proffered definition is expansive in scope and covers a plethora of pertinent arrangements. 

    What is a Collective Investment Fund? 

    Subject to Article 12 in the Collective Investment Law of 2010, a collective investment fund refers to any arrangements concerning the property of any description, where:

  • the purpose or effect of the arrangement is to enable persons taking part in the same to receive profits, or income arising from the acquisition, holding, management, or disposal of the property, or sums paid out of such profits or income; 
  • the arrangements must be such that the persons who are to participate in the arrangements do not have day-to-day control over the management of the property, whether or not they have the right to be consulted; 
  • the contributions of the unit-holders and the profits out of which payments are to be made to them are pooled, and/ or, the property is managed as a whole by a fund manager. 
  • As per the Collective Investment Law, a person shall not make an offer of any units (be it share, or interest) in a Collective Investment Fund in the DIFC, unless the offer of such a unit is made in thorough accordance with the Collective Investment Law, and any other applicable rules of the DFSA.  

    The Basic Categories of the Collective Investment Funds 

    Based on geographical location, collective investment funds can be classified as either domestic funds or foreign funds. 

    Domestic Funds is the term employed to refer to collective investment funds that have been established or domiciled in the DIFC. Domestic funds may be sub-categorized into three groups – public funds, exempt funds, and qualified investor funds. These can, in turn, be sub-divided into an assortment of specialist sub-categories that include Islamic funds, feeder funds, master funds, private equity funds, property funds, real estate investment funds, hedge funds, umbrella funds, among others.

    Conversely, Foreign Funds is the term employed to refer to collective investment funds that are domiciled outside the DIFC. It is critical to note that only foreign funds that meet certain criteria can be sold in, or through the DIFC. Foreign funds that meet the stringent eligibility criterion to be sold through the DIFC can be subcategorized into Designated Foreign Funds, and Non-Designated Foreign Funds.

    Key Features of the Collective Funds Regime

    The Collective Investment Funds regime was designed to provide adequate investor protection while meeting international standards for regulation. Some of the cardinal features of the same are as follows; 

  • A Public Fund regime, which extends a wider umbrella of protection to retail investors vis-a-vis requirements, such as the independent oversight of a fund, and detailed disclosure in a prospectus;
  • An Exempt Fund regime in which funds enjoy the feature of a fast-track notification process; here, the DFSA aims to complete the notification process within a period of 5 days, and with the added advantage of lighter regulation than a Public Fund;
  • A Qualified Investor Fund (QIF) regime, which provides proportionate regulation; this allows for flexibility for the QIF Managers and QIFs, by means of reliance on key requirements in the Collective Investment Law. This regime is unique in that it requires self-certification regarding the adequacy of systems and controls. Like Exempt funds, QIFs also enjoy a fast-track notification process, with the DFSA aiming to complete the authorization process within a period of 2 days;
  • Domestic Fund Managers are also a critical feature of the regime; they are DIFC-based and are empowered to establish and manage funds in the DIFC, as well as in jurisdictions outside the DIFC;
  • It must be noted that fund managers that hail from authorized jurisdictions are also empowered to establish and manage funds in the DIFC under certain circumstances;
  • DFSA-licensed Firms are permitted by Law to market and sell units in an expansive range of Foreign Funds in, or from, the DIFC;
  • A competitive fee structure is applied and attached to fund managers and funds;
  • The fund managers of umbrella funds are afforded the flexibility to use the Protected Cell Company (PCC) structure for open-ended umbrella funds. This legally protects investors in each sub-fund from liabilities arising in other sub-funds borne by the umbrella;
  • Bespoke shari'a governance requirements apply to Islamic funds;
  • Bespoke regulatory requirements 

  • accommodate specialist funds, such as private equity, property, REIT, money market and hedge funds; 
  • Key players in the fund management service sector are also closely regulated and monitored by the DFSA; this is to ensure optimal investor protection, by the upholding of high industry standards that meet international best practice; and
  • It must be noted that, in order to establish and manage a fund in the DIFC, one needs to be either a DFSA-licensed fund manager or an external fund manager. 
  • Types of Domestic Fund Vehicles 

    As per Article 26 of the Collective Investment Law, there exist three types of fund vehicles that can be employed to establish a domestic fund in the DIFC. These are Investment Companies, Investment Trusts and Investment Partnerships.

    While each is possessive of unique features, the most preferred to date is undoubtedly the Investment Company model; trust structures are predominantly employed for property funds, and partnerships for the hedge, and private equity funds. 

    An Investment Company requires to be incorporated in the DIFC, with the fund director named as a corporate director in the company. It must be noted that an investment company established as an umbrella fund is empowered to employ the PCC (protected cell company) structure. 

    An Investment Trust gains authorization upon the creation of a trust deed between a fund manager and a trustee. The trustee may either be a DFSA- licensed trustee, or an authorized individual from an approved jurisdiction.

    Finally, an Investment Partnership is a limited partnership registered in the DIFC, which consists of a general partner and limited partners. The general partner shall be the individual authorized by the DFSA to be the fund manager of the fund. 

    The Management of a Domestic Fund (by a DFSA-licensed fund manager)

    The Collective Investment Law sets forth the general duties of a fund manager of a domestic fund. They are tasked with the management of the fund, including the fund property, in a manner that is in accordance with the fund's Constitution. They are required to perform the functions conferred by the Collective Investment Law. They must necessarily comply with any conditions or restrictions imposed by the DFSA, and with any requirements or limitations imposed under the Collective Investment Law. This includes any limits relating to financial interests that it or any of its associates may hold in a fund. 

    The fund manager is also expected to take reasonable steps to ensure that in any dealings, a conflict of interest does not arise. They are also required to ensure that the fund property is valued at regular intervals, except for situations that suspend such valuation in accordance with its Constitution. Ultimately, the fund manager is answerable to the unit-holders with regard to the safe-keeping of the fund property, regardless of whether this specific task has been delegated to a third party. 

    The Management of a Domestic Fund (by an External Fund Manager)

    As per Article 20 of the Collective Investment Law, a fund manager from an acceptable jurisdiction may establish and manage a domestic fund domiciled in the DIFC, without having to obtain a DFSA license, on a handful of conditions:

  • it must necessarily be a corporate body;
  • the domestic fund is being managed from a jurisdiction that is either included in DFSA's Recognized Jurisdictions List or is assessed by the DFSA to have been capable of providing an adequate threshold of regulation;
  • It must willingly subject itself to the DIFC Laws and Courts; and 
  • It must appoint a DFSA-licensed fund administrator (trustee). They shall act as the local agent of the External Fund Manager in order to receive, process, and deal with the DFSA for regulatory processes. The local agent shall also be required to take on some investor-related functions. 
  • The Management of an External Fund from the DIFC

    Domestic fund managers are authorized to manage a fund in a jurisdiction outside the DIFC (i.e. an external fund). Upon the submitting of a proposal seeking the establishment of an external fund, the DFSA assesses the desirability of the relevant jurisdiction. This is conducted in terms of its Financial Action Task Force compliance and on the basis of whether the applicant has adequate controls in place to address risks that may arise from having the fund established in that particular jurisdiction.

    Marketing of Domestic and Foreign Funds

    Domestic Funds 

    The marketing of domestic fund is based on generally accepted principles of disclosure vis-a-vis prospectus requirements. However, it must be noted that the level of prospectus disclosure required for public funds, which are open to upwards of 100 investors, and/or retail clients, is significantly higher than the disclosure requirements for exempt funds, which are open only to professional investors.

    Article 51 of the Collective Investment Law on Prospectus Requirements states that if the fund is public, a copy of the prospectus is required to be filed with the DFSA.   

    Foreign Funds

    Article 54 of the Collective Investment Law on the marketing of foreign funds states that they can only be marketed in the DIFC by DFSA-licensed firms that are possessive of holding advisory or arranging authorizations. Furthermore, the following criterion is required to be met in order for them to advertise units of foreign funds:

  • The foreign fund must be a designated, regulated fund in a jurisdiction included in the DFSA's Recognized Jurisdictions; or
  • The firm has a reasonable basis for recommending the investment (in the units of the foreign fund) to the particular client, taking into consideration their investment objectives and circumstances; or
  • The foreign fund is open to 100 or fewer investors, each of whom meets the Professional Client test and makes a minimum subscription of USD 50,000 (not offered to investors by way of a public offering).
  • Another key detail contained in the Law is that foreign funds which cannot be marketed to retail investors in the home jurisdiction of that fund are prohibited from being marketed to retail investors in the DIFC.

    Conclusion

    Through the medium of the Collective Investment Law, the DIFC has constructed a new regime that has been tailored artfully to meet the needs of authorized firms who endeavor to manage Collective Investment Funds in the DIFC. From a structuring perspective, the framework affords maximum flexibility and ensures no stone is left unturned in terms of regulation and oversight. 

     

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    Tue, 03 Nov 2020 16:05:00 GMT
    <![CDATA[DIFC Data Protection Law, 2020]]> DIFC Data Protection Law, 2020

    Dubai International Financial Center (DIFC), issued DIFC Law Number 5 of 2020, a new Data Protection Law ("DPL"), replacing the existing Data Protection regime, first enacted in 2007. DPL aims to strengthen its standards by providing enhanced controls for the Processing and free movement of personal data by controllers or processors as well as protecting the fundamental rights of data subjects. With the new legislation, DIFC's data protection is in sync and aligned with globally adopted measures, similar to the one adopted in European Union (General Data Protection Regulation), and in the United States of America (California Consumer Privacy Act). DIFC has always been up to date with International market and laws, and now with the issuance of the DPL, will further earn itself an international recognition by establishing enhanced governance and transparency requirements.

    The DPL is in effect from 1 July 2020, with affected businesses granted until 1 October 2020 to undertake the necessary compliance measures.

    Scope of Application

    DPL applies in the jurisdiction of the DIFC. The DPL applies to the Processing of personal data by a Controller or Processor incorporated in the DIFC, irrespective of whether the Processing takes place in the DIFC or not. DPL applies to the Controller or Processor that processes personal data in the DIFC as part of stable arrangements, other than on occasional basis, regardless of the place of incorporation. DPL applies to the Controller or Processor in the context of their processing activity in the DIFC (not in a third country), inclusive of transfers of personal data out of the DIFC.

    However, DPL does not apply to a natural person processing the personal data in the course of a purely personal or household activity and having no connection to any commercial purpose.

    Personal Data in the DPL

    Any information that refers to an identified or identifiable natural person is Personal Data.

    Identified or Identifiable could be a direct or indirect reference to an identifier such as name, identification number, location data (depending on the context), an online identifier (like IP addresses or cookie identifiers) or to one or more factors specific to the individual's physical, biometric, biological, physiological, mental, genetic, cultural, economic or social identity.

    Rights of the Data Subjects

    The DPL mirrors the rights granted to data subjects in the European Union. Data Subjects have various rights, for instance:

  • right to request copies of their personal data at any time;
  • right to rectify data;
  • right to withdraw consent and request erasure of their personal data.
  • The European Union Law has a drawback as it does not adequately pave the way for new emerging blockchain technologies where personal data can be indefinitely stored and cannot be managed in accordance with the modern data protection laws.

    The DPL, however, remedies this as it introduces an exemption from the right of rectification and erasure of personal data when the data subject is disclosed specific information by the data controller, including that the personal data will be processed in a way preventing the data subject from exercising such rights.

    The DPL introduces a right for the data subjects (similar to the United States), which protects them from any discrimination resulting from the exercise of their rights. For instance, a customer has refused to allow a business to retain his personal data; the DPL will require that business to provide the customer with the same quality of goods or services as other customers and ensure that the refusing customer is not discriminated against.

    Legally Binding Written Agreement

    Part 3A of the DPL deals with Joint Controllers (where two or more persons jointly determine the purposes and means of Processing Personal Data) and states that they must enter into a legally binding written agreement, defining their respective responsibilities for ensuring compliance with the obligations under the DPL. Such agreement shall clarify the process for ensuring that a Data Subject can exercise his rights and for providing a Data Subject with the information.

    Furthermore, where Processing is to be carried out by a Processor on behalf of a Controller, the Processing shall be governed by a legally binding written agreement between the Controller and the Processor. A Controller shall only enter into agreements with Processors which provide sufficient assurances of implementing appropriate technical and organizational measures to meet the Processing requirements of the DPL and protecting a Data Subject's rights. (Part 3B of the DPL). A Processor may not engage another Processor to act as a Sub-processor without the prior written authorization of a Controller, and when authorized, the Processor shall inform a Controller of any intended changes regarding the replacement or addition of a Sub-processor.

    Additionally, a Processor may not engage a Sub-processor for carrying out specific Processing activities on behalf of the Controller, unless a legally binding written agreement containing the requirements is in place with the sub-processor that ensures a full delegation of the obligations that the Processor owes to the Controller under the agreement with the Controller in respect of such specific Processing activities.

    The Commissioner appointed under the DPL shall publish standard contractual provisions for the businesses. Failure to ensure that the contracts are in compliance with all relevant processors of personal data shall result in a maximum fine of USD 25,000.

    Commissioner

    Part 8 of the DPL deals with the appointment, removal, powers, functions, objectives and liabilities of the Commissioner.

    The President of the DIFC shall appoint a person to be the Commissioner who is appropriately experienced and qualified. The DIFCA Board of Directors shall be consulted by the President prior to appointing, re-appointing or removal of the Commissioner. The Commissioner shall be appointed for a specified period of time not exceeding five years, and may be re-appointed but not extending beyond the day when the Commissioner turns 75 years of age.

    The Commissioner has such powers, duties and functions as conferred on him under the DPL and the Regulations. The Commissioner shall not be held personally liable for any act or omission committed by him under or in relation to the DPL or in relation to his duties and functions as Commissioner, save for where the Commissioner has acted in bad faith. The DIFCA will indemnify and hold harmless the Commissioner with respect to all liabilities that may be incurred by or suffered by the Commissioner in relation to the discharge of the Commissioner's duties and functions under or in relation to the DPL and his duties and functions as Commissioner.

    Data Protection Officer

    A Controller or Processor may elect to appoint a Data Protection Officer ("DPO") that meets the requirements specified in the DPL and are responsible for high-risk compliance with the DPL and other applicable privacy laws. Any business conducting "high-risk processing activities" has an obligation to appoint a DPO. The DPO's contact details must be given to data subjects when collecting their personal data.

    The DPL specifies the DPO to be a resident in the United Arab Emirates. However, the residency requirement does not apply where the person is an individual employed by a group of members and performs similarly for the group on an international basis elsewhere. In such cases, the DPO must be easily accessible to each member of the group.

    Where the Controller or Processor is not required to appoint a DPO, it shall clearly allocate the responsibility for oversight and compliance under the DPL within its organization and provide details of the persons with such responsibility to the Commissioner upon request.

    Personal Data Breaches (Part 7 of the DPL)

    A "Personal Data Breach" is defined as a breach of security leading to the unlawful or accidental destruction, loss, alteration, unauthorized disclosure of, or access to, personal data transmitted, stored or otherwise processed.

    Notification to the Commissioner:

    A Personal Data Breach compromising a Data Subject's confidentiality, security or privacy, the Controller involved shall notify the same to the Commissioner as soon as practicable. A Processor shall notify the relevant Controller after becoming aware of a Personal Data Breach without undue delay. Failure to notify shall result in a fine of maximum USD 50,000 on either or both of the Controller and Processor.

    Notification to a Data Subject:

    Where a Personal Data Breach is likely to result in a high risk to the Data Subject's security or rights, the Controller shall communicate the same to an affected Data Subject as soon as practicable. However, the Controller shall promptly communicate with the affected Data Subject if there is an immediate risk of damage to the Data Subject.

    The DPL states that where a notification to an affected Data Subject involves a disproportionate effort, public communication will be sufficient to satisfy the provisions. Failure to notify as per the requirements can result in a fine of maximum USD 50,000. Where a Data Subject has suffered loss as a result of the failure to notify, he can apply for compensation or damages to the court.

    Penalties

    The Commissioner is entitled with the power to issue fines for contraventions of the DPL which are enforced through the courts when the businesses fail to pay.

    Fines of maximum:

  • USD 50,000 is imposed for failure to implement and maintain technical and organizational measures to protect personal data;
  • USD 25,000 is imposed for failure to maintain records of the Processing;
  • USD 100,000 can be imposed for failure to comply with:
  • Data Subject's rights of access, rectification and erasure of personal data;
  • new requirements relating to data portability; and
  • Data Subject's right to object to any decision based solely on automated Processing, including profiling, which produces legal or other seriously impactful consequences.
  • The Commissioner has the power to inspect and audit businesses subject to the DPL to verify compliance.

    Conclusion

    The newness of the DPL issues such rights, requirements and responsibilities which do not consider it sufficient only to have a reliance on legal or compliance teams but rather have everyone in the organization comprehend their role to keep the data safe and secure. The businesses need to understand how they can use and process personal data and update existing contracts with third parties, privacy notices and interactions with customers, and think about employee awareness around the handling of personal data.

     

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    Tue, 01 Sep 2020 11:16:00 GMT
    <![CDATA[A Guide on REITs]]> A Guide on REITs

    Since time immemorial, real estate has been acknowledged as a historically significant investment class- one that offers increased portfolio diversification, low volatility, and optimally risk-adjusted returns. A Real Estate Investment Trust (REIT) is a financial instrument that not only allows investment in real estate but an instant investment in a multitude of real estate assets by means of the purchase of a single REIT's shares. While not all REITs are affordable, many are. On account of their accessibility and general universality, a REIT can often present an immensely appealing route for an individual looking to become a real estate investor.

    A REIT is a company that places investments in income-generating real estate, of the commercial variety in addition to others. Investors that yearn for access to real estate can accordingly purchase shares of a REIT; through that share ownership, they would be effectively adding the real estate owned by the REIT to their portfolios. This provides investors with exposure to all the properties owned by the fund, simultaneously.

    REITs – Background

    Why were REITs created?

    REITs first came to be in the United States under President Eisenhower when he signed the REIT Act in the Cigar Excise Tax Extension of 1960. These were intended to give commonplace investors a means of investing in a diversified portfolio of income-churning real estate through a share-based model.

    What makes REITs unique?

    They are mandated by law to follow a highly specific set of operating requirements to receive and retain the qualification of a REIT. What sets REITs apart from other investment vehicles is the fact that REITs are mandated to derive a minimum of 75 percent of their gross income from real estate-related sources, and correspondingly invest 75 percent or more of their total assets in real estate. Another significant distinction lies in the fact that the law requires REITs to distribute 90 percent or more of their income from their real estate investments directly to investors. Owing to these operating requirements, REITs offer investors a plethora of reasons to invest in real estate via this conduit, some of which shall be delved into below.

    Coveted Characteristics of REIT Investment

    Dividend Income

    The high dividend payout requirement for REITs translates into a larger share of REIT investment returns coming from dividends as opposed to other stocks. For this very reason, many financiers and advisors unequivocally recommend REITs to be well-suited for income-seeking investors, as well as for long-term investors seeking both income plus capital appreciation.

    In the United States, REIT dividend yields have historically been higher than the average yield of the S&P 500 Index. As a matter of fact, long-term calculations display that more than half of equity REIT total returns have come from dividends.

    Portfolio Diversification

    As discussed before, REITs have provided significant diversification benefits for investors on account of their relatively insignificant correlation with other assets, including other stocks and bonds.

    Diversification is an ideal sought to reduce portfolio volatility - the risk that investors will be subject to tumultuous oscillations in the value of their portfolio holdings. The remedy that some investors implement to evade volatility preemptively is the diversification of the portfolio, e.g., between small-cap stocks and large-cap stocks.

    However, it must be noted that this strategy only divides a portfolio between different parts of the same asset class and fails to achieve the full benefit of diversification. Another means to approach portfolio diversification would be to diversify amidst asset classes.

    REITs, for instance, have had less of a tendency to move synchronously with other equities when stocks fluctuate. Between 1992 and 2016, large-cap and small-cap equity total returns bore an 83 percent correlation, while large-cap equity and Equity REIT total returns bore a mere 56 percent correlation. This goes to show that the combination of a large-cap portfolio with listed equity REITs would certainly bear more fruit, with regards to achieving diversification.

    Inflation Hedging

    A key concern for several investors today is how to secure enough income to tide them by for a decade-long retirement period. Even in an environment with minimal inflation, the cumulative effects of inflation over long periods can erode the purchasing power of portfolio assets. The dilemma that retirees often encounter is that it can be tough to stay ahead of inflation with fixed income securities. In contrast, equities (the traditional inflation hedge) are usually trimmed back to reduce investment risk.

    REITs are structurally possessive of a natural hedge against inflation in a fashion that matches up exceedingly well with the needs of investors. The commercial real estate rents and values have tended to increase when prices do; this has, in turn, supported REIT dividend growth, and provided retirement investors with reliable income even during inflationary periods.

    Tax Benefits

    Adding to the standard benefits available to investors who have access to REITs by means of traditionally tax-advantaged accounts (i.e. retirement accounts), REIT investors encounter several additional, critical upsides.

    The most well-known tax advantage is actually related to an investment fund's basic ability to be classified as a REIT.

  • To receive the official REIT stamp and designation, one of the most fundamental requisites is that a fund distributes a minimum of 90 percent of its (taxable) income every year to its shareholders. 
  • If a fund successfully meets the REIT qualifications, then these earnings will not be subject to taxation at the company level.
  • Earnings are distributed to investors and are only taxed at the individual investor level. This eliminates the brunt of the burden of double taxation that many face with traditional company stocks. The absence thereof of a company level tax enables investors to keep the lion's share of their overall returns. 
  • Total Return Performance

    REITs' reliable track record of growing dividends, combined with long-term capital appreciation through stock price increases, has gifted investors with an attractive total return performance for many periods over the past 45 years, especially when compared to the broader stock market.

    REITs are publicly traded, professionally managed companies that manage their businesses intending to maximize shareholder value. These companies engage in positioning their properties optimally to attract tenants and earn rental income. They manage their property portfolios and ensure the buying and selling of assets to cultivate value throughout long-term real estate cycles. Their efforts drive the total return performance for REIT investors, who benefit from a reliable annual dividend payout as well as the potential for long-term capital appreciation.

    Liquidity and Transparency

    For a great many years, investors considered real estate to be an illiquid asset, and rightfully so. However, the liquidity of REITs listed on major stock exchanges converts real estate investing into a simple and straightforward operation.

    By the provision of real-time pricing and valuations, REITs also provide market transparency for investors.

    How do REITs work?

    Once a fund successfully achieves the qualification of a REIT, investors can buy shares in a variety of ways. The REIT pools this assimilated capital in order to make a great variety of real estate investments. Investments can include the REITs direct ownership of the real estate, real estate loans, or both.

    REITs can be classified into three broad manners:

  • By means of the types of investments they pursue (i.e. equity or debt).
  • Howe their shares are traded (i.e. exchange-traded REITs or non-listed REITs).
  • The sectors of real estate that they place a focus on (i.e. healthcare REITs or industrial REITs).
  • Each of REIT's represents partial ownership of every one of the individual assets held by the fund. Therefore, any fluctuation in the valuation of a REIT's shares reflects a change in the value of the overall collection of real estate properties the REIT holds. REITs are professionally managed by fund managers, who determine and execute the REIT's investment strategy.

    REITs Classification

    Earlier, we established that one way to classify REITs is based on the financial structures of their underlying holdings: debt, equity, or a hybrid of both.

    An equity REIT is one that participates in the direct ownership (and subsequently, the development and operation) of the real estate assets that it owns; these can include commercial real estate or for-sale housing. Equity REIT managers construct their investment strategies based on how much physical work and capitalization they deduce to be required to raise investment properties to their highest value and potential for producing income.

     

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    Wed, 19 Aug 2020 10:25:00 GMT
    <![CDATA[DIFC Contract Law]]> DIFC Contract Law

    Is the Law of Contracts a complete descriptive theory, explaining what the law is? Or is it a complete normative theory, explaining what the law should be? The traditional definition of a contract is one embracing all promises that the law will enforce. However, even a theory that focuses only on the enforcement of bargains in the law of contracts must still consider the entire continuum from standard form commercial contracts between business firms to contracts between firms and consumers. A law of contract which comprehends such a broad domain has not yet been explained by any descriptive theory.

    As per the basic principles of English Contract Law, a contract is an agreement giving rise to obligations which are recognized or enforced by law. The 3 basic essentials to the creation of a contract:

  • agreement;
  • contractual intention; and
  • consideration.
  • The first essential of a contract is that the parties should have reached an agreement, which is generally when one party makes an offer, which is accepted by another party. The English courts will apply an objective test in deciding whether the parties have reached an agreement. In Stover v Manchester City Council ([1974] 1 WLR 1403), an offer was defined as an expression of willingness to contract on specified terms with the intention for it to be binding once it is accepted by the person to whom it is addressed.

    In Carlill v Carbolic Smoke Ball Company ([1893] 2 QB 256), a medical firm advertised that flu would be cured by its new drug, a carbolic smoke ball, and if it did not cure, buyers would receive £100. When sued, Carbolic argued the advertisement was not a legally binding offer; it was merely an invitation to treat, a mere puff or gimmick. However, the advertisement was held to be an offer by the Court of Appeal. An intention to be bound could be inferred from the statement that the advertisers had deposited £1,000 in their bank "shewing our sincerity".

    The Dubai International Financial Centre Law Number 6 of 2004, cited as the Contract Law 2004 (the "Law"), applies in the jurisdiction of the Dubai International Financial Centre (DIFC). Nothing in the Law requires a contract to be evidenced by or concluded in writing. The contract shall be proved by any means, including witnesses. A validly entered contract is binding upon the parties and can be modified or terminated only as per its terms or by agreement or as otherwise provided in the Law. However, the parties to a contract may exclude the application of the Law or digress from or alter the effect of any of their provisions, except as otherwise provided in the Law.

    The acceptance of an offer concludes the manner of formation of a contract in the Law. A contract is modified, terminated or concluded by the mere agreement of the parties, without any further requirements. As per the Law, a proposal for concluding a contract constitutes an offer provided it is sufficiently definite along with indicating the intention of the offeror as one to be bound in case of acceptance. However, an offer can be withdrawn if the withdrawal reaches the offeree before or at the same time as the offer. Similarly, an offer may be revoked if the revocation reaches the offeree before it has dispatched an acceptance.

    DIFC being an international centre paves the way for linguistic discrepancies. The Law states that where a contract is drawn up in two or more language versions which are equally authoritative and in case a discrepancy between the versions arises, preference shall be given to the interpretation as per the version in which the contract was originally drawn up.

    The Law states that the contractual obligations of the parties may be express or implied. Article 57 of the Law states that the implied obligations arise from:

  • the purpose and nature of the contract;
  • usages and practices established between the parties;
  • fair dealing and good faith; and
  • reasonableness.
  • Article 62 of the Law states the "Price determination". Where a contract has not fixed or made provision for determining the price, in the absence of any indication to the contrary, the parties are considered to have referred to the price charged at the time of concluding the contract for such performance in comparable circumstances and to a reasonable price when no such price is available. The price shall be a reasonable price also in case the price was to be fixed by a third person, and that person does not or cannot do so. When the price is to be fixed by reference to factors which have ceased to exist or to be accessible or do not exist, the nearest equivalent factor shall be treated as a substitute.

    While Part 7 of the Law deals with the time, order, place and payment of Performance, Part 8 of the Law states regarding the Non-Performance. Non-performance has been defined in Article 77 of the Law as a failure by a party to perform any one or more of its obligations under the contract, including defective performance or late performance.

    However, the non-performing party may, at its own expense, cure any non-performance, provided:

  • it gives notice regarding the proposed manner and timing of the cure, without undue delay;
  • the cure is appropriate in the circumstances;
  • the aggrieved party holds no legitimate interest in refusing the cure; and
  • the cure is effected promptly.
  • Article 82 of the Law also mentions about Non-Performance in case of Force majeure. Except with respect to a mere obligation to pay, non-performance by a party is excused when the party is able to prove that:

  • the non-performance was due to an impediment beyond its control; and
  • the party could not reasonably be expected to have considered the impediment at the time of concluding the contract or avoided and overcome it or its consequences.
  • For when the impediment is temporary, the excuse of Non-Performance shall have effect for such reasonable period considering the effect of the impediment on the performance of the contract. Notice of the impediment and its effect on its ability to perform must be given to the other party by the party who fails to perform. Failing to give notice within a reasonable time may hold the party that failed to perform liable for damages resulting from such non-receipt. However, a party can still exercise a right to terminate the contract or to withhold performance or request interest on money due.

    Part 9 of the Law deals with the assignment of rights and obligations. An assignment of a contractual right is a transfer by virtue of which the assignor's right to performance by the obligor is extinguished in part or in whole, and the assignee acquires a right to such performance. An assignment of a contractual obligation is a delegation of the obligation to the assignee. An assignment of a contract by a party is an assignment of the contractual rights and delegation of the contractual obligations of the party.

    Part 10 of the Law lays down the rights of the third-party to enforce the contractual term. A "third-party" is a person who is not a party to the contract. The third-party must be expressly identified in the contract by name, as a member of a class or as fitting a specific description but need not be in existence when the contract is entered into.

    The third-party may in his own right, enforce a term of the contract provided:

  • the contract expressly provides that he may do so; or
  • the term purports to confer a benefit on him unless it appears that the parties did not intend the term to be enforceable by the third-party.
  • Part 11 of the Law lays down provisions for the right to damages. Non-Performance, except if excused under the Law, gives the aggrieved party a right to damages exclusively or in conjunction with other remedies. The Non-Performing party is liable only for harm which it had or could reasonably have foreseen at the time of concluding the contract as being likely to result from its Non-Performance. The aggrieved party is granted full compensation for harm sustained, the loss which it suffered or any gain of which it was deprived, as a result of the Non-Performance. The assessment is at the discretion of the Court when the amount of damages cannot be established with a sufficient degree of certainty.

    Part 12 of the Law lays down provisions for "Agency". An agency relation exists only when there has been consent by the principal to the agent that the agent may act on his account, and consent by the agent to act so. A general agent is an agent authorized to conduct a series of transactions involving continuity of service, and a special agent is an agent authorized to conduct a single transaction or a series of transactions not involving any continuity of service. The Law also provides for the Disclosed principal; Partially disclosed principal; and Undisclosed principal along with providing for authority, liability and indemnity of the Agency relation.

    Conclusion

    The contribution of the classical contract law to the modern law of contract is a mixed one. The most enduring legacy is the conception of contract as an institution and their insistence on the contract's independence from other forms of legal obligation. By contrast, classical lawyers' monolithic view of a contract is outdated and harmful to modern law. To combat the needs of an increasingly complex society in Dubai, the DIFC Contract Law had to be more complex and more sophisticated. The relativity to English Contract Law was essential as the DIFC Contract Law was adequately to perform the plethora of roles assigned to it.

     

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    Sat, 04 Jul 2020 10:01:00 GMT
    <![CDATA[Guide to International Arbitration]]> Guide to International Arbitration

    "When will mankind be convinced and agree to settle their difficulties by arbitration?"- Benjamin Franklin    

    A year ago, it seemed as if Brexit was finally about to happen. One year on, they are in the same position again. At one point, albeit, it seemed likely that the UK would leave the European Union (EU) without a Withdrawal Agreement (a 'no-deal Brexit'), which would have been hugely disruptive, not least concerning the enforcement of English court judgments in Europe. As a result, parties chose to include arbitration in their agreements, and this could lead soon to an increase in London-seated arbitrations. Under the agreement, the UK enters a transition period where it will continue to follow EU rules until 31 December 2020, by which time both sides hope to have agreed on a trade deal. The shift towards London-seated arbitration in international commercial contracts may turn into a long-term trend.   

    From a global perspective, Brexit is a sideshow compared to China's Belt & Road Initiative (BRI), the most significant investment and construction programme that has been undertaken. Arbitral institutions in APAC are eager to pick up disputes work arising from the many complexes, multi-party projects that makeup BRI.  

    In April 2019, Beijing and Hong Kong announced an arrangement permitting arbitrations seated in the island to be supported by interim or protective measures issued by courts in the mainland. The critical point is that the arbitration can be administered by any institution, as long as it appears on the official list of permitted bodies. The International Chamber of Commerce (ICC) along with the Hong Kong International Arbitration Centre (HKIAC) and a handful of other institutions appears on the list. Sadly, the difficulties in Hong Kong are affecting business confidence in the island's economy and institutions. Unless the political challenges are fully resolved, it is difficult to judge what their overall effect will be. Still, from an arbitration perspective, there is the potential for disputes to migrate southwards to Hong Kong's main rival in the region, Singapore. The caseload of the HKIAC has remained constant, and that of the Singapore International Arbitration Centre (SIAC) has more than doubled throughout the current decade. Both have recently permitted third-party funding of arbitrations. Hong Kong's law permits arbitral awards to be appealed on the point of law, provided parties to opt into the arrangement. This is contrary to the position in England, where appeals of this kind are allowed unless parties opt-out as per section 69 of the Arbitration Act 1996.   

    The expansion and globalization of cross-border investment and trade have led to an increase in more complex relationships between businesses, investors, and States. Inevitably, some of the relationships do break down. Hence the parties need to consider the best means of resolving any dispute which may arise, preferably at the outset of the relationship. Arbitration has been in use since centuries, with Plato writing about arbitration amongst the ancient Greeks. In the new era, arbitration has become the standard method to resolve disputes in specific industry sectors such as construction, shipping, and insurance where the arbitrators' technical expertise is particularly valued. However, over the last 50 years, the international community has increasingly embraced arbitration, with many recognizing its significance as the primary means of resolving complex, transnational, disputes as well as the economic benefits for a State perceived as "arbitration-friendly". Unlike courts, the arbitral tribunals in commercial disputes have no inherent jurisdiction or power as their authority arises from the parties' contract. Albeit, once selected by the parties, arbitration has the backing of statutes and treaties. The essential elements include that the International Arbitration Clause must be in writing to be enforceable as most jurisdictions require the arbitration agreement to be in writing (see, e.g., New York Convention Article II (1)). Also, the International Arbitration must be mandatory. The arbitration clause must make clear that if a dispute arises, it must be arbitrated. Permissive language suggesting arbitration is optional, such as "any dispute may be referred to arbitration," in certain jurisdictions may provide an argument for a non-cooperating party to try to avoid arbitration when a dispute arises. Some parties, in particular lenders, may prefer unilateral option clauses, allowing one party the option to choose between arbitration or court proceedings in the event of a dispute. These clauses are not enforceable in all jurisdictions and should be carefully considered before being included. Therefore, parties should take particular caution in drafting arbitration provisions. In a unanimous decision on 8 January 2019 in Henry Schein, Inc. vs. Archer & White Sales, Inc. (586 U.S., 139 S. Ct. 524 (2019)), the US Supreme Court confirmed that the United States is a pro-arbitration jurisdiction that will honor parties' agreements to arbitrate. Specifically, where an arbitration clause clearly delegates the decision of arbitrability to the arbitrators, courts should have no say in the matter, even if they perceive the argument in favor of arbitration as "wholly groundless." This decision provided clarity for potential disputants and was in line with prior Court precedent that prohibited courts from reviewing the merits of a dispute when delegated adequately to an arbitrator.   

    The choice of arbitral seat determines the country whose courts will have supervisory jurisdiction over the arbitration. Courts at the seat will have the authority to address specific matters that concern the arbitration, such as ruling on (i) preliminary injunctions in aid of the arbitration; and (ii) any challenges to the arbitral award. Thus, it is highly advisable to select a seat in a country with modern, arbitration-friendly laws in place, with courts that are familiar with principles of international arbitration. The selection of a seat should not be confused with the venue for the arbitration. The arbitral seat is distinct from and does not need to correspond with, the venue where hearings physically take place. In the case of A4 vs. B4 ([2019] ADGMCFI 0007), A4, a company registered in Abu Dhabi, brought arbitration proceedings in the Abu Dhabi Global Market Courts under the rules of the London Court of International Arbitration ("LCIA") on 8 March 2018 against B4, who are also incorporated in Abu Dhabi before His Honour Justice Sir Andrew Smith.   

     

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    Tue, 02 Jun 2020 17:45:00 GMT
    <![CDATA[Due Diligence Foreign Law Firms ]]> Due Diligence by Foreign Law Firms of UAE Entities

    Business transactions around the world often involve mergers, acquisitions or take-overs. Such transactions of the business organizations require thoughtful decisions which ultimately decides the future of the Company. Hence, due diligence holds the key to vital decisions of the economy as to whether the deal should be given a green flag or not.

    UAE as an economic and commercial hub in the Middle East and North Africa (MENA) region, has numerous foreign and domestic investors who are attracted towards the region's incentives like the tax regimes, free zones, etc. operating in the region. While some establish their own ventures, some businesses opt to enjoy the market reputation of the existing operations and employee base of established corporates in the UAE via mergers or acquisitions. Due diligence investigation is a useful tool to analyze the potential benefits and risks of investments. But easier said than done, the legal due diligence of a company is often a tedious task, which can significantly decide the timeline of the transactions.

    In plain terms, legal due diligence is a process through which substantial and reliable information about a business entity to discover any facts, circumstances or legal risks that are likely to influence a business decision. A snapshot of due diligence is depicted below:

    Although due diligence is not mandated by UAE law, it is always recommended to the buying entity that extensive due diligence for actual or constructive liabilities of target entity should be done. Also, legal and regulatory approvals and restrictions on transaction become clear to the purchaser.

    The information of the target company that is of the essence for the purchaser company is presented as follows:

  • Corporate Information
  • Legal entity structure, including name, location and function of all divisions, subsidiaries or related entities
  • Memorandum of Association & Articles of Association (or Constitutive Contract), including all amendments
  • Minutes of all meetings and consent in writing of managers, the board of directors, board committees and other committees and shareholders.
  • Shareholder/Partner (Owner) Information
  • Lists of all existing owners of shares with their address, number of shares they own, dates of issuance of shares and full payment, the consideration received by the Company.
  • List of all options and other rights to acquire equity securities.
  • Material Contracts
  • Debt financings
  • Bank line of credit or loan agreements and guarantees
  • Standard sales or license agreements
  • Indemnification agreements
  • Products, Manufacturing & Competition
  • Copies of any non-competition agreements of the Company with employees and subsidiaries
  • List of the top customers of the Company, indicating the products and the amounts of each purchase.
  • List of service and support contracts
  • Forms of warranties and guarantees provided to customers
  • Litigation & Audits
  • All management letters or individual reports from the auditor and responses to internal accounting controls.
  • Settlement documents
  • Decrees, order and judgments of courts or governmental agencies concerning the Company
  • Employees & Management
  • Management and organization of the company
  • Personnel handbooks and manuals
  • Government Contracts
  • Tenders and Government contracts and assignments
  • Technology and Proprietary Rights
  • All patents and applications pending or held by the Company
  • Copies of the agreement pertaining to confidentiality, non-disclosure, and assignment of invention agreements, between the Company and employees.
  • List of all copyright and trademark registrations and applications of all intellectual property
  • General
  • Report on all actual or potential conflicts of interests that the Company's directors, officers or employees have due to their relationship with any other person or entity which has any interest, financial or otherwise, in the Company
  • List and description of all transactions between the Company and its employees, directors or shareholders.
  • Any other documents which are relevant to the company and the sector in which it is operating as the due diligence and the perusal of documents differs from one domain of operation to another domain. But the above gives a bird's view of the same.

    The basic aim of drafting observations and action points in a due diligence report is to bring out or raise red flag over a gap of information or at the time of a non-compliance or an additional consent etc. required from the third party which was not known till the time it was raised in the due diligence report. Now, when it comes to the drafting of the observations and action points, lawyers need to keep one thing in mind that the due diligence report which is being prepared before a transaction would be discussed amongst or may be referred to a certain class of people who may not be lawyers. They could be read by business people, CEOs, CFOs or board of the company, general counsels, investor's legal advisors, investment managers, etc. Therefore, the correct and the most favoured way of drafting is first to tell the reader what has been provided for review, then your observations and lastly, the consequence of the observation (for, example, if it is a non-compliance, then the consequence of it, such as a penalty, etc.) so that even a non-lawyer could understand the basic requirement of such an observation.

    Action points are stated in the report but at an interim stage for the purpose of internal communication so that the target or investee company representatives can rectify the anomalies. They are often removed in the final report. The due diligence report generally has the following points in it to make a credible document: -

    PROJECT NAME

    SUMMARY OF CONTENTS:

    Transfer of Control

    • Key Commercial Terms

    • Duration of Material Contracts, Penalties, IPRs, etc.

    • Assignment

    • Termination

    • Governing Law/Jurisdiction

  • KYC Details and Background Check
  • It involves identifying the entity such as incorporation certificate, commercial license, shareholders, key directors and media releases.

  • Dubai Chamber of Commerce and Industry
  • The credit ratings and recommended credit limits of the company, besides companies' and financial information, such as shareholders, directors, bankers, payment history, etc.

  • Department of Economic Development (DED) database
  • It provides trade license number of the company, status of activity, expiry date, its activities, and the contact information and location of the company.

  • Al Etihad Credit Bureau (AECB)
  • It is a federal company [AA1] which is mainly a public joint-stock company (PJSC) which is wholly owned by the Federal Government of UAE. As per the Federal Law No. 6 of 2010 of UAE pertaining to the credit information, AECB is mandated to recurrently gather credit information from UAE's financial and non-financial institutions. It keeps details from all UAE banks, financial institutions and individuals and it provides credit reports for a nominal fee providing details of the debt levels and financial creditworthiness of UAE entities.

    Either the individual himself or by executing the power of attorney to the lawyer, an entity can check the credit information from the above-listed sources.

    Though the process and report of due diligence seem to be an exhaustive and in-depth one but the gross limitation of the process is that it is limited to two to five years during the examination. Moreover, legal due diligence doesn't reflect the financial and other due diligence, which is an expert domain of investment or merchant bankers or private equity firm.

    As Dubai envisions itself to be a smart city and with Expo 2020 UAE plans to be the hub of financial and commercial locus of the world, due diligence as a requirement would definitely pick the ground.

     

     

     

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    Tue, 04 Feb 2020 10:08:00 GMT
    <![CDATA[DIFC-LCIA Arbitration vs DIAC Arbitration]]> DIFC-LCIA Arbitration comparison with DIAC Arbitration

    Manchester United is playing Arsenal. In an incredibly intense contest between the two, at the 85thminute, there is a coming together between the players inside the penalty box. The referee, to understand the incident and know who the perpetrator was, uses the help of Video Assistant Referee (VAR). The referee, with the assistance of VAR, was able to identify and resolve the issue at hand. Similarly, Alternative Dispute Resolution (ADR) works in the same manner. When two parties have a dispute, resolving it through the process of litigation can often be an extremely lengthy and time-consuming process, not to mention, rigid as well. ADR, in the form of arbitration, mediation, etc., brings various other options in settling these disputes without going through the process of litigation.

    In this article, we will run through a brief comparison of the procedural and substantive laws in the DIFC-LCIA Arbitration Centre and the Dubai International Arbitration Centre (DIAC).

    The DIFC-LCIA Arbitration Centre:

    The DIFC was established as a financial centre and free zone 2004. In 2008, in agreement with the London Court of International Arbitration (LCIA), an arbitration centre was created with the primary objective being the promotion and administration of effective and efficient arbitration proceedings for parties based in the Gulf and MENA region. The Arbitration Rules 2016, issued by the DIFC-LCIA Arbitration Centre, govern all arbitration proceedings of the Centre, with some of the sectors being construction, media, financial and telecommunications.

    All arbitration proceedings will be conducted by an Arbitration Tribunal which will be formulated by the LCIA Courts, who have the exclusive authority to appoint arbitrators. The nationality of the arbitrator must not be the same as that of either of the parties unless the party with the different nationality agrees in writing otherwise. The appointed arbitrator may be revoked by the LCIA Court if:

    • The arbitrator gives a written notice stating his/her intention to resign.
    • The arbitrator becomes seriously ill and unfit to act and carry out the duties of an arbitrator.
    • The impartiality and independence of the arbitrator are reasonably doubted due to circumstances.

    Once the Arbitration Tribunal has been formed, the parties must contact the Tribunal within 21 days in whichever manner possible. The duties of the Tribunal are as such:

    • To act justly and impartially between all parties.
    • To ensure that the procedures adopted are suitable to the circumstance and provide an efficient and expeditious way to the final resolution.

    After the Tribunal has been formulated, the claimant must deliver a written statement of the case to the Tribunal and the other involved parties within 28 days of the formulation of the Tribunal. Along with the written statement of the case, all legal submissions and details of relevant facts, as well as the relief being claimed, must be submitted. Once the claimant's documents have been received, the respondent must deliver to the Tribunal and all other parties the statement of defence and any counter-claim, if applicable, along with relevant legal submissions and other essential documents. Without exceeding 28 days from the date at which the respondent made the submissions, the claimant must make a statement of reply and any statement of counter-claim, if applicable, that is supported with the relevant documentation. If there is a statement of counter-claim by the claimant, the respondent must, within 28 days, must deliver a written statement of reply. Should the respondent fail to do so, the Tribunal can go ahead with the proceedings and issue the award as necessary.

    The seat of arbitration can either be mutually agreed by the parties before the formulation of the tribunal and in the event that it is being decided after the formulation of the Tribunal, the decision must be taken with the consent of the Tribunal. If any such agreement has defaulted, the seat of arbitration shall be the Dubai International Financial Centre (DIFC). The tribunal can also conduct the hearings at a geographically convenient place other than the designated seat upon consultation and agreement with the parties. With respect to the language of the arbitration, initially, the parties will use the language in which the Arbitration Agreement is formed unless the usage of a different language is specified in the agreement. If mutliple languages are used, the LCIA Court can determine which language can be utilized. If any document is submitted to the Tribunal in a language different from that in which the Arbitration is being conducted, then a translation must be provided.

    The Arbitral Tribunal is empowered to issue interim orders, after a reasonable opportunity has been given to the parties to respond to the claims, such as:

    • Issue order to any party to provide security for the amount in dispute in the form of a deposit/bank guarantee/any other manner.
    • Issue the storage/sale/disposal of any documents, goods, property which is under the control of any of the parties and is related to the subject matter of the arbitration.
    • Issue an order for provisional relief, pending the final award, in the form of payment of money or disposition of property in between the parties.

    With regards to the final award, it can be made in any currency provided the parties have agreed otherwise. The award issued is considered to be final and binding on the relevant parties and must be carried out immediately. The parties won't have any right to appeal or review the award. The choice of law that is to be followed in such agreements is mutually agreed upon by the parties.

    The jurisdiction of the DIFC-LCIA Arbitration Centre has been contended several times. The UAE is a party to the New York Convention on the Recognition and Enforcement of Arbitral Awards. The convention is of the view that an arbitration award issued in any contracting state can be enforced without any unreasonable restriction in any other contracting state except on the following grounds, as per Article 5 of the convention:

    • The invalidity of the arbitration agreement according to the governing law.
    • The defendant was not given proper notice of the proceeding or was unable to present his or her case.
    • The subject matter of the arbitration cannot be settled by arbitration in the jurisdiction where recognition/enforcement of the award is petitioned.
    • The recognition or enforcement of the award is against the public policy of the jurisdiction where the award is seeking to be recognized or enforced.

    The recognition and enforcement of awards have been further set out in Part 4 of the DIFC Law No. 1 of 2013, which states that arbitral awards will be recognized and enforced not just within DIFC, but outside the DIFC as well, in accordance with Article 7 of Law No. 12 of 2004. The jurisdiction of DIFC-LCIA Arbitration Centre was further affirmed in the case (1) Egan (2) Eggert v (1) Eava (2) Efa [2013] DIFC ARB 002, where the claimant wanted to enforce an award, that was issued outside DIFC but within the emirate of Dubai, in DIFC. The defendants contested that since they did not have anything to do with DIFC and did not have any assets in DIFC, the DIFC Courts did not have any jurisdiction over the same. It was held that the defendant is not required to be present in DIFC or have any assets in order to recognize an award, which was in accordance with Article 42 of Part 4 of DIFC Law No. 1 of 2013.

    The Dubai International Arbitration Centre (DIAC):

    The Dubai International Arbitration Centre (DIAC) was established by the Dubai Chamber of Commerce and Industry in 1994 as a Centre of Commercial Conciliation and Arbitration. The DIAC is an independent and autonomous organization that is governed by the UAE Federal Laws. The primary objective of DIAC is to provide arbitration services with the help of internationally qualified arbitrators at an affordable price. The services offered include:

    • Overseeing arbitral proceedings and disputes.
    • Appointing arbitrators
    • Choosing the venue for arbitration
    • Fixing the fee of arbitrators and mediators

    The Dubai International Arbitration Centre is governed by the UAE Civil Procedural Code Federal Law No. 11 of 1992 and the DIAC Arbitration Rules 2007. The arbitration proceedings that are followed are quite similar in nature to that of the LIAC/DIFC Arbitration Centre. The structure of DIAC is as follows:

    • Board of Directors of the Chamber (Dubai Chamber)
    • DIAC Board of Trustees
    • DIAC Executive Committee
    • DIAC Manager
    • DIAC Administrative Body

    The Board of Directors advises the Ruler on the appointments of the Board of Trustees, and their primary function is to oversee the structure and operations of the Arbitration Centre and appoint the senior management. The Board of Directors is not tasked with handling any of the cases that comes the way of the Arbitration Centre. The Board of Trustees, on the other hand, are entrusted with the responsibility of the overall management of the DIAC and is comprised of 15 members having experience in the field of arbitration with the term of the appointment being three years. The Board also has to provide the approval to organizational structure, regulations and bye-laws of the Arbitration Centre, give guidance in the adoption of DIAC's general policies and propose possible changes to the rules and procedures, if any. The Executive Committee is responsible for the implementation of the decisions that are taken by the Board of Trustees and carry out other functions under the DIAC Rules. The Manager, who is appointed by the Board of Directors, is expected to control and administer the rules of DIAC and its bodies. The Administrative Body of DIAC ensures that the arbitration services provided by DIAC run in an efficient manner, that adheres to the DIAC Rules.

    The Arbitration Tribunal, as set up by mutual agreement between the parties or at the discretion of the Centre if the parties are not in agreement, must always be uneven in number. The arbitrators appointed by the Centre must be impartial in nature and must not, in any manner whatsoever, attempt to act as advocates for either of the parties involved. As per the DIAC Rules, the seat of arbitration can be mutually agreed upon between the parties, and if on the contrary, the seat shall be Dubai, unless the Executive Committee determines a more appropriate seat.

    Once the Arbitration Centre receives the request for arbitration, it shall transfer the file to the Tribunal at the earliest of its formation. Within 30 days from the date at which the Tribunal receives the file, the Tribunal must let the parties know the date and venue of a preliminary hearing and accordingly, the Tribunal will fix a schedule for the proceedings. If the Statement of Claim, which has a comprehensive outline of the facts and legal arguments supported with the relief being claimed, was not submitted with the request for arbitration, it must be done so in a span of 30 days of the receipt of notification from the Centre on the establishment of the Tribunal, with a copy being submitted to the Respondent, the Tribunal and the Centre. The Statement of Claim must be accompanied with the required documents the Claimant might be required to rely on. The Respondent shall, within 30 days of receiving the Statement of Claim or the receipt of formation of the Tribunal by the Centre (whichever is later), must submit a Statement of Defence to the Claimant, the Tribunal and to the Centre and this statement must be supported by the required documentation that the Respondent intends to use. If the Respondent intends to pursue any counter-claim, the same must be made in the Statement of Defence. In addition to the Statement of Claim by the Claimant and the Statement of Defence by the Respondent, it is the discretion of the Tribunal to allow any further written statements. In the event that it does, all submissions must be made within a time limit of 30 days.

    The Arbitration Tribunal of DIAC has the power to evaluate the evidence that is submitted, including the admissibility, relevance and expert opinion, if any, on a case-to-case basis and is even empowered to determine the time, manner and format which the exchange of evidence happens between the parties. The Tribunal further has the discretion to hold hearings, allow oral arguments and bring in witnesses. If the witness needs to be heard by the Tribunal, the following must be submitted before the Tribunal at least 15 days prior:

    • Identity and address of the witness
    • The subject matter of their testimony
    • Relevance to the issue at hand
    • Language of testimony

    The Tribunal is also empowered to issue any provisional/conservatory orders it deems necessary. If any party requests a competent judicial authority for an interim or conservatory measure or for the implementation of any directive issued by the Tribunal, it will be deemed to be compatible with the Arbitration Agreement entered between the parties. In the event that the Claimant does not produce a Statement of Claim, the Tribunal can refuse to proceed with the claim, but this will not stop it from pursuing the Counter-Claim of the Respondent. If any party fails to utilize the opportunity to present its case to the Tribunal and does not show any reasonable cause for the same, the Tribunal can draw any inference it deems appropriate from such conduct.

    With respect to the rules of law, the Tribunal can decide to implement the rules of law as mutually chosen by the parties, and if that is not the case, then the Tribunal is to apply the law which it deems to be most appropriate. Once the Tribunal decides that it is satisfied with the opportunities given to the parties to present their submissions and pieces of evidence, it can declare the proceedings to be closed. In exceptional circumstances, the Tribunal can re-open the proceedings, either on its own motion or at the application of either of the parties, at any moment before the award is made. Within six months from the date at which the Tribunal received the file, the Tribunal must issue the award and can extend the time-limit for an additional six months. If the Tribunal feels that it needs further time, then it can request the Executive Committee to do so. The awards made by the Tribunal are binding on the parties, and since the parties wave their right to appeal in agreeing to proceed with the arbitration proceedings, it is final. If the parties need any further clarification on the award, within 30 days from the date of receipt of the final award, the parties can request the Tribunal for an interpretation of the said award.

    The UAE is a signatory to GCC Convention for the Execution of Judgments, Delegations and Judicial Notifications as well as the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards. This means that an arbitration award that is made in any of the contracting states can be recognized and enforced in any of the other contracting states. If the enforcement of the award by a contracting state is against the public policy that it follows, then the award cannot be enforced.

    Conclusion:

    The resolution of disputes using the method of arbitration has been exceptional in giving the involved parties a sense of flexibility and pace with the proceedings. With the bilateral treaties between countries and conventions like the New York Convention and the GCC Convention, arbitration proceedings and awards can be easily recognized and enforced in various countries throughout the world.

     

     

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    Thu, 02 Jan 2020 17:54:00 GMT
    <![CDATA[Running a Private Equity Real Estate Fund]]> The Cost of Running a Private Equity Real Estate Fund

    Private equity real estate is an advantage class that comprises of pooled private and public interests in the real estate market. Such contributing includes the obtaining, financing and proprietorship of property or properties utilizing a shared vehicle. Private equity real estate ended up prominent during the 1990s amid falling property costs as an approach to gather up properties as qualities fell.

    A private equity fund is an aggregate investment plan utilised for making investments in different value (and to a lesser degree obligation) securities as indicated by one of the investment strategies related to private value. Private value assets are usually restricted associations with a fixed term of 10 years.

    At origin, institutional investors make an unfunded duty to the restricted organization, which is then drawn over the term of the store. From the investors' perspective, assets can be conventional, where every investor contribute with equivalent terms or deviated, where various financial specialists have distinctive terms.

    A private equity fund is raised and overseen by investment professionals of a particular private equity firm (the general accomplice and speculation counsel). Ordinarily, a single private equity firm, will deal with a progression of private equity funds reserves and will endeavour to raise another fund each 3 to 5 years as the past store is entirely and fully invested.

    Breaking Down Private Equity Real Estate

    Investing resources into private equity real estate, for the most part, requires a financial specialist with a more extended term standpoint and a critical forthright capital responsibility. Little adaptability and liquidity are offered to investors since the capital commitment window usually requires quite a while. Lock-up periods in case of private equity real estate can now and again keep going for more than twelve years approximately. Also, dispersions can be moderate, as they are regularly paid from income, as opposed to through and through liquidation where the investors stand with no right to request settlement.

    In any case, given real estate's prominence as an asset class, it can furnish high potential degrees of pay with substantial value appreciation. Yearly returns in the 6-8% for strategies and 8-10% for techniques are considered reasonable. Returns for worth included or opportunistic approach can be significantly higher. So, private equity real estate is risky enough that investors can lose their entire investment if a reserve fails to meet expectations.

    Types of PERE Funds

    • Core
    • Core Plus
    • Value Add
    • Opportunity

    Fund Structure

    The essential PERE subsidize vehicle will more often than not be a limited partnership. The more extensive reserve structure may, in any case, include various other store vehicles, for example, feeder assets and parallel assets, which, thus, may incorporate companies or private REITs especially for US PERE reserves that craving to restrict unrelated business taxable income for US expense absolved financial specialists and duty payable under the Foreign Investment in Real Property Tax Act of 1980 for non-US speculators. A fund additionally contains various parts, including a cast of players that incorporates the fund's advisers, chiefs and investors.

    Common Private Equity Real Estate Investments

    Office buildings, tall structure, urban, rural and garden workplaces; modern industrial properties including stockroom, innovative work, adaptable office/mechanical space; retail properties, shopping centers, neighbourhood, network and power centers; and multifamily condos, are the most widely recognized private equity real estate ventures. There are additionally speciality property investments, for example, senior or student lodging, inns, self-storage, medicinal workplaces, single-family lodging to own or lease, undeveloped land, producing space, and the sky is the limit from there.

    Who Invests in Private Equity Real Estate?

    Organizations (annuity assets and not-for-profit reserves), third parties, for example, asset managers and resource directors contributing for the benefit of foundations, private licensed investors and high-total assets people put resources into private value land.

    Private equity real estate investments are generally pooled and can be organized as constrained organizations, LLCs, S-corps, C-corps, aggregate venture trusts, private REITs, guarantor separate records or other lawful structures.

    The development of PERE assets since the 2008 global financial crisis (GFC) has been staggering – and it is a pattern that appears to keep grabbing speed, notwithstanding when vulnerabilities from exchange wars and debilitating economies loom overhead.

    The actual fund cost from the Asia perspective

    There are a couple of basic structures being utilized and supported by speculators all-inclusive. Considering USD 500 million reserve utilizing a typical GP/LP structure through the lense of an Asian-based store supervisor putting into Asia Pacific real estate - a significant part of the literature distributed has been it is possible that the US or EU driven, with very little spotlight on this piece of the world to date.

    The costs can generally be classified into the following:

  • Set-up
  • Annual Ongoing
  • Ad-hoc
  • Pre-launch and set-up costs

    At the pre-launch stage for another shop, support supervisors and fund managers are generally focused around raising money and leading roadshows while working intimately with external legal counsels to have the store record pack arranged. This forms the main part of the set-up expense; in APAC, this can cost at least USD 35,000, and the charges can without much of a stretch reach USD 100,000.

    Specialist organizations, for example, legal advice, banks and store directors, have seen costs expanding as of late, to a great extent because of expanded Know Your Client (KYC) and compliance prerequisites.

    Normal extra costs that kick in are express documenting expenses and odds and ends, which can expand the set-up expenses by up to 10 per cent.

    When it is set up and is running, one should consider paying salaries for a group of at least four experienced portfolio supervisors to help the store administrator and standard overheads of physical office space.

    Unscheduled capital calls, drawdowns, extra dedicated capital and new financial specialists are on the whole uplifting news, however, when such changes are not overseen in an effective manner. Factor in rebuilding because of amendments in tax laws and the fees can multiply.

    Mitigating costs exceeding the planned budget

    With every one of the charges included, the expenses frequently surpass the first original proposed budget and store supervisors would be hard squeezed for results while explaining increased operational costs.

    Are there approaches to oversee such circumstances?

    Honestly, without a doubt. Transparency and communication, along with openness, are of the utmost importance. We urge finance directors to request their fund administrator to their structure planning as right on time will be expected under the circumstances.

    Being a piece of the discussion implies the fund administrator can give an autonomous perspective, and an accomplished proficient will probably feature areas which may have been neglected.

     

    ]]>
    Sat, 14 Dec 2019 14:44:00 GMT
    <![CDATA[UAE Netting Law]]> UAE Netting Law

    As announced by the Dubai International Financial Centre ("DIFC") on 14 December 2014, His Highness Sheikh Mohammed bin Rashid Al Maktoum has enacted the DIFC Law Number 2 of 2014 (the "DIFC Law"), in his capacity as the Ruler of Dubai. This legislation came into power as a UAE Federal Law as well - Law Number 10 of 2018 (the "Law") as of 31 October 2018.  Provisions of this Law applies to all Qualified Financial Contracts, Collateral Arrangement and Netting Agreements which are entered in the UAE by any person, provided that the Law lists these abovementioned arrangements. The DIFC Law passed by the DIFC draws upon the International Swaps and Derivatives Association (ISDA) Model Netting Act 2006 and integrates the features of best international practice. It is most likely that this DIFC Law will bring about significant changes to those involved in the commercial and commodity markets both in the UAE as well as internationally.

    As stated by His Royal Highness Sheikh Hamdan Bin Rashid Al Maktoum, this DIFC Law will lead to a decrease in credit as well as settlement risks and will increase the efficiency of the regulatory procedures (including safeguards) concerning Netting. He also mentioned that this, in turn, will strengthen oversight and governance frameworks by improving the performance of the nation's economy and attract further foreign investments.

    Analysis of Netting

    In simpler terms, Netting is a standardised process used in banking and financial markets with the view of making payments for interests or any competing claims between parties. The goal is ultimately to decrease the number of transactions involved with the process. For instance, Bank X owes Bank Y AED 200,000, and Bank Y also owes Bank X AED 150,000. After applying the principles of Netting, the amount required for transfer will be a sum of AED 50,000 from Bank X to Bank Y (200,000 – 150,000). As a result, this new payment between the Banks has resulted in the same desired outcome economically for both the parties.

    Therefore, Netting is a method which decreases any financial, contractual risks like credit or settlement. It is done so by adding up multiple promises of payment and reaching a diminished net promise. Some of the critical features of Nettings are the decrease of credit, settlement, liquidity and systemic risks.

    Another example to understand payment netting (also referred to as settlement Netting):

    Two parties (Party A and Party B) are carrying out a transaction on a specific date. Here, Party A owes Party B £7,000,000, and Party B owes Party A £8,000,000. Here, usually, the parties will combine the amount of currency with being delivered to the other, and the party with a higher aggregated amount will deliver the difference to the other party. Applying this principle to our example, Party B will deliver the outstanding amount of £1,000,000 to Party A on the due date.

    Application of the Law

    Netting includes various cases such as clearance or acceleration of any payment for the delivery of claims under a Qualified Financial Contract entered into under a Netting Agreement. Article 3 of the Law covers this application of the law.

    Furthermore, the article also provides on the calculating, approximating or accepting the close-out or termination, market, liquidation or the replacement value. Any damages incurred which is contributed by a party's failure to follow the rules of the Netting Agreement taken into account for in value.

    Furthermore, it includes the exchange of values calculated into one currency, either by operation of set-off, offset or net out of obligations. It is noteworthy that entry by either of the parties into a transaction either according to or as a result of the net balance is payable either:

    • Directly
    • As part of some consideration for a specific asset
    • As a way of paying damages relating to the non-performance of any such transaction.

    Article 4 of the Law states that the following cases amount to a Netting Agreement:

  • Agreement between parties, including present/future payments or any obligation to deliver between the parties concerning one or more Qualified Financial Contracts. This agreement is commonly known as the 'Master Netting Agreement'.
  • A master agreement between parties relating to the delivery of Netting amounts through 'two or more Master Netting Agreements.'
  • Any Collateral Agreement also falls under this category. For this Article, Collateral Agreements are those agreements, contracts or transactions which fall under either the scope of Qualified Financial Contracts mentioned in Article (5) of the Law or fits in the definition of Netting Agreements mentioned in Article (4) of the Law.
  • Agreements that comply with the Shariah rules and have parallel purposes of the abovementioned Netting Agreements.
  • Agreements which come within the range of Qualified Financial Contracts mentioned in Article (5) of the Law.
  • Qualified Financial Contracts

    As for Article 5 of the Law, it states that Qualified Financial Contracts are deemed to be final and enforceable so as long as the provisions in Article 7 of the Law is not discriminated.

    For Netting to be enforceable, firstly it should be considered as final and enforceable under the Law; i.e. should not be considered void, unenforceable or unfinished for any related reasons to aleatory contracts. These contracts, known as Gharar contract, occur when the determination of rights and obligations of the parties are unclear. Article (7) of the Law, provides for the setting up of the "Committee for Designation of Qualified Financial Contracts''. The Committee is chaired by three representatives, one from the Finance Ministry and two from Regulatory Authorities in the State (Central Bank, Securities & Commodities Authority and the Insurance Authority). The responsibilities of this Committee are as follows:

    • Designate Qualified Financial Contracts (not referred to in this Law).
    • Substitute any financial agreement, contract or transaction from the directory of Qualified Financial Contracts described to in this Law (within its jurisdiction).

    Next, Netting Agreements should settle as final and enforceable by the Law. The terms incorporated in the agreement, including the terms against guarantors, an insolvent or any other person giving security in exchange for support of the insolvent party must be upheld and followed.

    Finally, the Law, regarding a Netting Agreement during bankruptcy and insolvency, states that the commitment of the parties is as stated in the Netting Agreement; - unless their responsibilities convert into obligations. Equally, the process applies to the transaction of financial contracts.

    Note that, Netting Agreements remain enforceable by the newly passed banking laws. These banking laws clarify that the settlement of any netting obligation which has been affected in bankruptcy or liquidation process will be determined according to if such an amount has been paid.

    Because it constitutes a preference due to a non-insolvent, it will not be permissible for the liquidator to annul, deny or stop the execution of any of the operations specified in compliance with the requirements set out in the DIFC Law. The DIFC Law also addresses many previous legal issues relating to the set-off of insolvency and the dissolution of insolvency contracts.

    In conclusion, the DIFC Law is seen as a progressive step which seems to give clarity and certainty to both local and international markets. In addition to this, it is also clear that the qualities of Netting will be acknowledged in the UAE. The DIFC Law has eliminated various legal issues concerning insolvency set off and contracts collapsing due to insolvency as per current UAE Federal Laws.

    The change brought about by the DIFC Law drastically helps to promote and encourages international recognition of the UAE as a well progressed state in the Netting jurisdiction. This, in turn, reflects in a positive note, the UAE's ever-evolving legal system leading to endorsements of more significant financial activity in the country boosting the growth of its commercial financial hub.

    Note that this article is designed only to provide a general overview of the subject matter. It is thoroughly recommended to seek specialist advice for specific circumstances.

    ]]>
    Mon, 21 Oct 2019 11:55:00 GMT
    <![CDATA[Force Majeure Clauses Limitation of Liability]]> Force Majeure Clauses and the Limitation of Liability

    Introduction

    Force majeure roughly translates to 'superior force' and is used when referring to unforeseeable events taking place. For the most part, unforeseeable events are not attractive prospects for any individual, especially in the case of business agreements. While contracts generally do consists of plans for many potential eventualities, these are usually somewhat anticipatable. Force majeure on the other had are events which cannot be predicted or anticipated. The most common forms are natural disasters and certain types of changes in the law. Historically, this concept only referred to 'Acts of God'. Earthquakes, fires, floods and tsunamis occur and have arisen regularly across the globe. In the modern world, there are other concepts which fit the descriptions in many ways. Changes in international law and significant global events resulting from human activity are not entirely natural, though that may be unpredictable, and can have significant impacts on business agreements.

    In the event of such an occurrence, parties often share the opinion that it would be unfair to continue to apply the original contract's clauses. An example of this could be relating to tenancy contracts. If a natural disaster were to transpire resulting in damage to property, contracts would usually have a force majeure clause, allowing for immediate termination of the agreement and allowing the property owner to work on and repair their home freely.

    The force majeure clause is one which is relatively well known heavily used across many industries and throughout numerous contract forms. In the case of the UAE, they are found in often in tenancy contracts, due in part to situations such as the one mentioned previously. Another critical industry is that of construction. There are two points of note here. Firstly, it is fairly obvious that a natural disaster could have a negative impact on a project and this could extend so far as to make it impossible to continue. The other point relates to the country itself. The UAE has a huge construction industry, with the Emirate of Dubai being particularly famous for its large-scale undertakings. However, the land on which the city of Dubai lies is relatively stable. There are many complexities to the topic and numerous considerations to contemplate.

    The UAE Civil Code

    The UAE relies primarily on the UAE Civil Code (Federal Law Number 5 of 1985) in matters relating to contracts. In the code, Section 5 concerns the dissolution of contracts, and Article 273 elaborates on the topic of force majeure. Here, it states that in the case of an event that would lead to the agreement being impossible to complete, the obligations on both parties will cease, and beyond this, the cancellation of the entirety of the contract may transpire.

    However, there are occasions wherein part of the contract becomes impossible to complete while other aspects remain doable. In this case, Article 273, Subsection 2 states that the elements of the deal that are affected by the force majeure will become terminated while leaving the rest of the contract to continue as ordinarily as possible. The obligor of the agreement, in this case, will be able to cancel the contract provided the obligee is aware of their intent to do so.

    An example of a case in which force majeure was a key factor was the Dubai Court of Cassation, 213/2003 (195). In this case, a contractor was performing construction work, though they failed to complete it in time. However, a force majeure was claimed to be the cause, and therefore the judgement gathered that since the problem arose due to unforeseen circumstances, the contractor should receive the value of the work completed, and the termination of the remainder of the contractual agreement should take place.

    It is important to note that the civil code primarily covers the UAE mainland. While numerous free zones also follow the Civil Code in parts, there are some including the DIFC and ADGM which have their regulations in place. The DIFC Law Number 6 of 2004 covers contracts within the free zone's jurisdiction. Article 82 of the law regards force majeure clauses and instances.

    Subsection 1 of this Article states that, in the case of a non-performance of contractual obligations, a party may be excused should they be able to prove that their non-performance arose due to uncontrollable circumstances.

    Subsection 2 mentions temporary roadblocks. In the case of a temporary issue, the obligations may be held off until a time when it is reasonably possible to continue.

    A notice must be given by the party that is unable to complete their obligation as soon as the problem becomes known to them, as stated under Subsection 3.

    Finally, Subsection 4 indicates that if a party wishes to terminate a contract due to a force majeure event occurring, they shall be entitled to do so.

    DIFC

    A case that took place in the DIFC was the Judicial Authority of the Dubai International Financial Centre: Court of First Instance, 7/2013 CFI. The Claimant, in this case, had sold properties to numerous defendants, though these were then either delayed or cancelled. However, within the contracts between the parties, there was a force majeure clause within the contract. There were numerous delays during the construction period, though notices accompanied these. The critical issue here was primarily related to the provided warnings themselves, as the force majeure clause itself was acceptable.

    ADGM

    The ADGM, on the other hand, follows the UK court system and contract laws. It states that within the Market Infrastructure Rulebook (MIR), Article 2.6.2, that business continuity plans will be required in the contracts that need them. The Article then proceeds to list some of these, and Subsection d specifies that a force majeure clause should be included to provide some plan for emergencies.

    The UK

    Because the UK is a country that utilises a common law system, force majeure will only be applicable in a case that has it mentioned and specified in the contract. It is for the parties to decide on the extent of the clause.

    Further to this, the burden of proof is on the party that attempts to apply it. They must prove that the event in whole or in part prevented the completion of responsibilities. If this is possible, the clause as found in the contract can be applied.

    As a whole, the UK system is more customisable than general, though it must be included explicitly by the parties to the contract.

    The USA

    The US, much like the UK is a common law jurisdiction. As such, many of the same concepts apply here. There is no Federal Law in place which dictates force majeure, and therefore, if it is absent in a contract and such an event occurs, the concept cannot be relied on to shift the liability away from any of the parties.

    The clause is one which is often put into contracts in a very generic manner, partly due to the fact mentioned above. While problems can arise out of the use of a generic clause, the point remains, that force majeure is a well-known and utilised often.

    For a force majeure to be applicable, it must fulfil one of two requirements. The first is that of impossibility (or impracticality), while the second is the frustration of purpose. An example of a case in which the impossibility clause applied was Taylor v Caldwell. One of the parties owned a music hall which it had agreed to lease to the other. However, a fire arose which destroyed the building; this made it quite impossible for the agreement to be completed and enacted, and so under the impossibility force majeure clause, the contract would be terminated.

    India

    Once again, India is a common law jurisdiction much like the UK and US. The UK system heavily influences it due to the past the countries share, and so it should come as no surprise that they have much the same attitude on force majeure clauses. In India, there is the concept of Doctrine of Frustration, and this applies in any case wherein the initial purpose of the agreement is no longer a possibility.

    Section 56 of the Indian Contract Act of 1852 states that any case in which an act or obligation becomes impossible or unlawful, the agreement shall become void. However, it was confirmed by the Indian Supreme Court that this would not apply in any case wherein the defendant causes the impossibility to arise due to their personal actions or decision.

    Conclusion

    Force majeure is a fairly standard clause used in contracts around the world. It provides as much stability as is possible in the face of the world's instability, with numerous occurrences of unpredictable and uncontrollable natural disasters occurring regularly and human-made changes in legal systems taking place through government acts on national and international fronts. This clause is both specific in its outcomes, while simultaneously being vague enough to cover all possibilities. Depending on a nation's legal system, there may be different regulations controlling the use of the clause, with many of the common law jurisdictions sharing similar attitudes towards it, while civil law systems have their view of things. However, the fundamental outlook on the matter remains alike.

     

    ]]>
    Mon, 02 Sep 2019 12:30:00 GMT
    <![CDATA[Cross border crowdfunding]]> DFSA REGULATIONS ON CROSS-BORDER CROWDFUNDING

     

    In the wake of the 2008 financial crisis, when access to capital became difficult, the concept of Crowdfunding emerged. Crowdfunding, an outcome of the modern sharing economy, is a loaded term where old and new meanings have come up to describe similarly or the same activities. Simply explained, crowdfunding is a way in which people, organizations and businesses can obtain funding for their projects by raising money from a large number of people (the crowd) through the medium of licensed online platforms. It thus involves three parties:

    • The operator of the platform
    • The party receiving the funds
    • The Party providing for the funds

    Kinds of Crowdfunding

    There are different types of crowdfunding:

    •  Donation

    Non-profit organizations use crowdfunding platforms such as Classy, Razoo, Fundly, Crowdrise to gather donations for charitable purposes. Platforms such as GoFundMe and YouCaring cater to individuals who wish to raise money for resolving personal problems.

    •  Reward/Royalty
    • Loan Crowdfunding - Where the person providing the funds enter into a loan agreement with the person to whom the funding is provided; and
    • Investment Crowdfunding (Such as equity-based) - Where the person funding, purchases an interest in the company in the form of shares, debentures or sukuk from the person who receives the funding.

    A global consensus has emerged on the regulation of only loan and investment crowdfunding since the other types do not typically involve any activity that can be termed as financial services.

    Why is Regulation a necessity?

    Crowdfunding, though advantageous for the modern economy, carries with it several risks including the risk to:

    •  Money laundering, which may result in the confiscation of assets
    • Failure or default by either the platform or the project owner, resulting in potential loss of the investment
    • Fraud and embezzlement of funds invested
    • Legal risks
    • Credit and investment risk in loss of investment
    • Lack of transparency or irregular, incomplete, inaccurate, misleading information regarding the hazard or return.

    CROWDFUNDING IN DUBAI

    Small and Medium-sized Enterprises (SMEs) comprise about 50% of the UAE GDP; however, these businesses rarely receive credit facilities from conventional banks. This is because conventional banks are often apprehensive of the SMEs' limited asset pool or the short record of proven company operations, leaving them unwilling or unable to extend loan facilities to SMEs. In such a situation, crowdfunding has emerged as the most used route for these enterprises to receive funding. This is why in recent years, UAE has witnessed the rapid growth of crowdfunding platforms based in or focusing on UAE and other GCC countries. Aflamnah, launched in Dubai in 2012, focuses on locally produced films and Eureeca launched in the following years, was the first Equity Crowdfunding to be licensed by DFSA to operate with a representative office in DIFC. Humming Crowd Realty was the first real estate platform focused in UAE.

    With this rapid growth of crowdfunding through a plethora of platforms in Dubai, the need to regulate risks and protect the rights of the parties became a necessity.

    The Dubai Financial Securities Authority recognizing the significance of SMEs for UAE economy predicted the growth of importance of crowdfunding and came up with a regulatory framework in 2017, for loan and investment crowdfunding, making UAE the first GCC country to take the initiative of regulating the crowdfunding arrangements. This regulation by DIFC was also the means to facilitate the growth and development of the FinTech industry in UAE as well as the MEASA regions.

    DFSA REGULATIONS

    The Regulations form a part of DFSA Conduct of Business Module under S.11 and governs both Loan Crowdfunding and Investment Crowdfunding platforms. The primary aim of these regulations is to encourage the growth of the Financial Technology (FinTech) Industry by ensuring clear governance and necessary protection for the parties. They also formalize the DFSA's approach towards regulating crowdfunding platforms which had operated through interim arrangements from 2016.

    Though the regulations apply to both Investment and Lending Crowdfunding, a certain type of regulations has also been placed.

    The following are the essential aspects of the regulatory framework that needs to be complied with by the operators of crowdfunding platforms:

  • Regulated and Unregulated Crowdfunding
  • Certain crowdfunding services such as donation or reward crowdfunding need not be authorized. To avoid the risk of confusion amongst Clients of Authorized services, the operator should not provide regulated and unregulated crowdfunding services from the same legal entity and should use separate legal entities if it wishes to carry out both services.

  • Advertisement of Proposals
  • The operator is prohibited from advertising specific lending or investment proposals to those who are existing clients. In such an event, the offer shall be considered as an "offer of securities to the public" which shall require a prospectus to be issued as under DFSA laws.

    However, there is no restriction on the operator from generally advertising crowdfunding services to potential clients.

  • Use of other platforms
  • It is the responsibility of the operator to restrict a borrower or issuer from obtaining funds from another crowdfunding platform during the period of commitment. This restriction is intended to prevent Borrowers/ Issuers from making different terms of the offer in different platform, causing confusion for the Lenders/Investors and potential arbitrage by the Borrower/Issuer.

  • Information and Disclosures
  • To reduce the risk of investors/lenders and to promote transparency in the operation of crowdfunding platforms, the DFSA requires the operator to provide the following disclosures and information on its website regarding its services:

    ❖         Disclosure of Risk

    As already seen above, crowdfunding carries with it several risks to the potential clients who lend/invest their money.  In order to inform these clients about the potential risk, the DFSA requires the operator to disclose the risks the lenders/investors may be exposed to and laid down the following four express statements which have to be necessarily included in the operator's website:

    ●        Lender/investor may lose all/any part of their money or experience delays in payment.

    ●        Borrowers/issuers on the platform also include new businesses which carry with it the risk of failure; as a result, a loan/investment with such a venture may involve high risks

    ●        The lender may not be able to transfer their loan, or the investor may not be able to sell their investment when they wish to or at all

    ●        If the operator, for any reason, ceases to carry on its business the lender/investor may lose their money, incur costs, experience delays in getting paid.

    Furthermore, in order to facilitate the assessment of risk by Lenders/investors, with regard to lending and investing on the platform, the operators are required to disclose the default rates of loans by borrowers and the failure rates in relation to issuers where they default on payments, becomes insolvent, wound up or cease to carry business.

    ❖         Service Disclosures

    To provide an understanding to the Lenders/Investors and Borrowers/Issuers regarding the terms of how the platform operates, the operator is required to disclose information about its operating module such as:

    • Details of
  •  How the platform functions
  • Regarding the remuneration of the operator for the services provided
    • Financial interest of operators or Related Party that may create a conflict of interest.
    • Eligibility criteria for Borrowers/Issuers or Investors/Lenders to avail the services.
    • Minimum and the maximum amount
  • of loans/investment that may be sought for
  • amounts that may be lent/ invested including individual loans or investment and limits that apply over a period of 12 months
    • Type of security sought from borrowers/issuers and when it might be exercised and any limitations on its use
    • When and how the lender/investor may withdraw commitment
    • Consequence when loan/fund sought for fails or exceed the target level
    • Steps taken by the operator concerning any material change in borrower/issuer's circumstances and the rights of Lender/Investor in such a situation
    • Operator's method of dealing with overdue payments or default by Issuers or Borrowers.
    • Applicant laws and jurisdiction
    • Arrangement and safeguards for Client Assets held or controlled by the operator
    • Facility of transfer of loans or sale of investments and the conditions and risks involved
    • Contingency arrangements for the orderly administration of loans and investments if it ceases to carry on business
    • Steps taken by the operator for
  •        the security of information technology systems and data protection
  •        preventing illegal activities such as money laundering
  • Due Diligence
  • The Regulations restrict the Operator to permit only body corporates to use its services as Borrowers/Issuers. Along with this to ensure that the business carried out by the Borrower/Issuers are in accordance to the laws in its jurisdiction, the DFSA  requires the Operator to take at least the minimum steps of due diligence on borrower/issuer including disclosing the identity and details of its incorporation with its credentials, details including domicile of  its directors, officers and controllers; the financial strength and past performances including credit history; valuation of the business and current borrowing or funding levels with its sources.

    The Operator is also required to disclose in its website information regarding the Borrower/ Issuers including the name of the body corporate, its directors, officers, and controllers; place of incorporation and domicile of its representatives; description of the business carried out; most recent financial statements; valuation of the business and its current borrowings with sources and liquidity. A detailed description of the business proposal along with the target level of funds required should also be provided. In case of loans or debentures, the interest rates, duration, and other rights need to be specified and with regard to shares the rights such as voting, dividend and such need to be specified. The Operator shall also disclose whether any security is provided and the circumstances and limitations of its use. The results of the due diligence carried out by the operator as well as the limits, and the grading method needs to be specified on the website for the information of the Lender/Investor.

  • Type Specific Requirements
  • Loan Crowdfunding: with regard to loan crowdfunding, the operator must ensure that when a loan is advanced using its service, a written loan agreement in accordance with the provisions of the law must be made between the parties setting out the terms of the loan including terms of interest, repayment, rights, and obligations of the parties.

    Along with this, lending limits of $ 5,000 for any single borrower and $50,000 in any calendar year has been placed on the Retail Client.

    Investment Crowdfunding: the Operator must require the Investor to sign a risk acknowledgment form for every investment made using the operator's platform confirming the knowledge of the risk. The operator should also provide a cooling off period of at least 48 hours for the Investor where he may withdraw his commitment without any penalty or explanation.

    IMPACT ON FINANCIAL TECHNOLOGY (FinTech)

    The emergence of Financial Technology or more commonly known as FinTech has rapidly changed the financial services industry. DIFC, in this regard, has chosen to update itself and occupy a pioneering role in both the regional and global market. The Government of Dubai is not only the founding member of the Global Blockchain Council but is continuously looking for new opportunities in the financial industry to implement the Blockchain technology. Though being a conventional financial and professional services community, DIFC has been actively evolving itself to accommodate the FinTech.

    The recent regulatory framework of crowdfunding by DFSA discussed in this article has helped tremendously in the development of FinTech ecosystem in the Middle East and South Asia (MESA) region. Along with this, DIFC also introduced the first fintech accelerator in the region FinTech Hive as its innovative strategy to make Dubai the hub and beacon for international businesses. On its Investor's Day, over 300 stakeholders formed the audience where 11 start-ups from the accelerator's initial programme presented their ideas and products. DIFC recognizing the importance of innovation has focused on tackling emerging markets such as artificial intelligence, the blockchain, and robotics.

    CONCLUSION

    The Dubai Financial Services Authority has undoubtedly taken a leap forward through its regulatory measures by ensuring transparency in crowdfunding platforms and protecting the rights of the "crowd" who invest or lend their money in such platforms. As a result, Dubai has not only catered to the financial needs of the SMEs but also opened up to investment in new innovations in the Financial Technology. Thus, by choosing not to follow the developed markets but paving its own path, Dubai has set itself apart and as a pioneer globally for Financial Technology, proving that it indeed a leader with a bright future.

     

     

     

    ]]>
    Sat, 01 Dec 2018 12:23:00 GMT
    <![CDATA[A Guide to Non-compete Clauses in the Middle East]]> A Guide to Non-compete Clauses in the Middle East

    Introduction

    Non-compete clauses are sometimes incorporated into the contracts of employees to ensure the security and protection of the employer if an employee decides to move to another company. When working for an entity, individuals will likely pick up on and be privy to highly confidential information and practices of their employers. In the modern and extremely competitive business environment, companies look to obtain every advantage they possibly can. A company's unique selling points are what allow them to rise above their competitors, and these unique characteristics can include everything from trade secrets to working practices and even knowledge of specific customers and interacting with them. These are all things that an entity would seek to protect.

    Placing a non-compete clause in a contract restricts an individual's future employment in specific ways. That employee will be unable to obtain jobs at similar competing establishments, though the duration and specifics of how this will work will vary based on the country. The clause will have the effect of preventing one from obtaining employment under certain circumstances to ensure one company will not lose business to a competitor due to the profession of the ex-employee.

    It is no small matter, and so there are regulations in place within all of the GCC countries to ensure employers do not take advantage of employees. An individual working for a company in a particular field and at a specific position, when looking for a new job, will most probably be seeking in a similar sector. Realistically, this related sector will also be the one they would be most likely to find work in, and so this gives rise to something of a problem. If a non-compete clause is present, how will an employee find further employment?

    There are solutions to this, such as time limits, though more often than not, these limitations have to be reasonably specific. Non-compete clauses are not intended to give any single party an advantage over the other, and they are indeed not intended as oppression to the employee. Preferably it is merely a preventative measure used by the employer to secure their business.

    Contents

    1.   Non-Compete Clauses in the UAE

           1.1     Federal Law Number 8 of 1980

           1.2      In the Case of Litigation

           1.3      Ministerial Resolution Number 297 of 2016

    2.      Non-compete Clauses in the DIFC

            2.1    DIFC Law Number 6 of 2004

    3.      Non-compete Clauses in the ADGM

            3.1    The Employment Regulations 2015

            3.2    The UK Common Law and Equity

    4.      Non-compete Clauses in Kuwait

             4.1   Law Number 10 of 2007 (Competition Law)

             4.2   Damages for a Breach of Contract

    5.      Non-compete Clauses in Bahrain

             5.1   Law Number 36 of 2012

    6.      Non-compete Clauses in Oman

             6.1    Royal Decree Number 50/90

             6.2   Sultan's Decree Number 35/2003

    7.      Non-compete Clauses in Saudi Arabia

            7. 1   Royal Decree Number M/21 of 1969

            8.1    Royal Decree Number M/51 of 2005

    8.     Conclusion

     

    1.   Non-compete Clauses in the UAE

     

    The UAE is a highly competitive business market, being the most famous and popular in the Middle Eastern region; this is made clear when looking at its population, which consist of around 90% being expatriates. Non-compete clauses are quite well regulated although the matter can often be complicated. On top of this, the ADGM and DIFC free zones have differing regulations.

    The principal regulations on this matter are:

    • Federal Law Number 8 of 1980 (Labour Law)
    • Ministerial Resolution Number 297 2016

          1.2  Federal Law Number 8 of 1980

  • Federal Law number 8 of 1980 is the general labor law of the UAE. It does not explicitly mention non-compete clauses, though Article 127 does concern the matter
  • Within Article 127, it says that in the case that an employee's work allows them to become familiar with the clients of their employer, or if that work exposes them to the trade secrets of the company, the employer will be in a position to oblige a non-compete restriction upon the employee.
  • These are the conditions under which a non-compete clause may be allowed as per the law, though the Article also states conditions.
  • Article 127 States that for this restriction to be applicable, the employee must be over the age of 21 from the time of the contracts initial formation.
  • On top of this, the clause must be limited regarding the time and place. Further, it should also be limited to similar forms of work that would directly allow for competition with the original employer and will not be permitted unless it is necessary for them to protect and safeguard their lawful interests.
  • From this, a point that can be noted is that the law is stated in such a way to ensure a fair system. A non-compete clause cannot be used to take advantage of the helpless. The age restriction is present to provide that those who are very young do not have the early and crucial stage of their careers unnecessarily restricted, as this could have more considerable repercussions on them.
  • On top of this, the time and place restrictions are just a matter of fairness. For time limitations, markets change and so there must be an absolute time limit after which the employment of that employee will not have a noticeable or competitive impact. Further to this, employees employed within the UAE will be less likely to interact with clients in competitors in other jurisdictions, and with the international market and competition on such a scale being far more unpredictable, a limitation will have to exist.
  • Of course, the non-compete clause must prevent work in a similar business that would be in direct competition with the employer. They should be able to demonstrate that in the ex-employee working in the new company, they will suffer losses directly as a result.
  • Due to Article 127, it is more often than not, more senior employees who receive these clauses in their contracts. Those at a decision-making level who would potentially be able to impact the interests of a company and their competitivity with their knowledge may genuinely require a non-compete clause; there will be little to no positivity to arise from applying non-compete clauses to lower level employees or those privy to less insider knowledge.
  •       1.2   In the Case of Litigation

    Escalating a case to litigation is a serious matter, and so there must be a certainty of a breach. However, the UAE's outlook and handling of these cases can be quite a complicated procedure. 

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    Mon, 08 Oct 2018 13:04:00 GMT
    <![CDATA[Employment Regime in the DIFC]]> Employment Regime in the DIFC

    "A diploma is a piece of paper that is used to acquire another piece of paper: an employment contract."

            Mokokoma Mokhonoana

    Time and again, our team of employment lawyers in Dubai have discussed the provisions of UAE Federal Law Number 8 of 1980 on Regulation of Labour Relations to shed light on the employee and employer relations in the dynamic business environment of the United Arab Emirates (the UAE). Numerous law firms and legal pundits furthered this charade in 2016 with the enforcement of certain amendments that aimed to restructure the employment relations in the country by providing more transparency and flexibility in a growing business economy within the UAE mainland. However, one of the most important factors that played a crucial role in the country's development was left untouched: employment in the free zones, since free zones get regulated by the employment laws that are enacted by their respective authorities. In this article, we have tried to cover this void by elucidating the employment provisions of one of the principal financial free zones of the region, the Dubai International Financial Centre (the DIFC). The fundamental assertion in this regard is whether the educational level of employees is taken into consideration while appointing an employee to a particular position in a company established in the DIFC. This article will look into the overview of the DIFC employment law, its effect on growth potential, and its comparison with UAE mainland employment law.

    The DIFC is one of the most thriving free zones in UAE, and it is expected to be triple in size over the next ten years. The international standard of employment law in DIFC attracts many foreign professionals to work in the financial free zone. For that reason and the enthusiasm of employees to work under a good employment regime with full protection is the composition of the real background behind the success of DIFC.

    DIFC is the most advanced free zone in UAE due to its dedicated enactments and regulations based on the financial sector. These laws include 26 laws and 17 regulations. The recent amendment of DIFC Law Number 4 of 2005 (the DIFC Employment Law) vides DIFC Law Number 3 of 2012 (the New Law) has brought forward substantial changes in the work-force regime of the DIFC. This employment law has facilitated in the success of the DIFC due to its conformance to international standards and increased the degree of employee protection. We summarize these changes below:

                         I.          General duties of employers to their employees

    An employer must ensure, as far as is reasonably practicable, the health, safety, and welfare at work of its all employees.

                        II.          Vacation Leave

    Article 27 of the Labour Law has stated that employers should give a paid vacation leave of minimum of twenty (20) days to employees employed for at least ninety (90) days. The calculation of this vacation leave will be on pro-rata basis and employees are not permitted to carry accrued vacation leaves of more than twenty (20) days for a maximum period of twelve (12) months.

                III.          Working Hours

    An employee's maximum working hours is forty-eight (48) hours for each week. However, an employee may work for longer hours if he has given written consent to his employer under Article 21.

                IV.          Employment contract

    According to Article 13 of the Employment Law, an employee has the right to a written employment contract at the commencement of his employment. The written agreement shall set out full particulars (including without limitation the name of the parties, date of commencement of work, employee's remuneration and all other terms and conditions) regarding the employment.

                V.          Maternity Leave and Pay

    Article 37 has stated that an employee shall be entitled to a minimum maternity leave of sixty-five (65) working days. However, maternity leave is also applicable to female employees who seek to adopt a child below three (3) months of age.

    Employer's Liability and Other Provisions

    Article 51(2) has explicitly stated that an employer is liable for any act of an employee done in the course of employment. DIFC employment law provides fair and efficient procedures for resolving disputes arising from the application and interpretation of the employment law. It promotes the fair treatment of employers and employees make the condition between an employer and employee gentle. It is evident that DIFC employment law is one of the main reasons for the improvement of DIFC as it provides the best relationship between an employer and an employee.

    The DIFC draft of the employment law primarily aims at achieving international standards in employment law. The changes brought about to meet this goal is a strategic move towards better standards and compatibility with the international standards as well. However, it is not yet clear whether it is adequately abiding by the rules of International Labour Organization (the ILO). The ILO established with the aim of developing international labor standards has from time to time assigned conventions agreed with its member states including UAE. The intent of taking every member states to such a measure is, so these rules provide protection from inhuman labor and provide protection to workers for their freedom of association, collective bargaining, and many other rights. Unfortunately, the practicality of the above is still doubtful in the DIFC. For example, there is no provision mandating or allowing the establishment of a workers union. Therefore, employees are not able to negotiate improved working conditions or the right of collective bargaining.

    Comparison with the Federal Labour Regime

    Also, another disadvantage with the Labour Law is the inexistence of a minimum wage rate. Compared to the United Kingdom, the USA and most countries with developed employment regulations that have established a minimum wage rate. But DIFC has failed to accomplish this significant issue just like the Federal Law Number 8 of 1980 (as amended) (the Federal Labour Law).

    Furthermore, The Labour Law does not provide any summary dismissal for termination of an employee without notice. According to their employment law, the employer is entitled to dismiss "immediately" for "cause" where the conduct of the employee warrants termination and where a reasonable employer would have terminated the employment under Article 59(A).

    However, both, the employees and employers have both benefited from the Labour Law. For example, companies have fourteen (14) days to pay all wages owed to an employee following the termination of employment. They are also only required to provide health insurance for their employees rather than cover for health and disability loss of income. The employment law also provides an advantage to employers with the ability to dismiss an employee who takes sick leave more than their entitled limit.

    On the other hand, employees have benefitted from being able to obtain a health insurance, entitlement for the end-of-service gratuity (for the employees who completed one year or more of continuous services) and maternity leave with antenatal care.

    Moreover, many employees are becoming scared or are found to be less motivated to work in Dubai mainland throughout the past few years due to the low level of benefits and protection provided for employees who are to be serving under the Federal Labour Law.

    Therefore, another crucial question arises as to why DIFC has its separate employment regulations. Apart from all the other differences between the Federal Labour Law and the (DIFC) Employment Law, the "Discrimination Provision" for employees has become the core difference and the highest concern. It is a well-known communal fact that salaries in UAE are computed based on individual's ethnicity and nationality. This situation is a direct breach of the discrimination right in working industry. According to Startford (2009), Dr. Zumfuli, a Human resources professor at Sharjah University, "There is a lot of discrimination of nationality and religion in the labor market, and this affects the contribution of those who suffer from this situation." It is vital to mention that the Federal Labour Law does not have any provision on discrimination, but compared to that Labour Law explicitly prohibits employers discriminating against employees.

    Importantly, DIFC employment law differentiates from UAE mainland employment law in few other elements as well. The distinction matter because workers have individual rights, such as advantage on sick leave and termination notice. Employers also have additional rights, such as the right on dismissal for misconduct and overtime work of an employee. DIFC law has another significant advantage compared to the Federal Labour Law. The (DIFC) Employment Law stipulates that employers must provide and maintain a workplace that is free from harassment, safe and without risk to employee's health. Further, an employer must not threaten, intimidate or coerce an employee because of a complaint or investigation. However, UAE employment law does not have any provision on harassment.

    Conclusion

    To conclude, the primary factor behind the rapid growth of Dubai as a whole country is the workers and investors who are behind the stage developing the country landmarks and businesses in both small and large scale. The Federal Labour Law was enacted at a time when the UAE was still emerging as the world leader in commerce and trade. The corporate and commerce-related laws in the UAE have transformed to another level with the rapid development. But Federal Labour Law still lacks in many aspects. This lacking has ultimately created a negative impression about the standards of Dubai working industry and employers, among the potential personnel who are willing to work in the future. Whereas in comparison to that people are more ready to work with DIFC; since the employees are more satisfied with the international standard of labor law, benefits and labor protection provided by DIFC. Also, DIFC has become the place that could offer them the best working environment and welfare within in UAE. This fact itself proves the rapid growth of DIFC thanks to its employment law regulations.

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    Sat, 28 Oct 2017 00:00:00 GMT
    <![CDATA[Международный финансовый центр в Дубае и его юрисдикция]]> DIFC: A Jurisdictional Overview

    The DIFC courts exist as a jurisdictional island within the Dubai panorama.

    The Dubai International Financial Centre (the DIFC) Courts were established back in 2004 by His Highness, Dubai's ruler at the time, Sheikh Maktoum bin Rashid Al Maktoum. Providing an independent administration of justice in the DIFC, attempting to ensure that Dubai would offer to its players the highest international standards of justice administration, and at the same time allowing them to benefit from the certainty, flexibility, and efficiency that is usually provided by the common law.

    In spite of the limitation of the resolution of civil and commercial disputes, the fact is that in an international hub such as Dubai, the DIFC Courts were and are a welcome alternative to the local jurisdiction. As DIFC Courts use English as the first language and common law rules – when the other option would be the local Courts' continental system, which litigates in Arabic.

    Thus, the importance of DIFC Courts has been growing in Dubai as a sound alternative. On the one hand, they are the exclusive jurisdiction for companies - whether individuals or multinationals - established in DIFC or for transactions finalized within its territory; further, parties to a contract may come to a written agreement to approach the DIFC Courts in the case of a dispute.

    Governing Law and Jurisdiction – Where DIFC meets English Common Law

    Nowadays and having in mind the Westernization of the Islamic culture, the majority of the contracts will establish two mandatory clauses that will decide the future of the contract in case of dispute – the governing law and the jurisdiction clause.

    And while the governing law will be of essence to decide the legal framework that will apply to and govern the contract, the jurisdiction clause will determine the place where the case will be heard, being the parties given the option to choose between Courts and Arbitration, with exclusive or non-exclusive jurisdiction. We have already mentioned that the DIFC Courts will have exclusive jurisdiction over some matters, namely over commercial or civil disputes and cases, those that involve the Centre itself or any of its Bodies or Establishments. Those that arise from or relate to an executed contract or a concluded transaction, in whole or part in the Centre, or an incident that has taken place in the Centre. Finally, any objections that are subject to objection by the Centre's Regulations and their application based on the jurisdiction such Regulations bestows upon the Centre.

    Furthermore, where the parties agree in writing, they can decide to have the DIFC Courts as jurisdiction in the case of dispute. And there we are, at the meeting point where the DIFC Courts will be able to get around the country's civil system and apply the English Law. Before proceeding, it is important to clarify that as per the Article 8 of the DIFC Law number 3 of 2004 on the application of civil and commercial laws in the DIFC, the DIFC courts shall follow a particular order when applying the law. Accordingly, DIFC law is applicable within the Dubai Financial Centre in spite of any relevant Federal Laws, and the rights and liabilities of two parties to any matter will be determined as such.

    It will always be most desirable for any disputes arising from two different agreements such as a share pledge agreement and a loan agreement to be heard and settled in the same place. The only medium that satisfies the jurisdictional requirements are the courts of Dubai. Take, for example, Ras Al Khaimah which is an Emirate within the UAE, DIFC Courts are not within the scope under the 2009 Loan Agreement, neither was it selected as an alternative for English jurisdiction by SCB under the 2010 agreement, nor was at an agreed medium under the Share Pledge Agreement. As English Law governs the 2010 Loan Agreement, it can be concluded that the DIFC Courts are better equipped to apply it than the courts in Sharjah. Further, as Sharjah courts require translation of all documents that are not in the Arabic language, all three agreements would require translation. However, this process would be both time-consuming and costly causing a rise in potential dispute. Further, the second paragraph, in agreement with the current law in force, of Article 8 continues by stating that:

    'The relevant jurisdiction is to be the one first ascertained under the following paragraphs:

    (a) so far as there is a regulatory content, the DIFC Law or any (all or) other law in force in the DIFC; failing which,

    (b) the law of any Jurisdiction other than that of the DIFC expressly chosen by any DIFC Law; failing which,

    (c) the laws of a Jurisdiction as agreed between all the relevant persons concerned in the matter; failing which,

    (d) the laws of any Jurisdiction which appear to the Court or Arbitrator to be the one most closely related to the facts of and the persons concerned in the matter; failing which,

    (e) the laws of England and Wales.'

    Accordingly, in the case of failure of any of the previous four (4) options, the laws of England and Wales will be applied by default to the matter. And this provision is a welcome exit strategy, allowing the Courts to use one of the most developed and dynamic legal systems in the world. An example of this possibility is Dutch Equity Partners Limited v Daman Real Estate Capital Partners Limited{C}{C}{C}[i]{C}{C}{C} (Dutch Equity), where the first instance judgment decided to apply the UK Companies Act of 2004, as there was no Companies Law in DIFC till 2006. Nowadays, the principle remains the same for the majority of cases that are blessed with international parties which prefer to rely on the well-known common law. To apply the English Law to areas not covered by the DIFC law, or even use the common-law principles and jurisprudence as an authority against the reasoning and decision of any case where DIFC did not legislate yet.

    Following this line of thought comes the second question: where the agreement doesn't provide for jurisdiction or mentioned the Courts of England non-exclusive jurisdiction, stating that the governing law will be the English Law, will the DIFC be a possible option, as it avowedly applies the English Law?

    The DIFC had the opportunity to discuss the issue in Mr. Philippe Choque v (1) Mondial (Dubai) LLC (2) FPA Lts (3) Financial Partners Holding Limited{C}{C}{C}[ii]{C}{C}{C} that the deed will be construed and governed by and per English Law. The assignor and the company will submit to the English Courts' non-exclusive jurisdiction. The document which is from 1996 between the second/third respondents and the claimant is not relevant and does not directly involve DIFC. Neither does it create a link to the DIFC jurisdiction allowing and inference.

    This decision leads us to assume that despite the English law being a recognized source and applicable by DIFC courts, the consent of the parties or the connection with DIFC (whether through the parties or the transaction) is a must to submit or refer a dispute to the DIFC Courts.  Resulting in considering themselves incompetent and refuse the case if this is not fulfilled.

    A second decision has also been made on this jurisdiction matter in Standard Chartered Bank v Investment Group Private Limited{C}{C}{C}[iii] approached the DIFC Courts with two loan agreements. One was subject to the courts of the United Arab Emirates and the second was expressly subject to English Law in addition to a Share Pledge Agreement that must be regulated by the jurisdiction of the Dubai Courts. As the three agreements must be heard in one case only, a solution needed to be found. Each agreement would offer a different jurisdiction for resolution. However, DIFC Courts appeared as a natural choice that would fulfill the requirements of all three contracts. DIFC Courts being a UAE court, based in Dubai, that would be able to apply English Law. The DIFC Courts dismissed a jurisdictional objection and accepted the jurisdiction and the role of reviewing the matter for the following reasons:

  • the agreements were in English;
  • the convenience of the language;
  • the fact that DIFC Courts would be more qualified to apply English law than Sharjah courts;
  • the fact that the Sharjah Courts (that would be the forum under 2009 Loan Agreement) –would not fulfill the requirement of the 2010 Loan Agreement requesting for the application of the English Law and would also not comply with the Share Pledge Agreement; and
  •  
  • where the parties agreed that the forum would be a Dubai Court Dubai and Sharjah are adjacent.
  • Thus, we understand that for the Courts to consider the review of the matter when it comes to jurisdiction clauses, the Courts will require a relationship between the Courts and DIFC to accept it. It is important to note that SCB despite not having its headquarters in DIFC, has several branches registered in the UAE, some of them within DIFC. Furthermore, we also should mention that in the second case one of the agreements stated the Courts of the UAE and the other the Dubai Courts – being the DIFC Courts a UAE Court, based in Dubai.

    Enforcement Techniques

    Despite the necessity as mentioned above of a connection point between parties, agreement or transaction with DIFC for the Courts to accept the dispute, we will have a different scenario when it comes to the execution of the matter. Where a winning party attempts to execute a case that has already been adjudicated on by the English Courts before the DIFC, the DIFC Courts will be able to entertain it. Due to a Memorandum of Guidance as to Enforcement has been signed between the DIFC Courts, the Commercial Court, the Queen's Bench Division, and England and Wales, without binding legal effect. Which allows DIFC Courts to issue orders, even if interlocutory, regarding restitution, disgorgement, compensation, or damages; and to issue or direct the issuance of any writs if deemed necessary, when it has jurisdiction according to the English rules. This Memorandum signed in 2013, attempts to burst the cooperation between the parties and improve the debt recovery system. 

     


    [i] CFI 1/2006

    [ii] CFI 26/2013

    [iii] CFI 026/2014

     

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    Tue, 19 Sep 2017 02:00:00 GMT
    <![CDATA[Maritime Arbitration- Legal Perspectives]]> Maritime Arbitration- Legal Perspectives

    Courts can no longer individually address the issue of conflict resolution and as such the modern business world requires an alternative means of conflict resolution to meet its demands. A need arises for a legal mechanism through which parties can resolve their disputes quickly, fairly, efficiently, with flexibility and freedom that the court cannot provide. The reason for this is because of the continuous development of trade and services, the resulting complexity of transactions, and the subsequent need for speed and efficiency.

    This increased interest in an alternative means of conflict resolution within judicial systems that has arisen because it provides such flexibility and speed. This form of conflict resolution would ensure the participation of all parties and maintain confidentiality while finding a solution to their dispute. The fact that in the past half a century, such an alternative means of conflict resolution has earned a prominent place in the global legal and economic sector has resulted in an increased jurisprudential and legislative movement. Said action regulates the alternative means by striving to find an appropriate framework to ensure that these means are codified and applied in an efficient manner that achieves justice and maintains rights.

    The vast expansion of economic development rates and the spread of intra-state trade have led to the emergence of new and modern trade methods. As trade and economic relations, interests, and objectives diverge, many related problems have emerged. To ensure justice within this rapid movement, methods to solve these problems have developed. An arbitration system has been established to make up for the failure of national law, judicial understanding, and trade customs' inability to keep pace with the rapid changes. Such an arbitration system is used as a method of peaceful settlement of disputes and is separated from the ordinary judicial settlement.

    On-Shore Basics

    With the spread of the arbitration system as a method of peaceful settlement of disputes and with the simultaneous development of maritime transportation activities and maritime commercial transactions between various countries of the worlds, there has been an increase in maritime arbitration disputes. Arbitration process is subject to certain formal requirements. Almost all arbitration rules either of national - Spain, Italy, Belgium, the Netherlands, Germany, United States, Switzerland, England, Peru, among many others - or international origin - the New York Convention on the Recognition and Enforcement of Foreign Arbitration Awards of 1958, the original version of the UNCITRAL Model Law on International Commercial Arbitration of 1985, or the Model Law amended version of 2006 - presuppose the arbitration agreement to fulfill certain crucial formal qualifications[i].

    Maritime contracts of different types can be found amongst the international community of which require dispute settlement outside the scope of normal litigation procedures. Charter Parties for instance use variety of different forms for different trades and commercial purposes. Modern charter party forms such as BIMCO9 provide standard templates for charter parties, bills of lading, and other standard agreements. Arbitration clause by default are featured in most forms. The form and content of arbitration clauses contained in charter parties may vary from one another in terms of appointment of arbitrator, number of arbitrators, venue for arbitration, etc[ii].

    Given the commercial, economic, and global nature of these maritime contracts, maritime arbitration has been of great importance in resolving disputes between parties. Perhaps the most important characteristic of maritime arbitration from within the jurisdiction of each state is the prior consent that is required by the parties to abide any arbitral award that is issued in a dispute between them and the ease of the arbitration procedure that would occur. 

    Further, unlike ordinary judicial procedures, the lack of public participation in an arbitration dispute is beneficial. This promotes both confidentiality and efficiency in resolving a dispute. It removes the fear of competition and the speculation of third party influence. Also, the technical nature of maritime disputes are based mainly on established maritime customs and as such require the availability of arbitrators and lawyers that are highly equipped with technical expertise and knowledge of maritime issues, international conventions, treaties, customs and rules of justice and customary fairness.

    Like any case of arbitration, maritime arbitration is resorted to either by prior agreement as per the signed contract between the parties to the dispute which contains an arbitration clause or based on an arbitration agreement that occurs after the conflict between the parties. The arbitration may be freely chosen by the parties or institutionalized. If it is freely chosen it is termed as ad hoc arbitration, the parties are free to determine where the arbitration will take place, i.e. which rules and procedures will be followed whether substantive or procedural. On the other hand, if it is institutionalized this means that the arbitration will be undertaken by an international organization or body and in agreement with the rules and procedures in place and pre-defined by international conventions and resolutions.

    Arbitration centers have increased in popularity after the Second World War where their use has expanded free trade and international trade. Each arbitration center has specialties in different types of trade of which include cotton trade or grain trade. One type of specialty is for maritime, and some institutes include the Maritime Arbitration Association of New York, the Association of Maritime Arbitrators in London, the Maritime Arbitration Chamber of Paris, and the International Maritime Arbitration Organization.

    Anchoring the Technicalities

    Maritime dispute resolution can be said to be historically the oldest form of institutional arbitration. It gives individuals the freedom to choose arbitrates which they trust based on their experience in dispute resolution. The rules and procedures used to resolve disputes are seen to be more flexible and realistic than those used in other general institutional arbitration.  Another known benefit of the maritime arbitration system is the requirement of confidentiality and the ensured speed during dispute resolution. One limit, however, is that maritime arbitration can sometimes be restricted to institutional arbitration, especially in private disputes in which a country is not a party. Institutional arbitration is the basis of international trade, and a majority of parties use it for most arbitral matters to avoid the issue of inexperience when choosing arbitral rules and procedures that would follow if choosing the ad hoc arbitration system.

    Thus, it remains important to distinguish between institutional arbitration and ad hoc arbitration by examining the differences between them. There is no doubt that the procedural methods used are the most important signifiers. While parties to ad hoc arbitration choose the rules and procedures they would like applied, parties to institutional arbitration do not have that freedom. As such the distinction between institutional arbitration and ad hoc arbitration lies in the failure of ad hoc arbitration in the two most important elements found in institutional arbitration: first, a permanent arbitration center with an organizational structure, a board of directors, a list of arbitration, and arbitration regulation. The second element is that the arbitration center, through the Secretariat and the administrative bodies, must organize, manage, and supervise the arbitral process from the receipt of arbitration applications until the decision of the arbitral tribunal.

    It should be noted that the reference in the arbitration agreement to an arbitral institution should not be immediately judged as institutional arbitration. Rather, it should be examined based on whether the agreement requires the availability of the two pre-eminent elements in institutional arbitration. In summary, unless the agreement between the parties indicates the use of institutionalized arbitration, bearing in mind that the two elements referred above are required, ad hoc arbitration will be what is agreed upon.

    Based on the above discussion, institutional arbitration, by its advantages, is the best means of resolving maritime disputes. It provides the parties with confidence in the expertise and specialization of the arbitrators in the dispute and through the use of well-known permanent centers. Further, certifying the availability of competent staff that monitors the arbitration process from beginning to end.

    In essence, institutionalized arbitration centers will have jurisdiction to resolve maritime disputes between parties, appoint arbitrators, maritime experts, interpret maritime contracts, and determine the appropriate work and training required for all parties associated. These disputes will be resolved between natural persons and public, legal, or private persons. Maritime disputes may arise from all types of maritime contracts. These include insurance contracts from maritime collisions, loss settlement, and environmental disputes that result from the flow of petroleum products, pollution, or catastrophic damage that resulted from conflicts. Further, they may include disputes arising from maritime trade, traffic, rental operations under bills of lading and all other agreements that fall within the jurisdiction of maritime courts.

    Conclusion

    Due to the growing maritime activity in the region, the enthusiasm of the stakeholders and the belief in the efficiency of arbitration, the Government of Dubai has initiated the establishment of the Emirates Maritime Arbitration Center (EMAC) by Decree Number 14 of 2016 establishing the Emirates Maritime Arbitration Center, which was issued by His Highness Sheikh Mohammed Bin Rashid Al Maktoum as the Ruler of Dubai and in line with international standards and regulations. The Center aims to settle local and international maritime disputes by using efficient and effective alternative dispute resolution methods. It seeks to strengthen maritime arbitration procedures to be more fair and transparent, through flexible and neutral mechanisms, to promote awareness of the practice of maritime arbitration locally, regionally and internationally. The role of the Center also includes supervision of mediation and arbitration per the applicable regulations to provide its services with transparency and integrity.

    The uniqueness of EMAC is that it provides mediation services in addition to arbitration. Parties desiring to enter into mediation are required to pay a sum of UAE Dirhams five thousand (AED 5,000) towards administrative fees and registration fees. Fees payable to mediators are determined on hourly basis and in consultation with each of the mediators, the parties and the Centre.

    The main aim of this center is to provide the best services to the maritime sector through a specialized center to resolve all maritime disputes with the speed and efficiency required and to enhance Dubai's competitive position in this important area at both regional and international level. We look forward to the issuance of important arbitral judgments from this essential center, which will work towards the establishment of legal rules that support maritime trade.


    [i] Mota, Carlos Esplugues. "Validity and Effects of the Incorporation by Reference of Arbitration Agreements in International Maritime Arbitration: Current Situation and Future Trends." Revista de Drept Maritim 5.1 (2015): 64-94.

    [ii] Supra, note i

     

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    Tue, 22 Aug 2017 00:00:00 GMT
    <![CDATA[Регистрация Компании в Свободной Экономической Зоне Абу Даби Глобал Маркет]]> Регистрация Компании в Свободной Экономической Зоне Абу Даби Глобал Маркет

    Влияние глобализации и устранение торговых барьеров считается экономическим преимуществом, объединяющим внутренние рынки мира под одной крышей. Однако, существует и противоположное мнение на эту тему. Некоторые финансовые эксперты утверждают, что это глобальное явление послужило источником нестабильности и конкуренции на внутренних рынках. Кроме того, они также утверждают, что выход международных игроков на внутренние рынки часто приводит к дисбалансу сил в местных секторах и отраслях экономики.

    Тем не менее, минимальные торговые ограничения и вмешательство государства все чаще становятся синонимом успеха организации. Это требование в равной степени относится и к современным финансовым центрам. Абу Даби Глобал Маркет (ADGM) в данный момент является самым заметным примером в этом отношении. Финансовая свободная экономическая зона стала ведущей в регионе из-за практического отсутствия торговых барьеров и отсутствия ограничений, налагаемых на материковые компании в Объединенных Арабских Эмиратах. Кроме того, применение международных методов корпоративного управления наряду с международными нормами и стандартами послужили катализатором этого процесса.

    Регистрация Юридического Лица в ADGM

    ADGM предлагает инвесторам превосходное местоположение и динамичную бизнес-среду для привлечения инвесторов мирового финансового сообщества.  Многонациональные корпорации обращаются к финансовой фризоне, чтобы установить свое присутствие в регионе; в то время, как новые инвесторы рассматривают это как возможность работать бок о бок с ведущими компаниями. Кроме того, законодательные акты и правовая структура свободной экономической зоны действуют как магнит для инвесторов, которые стремятся установить или расширить свой бизнес в регионе. ADGM также включает внутренние суды и органы по разрешению споров для избежания последствий Закона Шариата о гражданских и коммерческих спорах на территории фризоны. Свободная зона также предлагает множество решений в области недвижимости для решения вопросов самого высокого уровня различного типа организаций, зарегистрированных во фризоне. Офисные и торговые помещения индивидуальной планировки – это только начало длинного списка преимуществ в ADGM

    Обширный и отлаженный свод законов, который в значительной степени отражает Закон Великобритании о Компаниях 2006 года, но тщательно учитывает требования региона и местные правила. Интересная особенность "организация ограниченного применения", обеспечивающая минимальные требования к раскрытию информации, откроет двери для холдинговых структур, где инвесторы предпочитают защищать конфиденциальную информацию и коммерческую тайну, а также предпочитают иметь региональную холдинговую компанию.

    ADGM добилась существенного развития в сотрудничестве с первыми лицами как внутри страны, так и за рубежом. Взаимодействие с руководящими органами, включая Экономический Департамент Абу Даби, Центральный Банк ОАЭ, Управление Страхования, Управление по Ценным Бумагам и Сырью, Муниципалитет Абу Даби, Комиссия по Финансовым Услугам, установили ориентир.

    ADGM является ключевым пунктом назначения для инвесторов, которые хотят вести финансовую деятельность в Абу Даби. Специальный регулирующий орган по финансовым услугам FSRA регулирует лицензирование всех субъектов, ведущих свою деятельность в финансовом секторе и желающих установить свое присутствие во фризоне. FSRA постаралась предоставить инвесторам многочисленные преимущества, приняв международные стандарты, используемые в международных финансовых центрах Гонконга, Лондона и Сингапура. Итак, финансовый сектор, основанный на риске, будет управляться FSRA при осуществлении различных видов деятельности, таких как банковское дело, хедж-фонды, управление активами и другие финансовые услуги.

    Итак, инвесторы ADGM могут зарегистрировать одну из следующих типов компаний для ведения деятельности в свободной экономической зоне:

     

    Типы компаний

    Детали

    Общество с ограниченной ответственностью участников

    •     Минимум 2 директора (Минимум 1 должен являться физическим лицом);
    •     Минимум 1 секретарь.

    Общество с ограниченной ответственностью участников (Ограниченное гарантиями партнеров, Неограниченное с долями партнеров, Неограниченное без долей партнеров, Ограниченного применения, Защищенная составная компания и Объединенная составная компания)

    •     Минимум 2 директора;
    •     Секретарь не обязателен.

    Филиал (компании, расположенной не в ADGM)

    Подходит для установления присутствия или представительского офиса.

    Партнерства (Генеральное Партнерство, Ограниченное Партнерство и Партнерство Ограниченной Ответственности)

    *Зависит от типа партнерства

    Филиал (Генерального Партнерства, расположенного не в ADGM, Ограниченного Партнерства,  расположенного не в ADGM & Партнерства Ограниченной Ответственности) 

    *Зависит от модели партнерства

     

    Заявители, желающие  открыть компанию в ADGM, должны подать заявку (онлайн) вместе со следующими документами для ускорения процесса подачи:

    •                     Копия паспорта, визовая страница или иммиграционный штамп о въезде в страну, удостоверение личности Emirates ID директора (-ов), уполномоченного лица, секретаря и акционера (-ов);
    •                     Заявление на бронирование предполагаемого имени компании;
    •                     Бизнес-план компании;
    •                     Отчет о капитале и первоначальный пакет акций (для компаний, ограниченных уставным капиталом);
    •                     Заявление о гарантии (для компаний, ограниченных гарантией);
    •                  Заявление предполагаемых должностных лиц организации;
    •                  Документ о резервировании товарного знака;
    •                 Заявление с предполагаемым адресом компании;
    •                  Копия Устава компании;
    •                 Копия решения Совета Директоров;
    •                  Копия договора аренды офисного помещения;
    •                  Подтверждение ограниченной сферы деятельности компании;
    •                  Заполненная и подписанная форма защиты данных  (DP-01);
    •                   Надлежащим образом заполненная и подписанная форма бенефициара или конечного владельца (BO-01), и
    •                  Любые другие документы, которые могут потребоваться руководством в зависимости от сферы деятельности компании.

     

    Однако, компаниям, которые хотят вести финансовую деятельность во фризоне, может понадобиться пройти строгий процесс регистрации, так как FSRA будет рассматривать их заявки. Соответствующий орган (FSRA для финансовых услуг и Орган Регистрации ADGM для нефинансовых услуг и продаж) выдаст лицензию после того, как заявка будет подана и рассмотрена. Впоследствии заявитель должен будет обратиться за учетной записью в FAWRI (онлайн система подачи заявок) и иммиграционной картой для подачи на визы для инвесторов и сотрудников, которые будут работать в компании.

    Регистрация компании в  ADGM может быть сложным процессом (особенно для юридических лиц, осуществляющих финансовую деятельность) с обширной документацией и процедурами соблюдения. Инвесторам рекомендуется воспользоваться услугами юридической фирмы, предоставляющей консультации по открытию компаний в ADGM, которая поможет решить вопросы с документацией и длительными процедурами регулирования, установленными фризоной для соответствия международным корпоративным нормам. 

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    Fri, 28 Jul 2017 05:00:00 GMT
    <![CDATA[Special Purpose Vehicles]]>  

    Special Purpose Companies or Vehicles (the SPCs or SPVs) are temporary companies set up to achieve a precisely structured financial operation. SPCs provide an alternative mode of financing transactions. Put simply they are subsidiary companies of a parent company, whose assets are protected from the actions of the parent company. In short, they limit financial risk to the property of the SPC.    Special Purpose Vehicles have played a significant role in the seamless operation of global financial markets. Commercial objectives of corporates, multinationals and institutional, as well as non-institutional investors, could be realized by raising capital, securitizing the assets, risk sharing, tax benefits, and carrying out planned activities. These practical features of special purpose company absolve corporations from the risk element.   SPCs can choose to operate on separate balance sheets than their parent companies (called 'off-balance sheets'). SPCs provide their shareholder's limited liability. SPVs generally operate on independent balance sheets instead of recording transactions on their parent or holding companies. For this reasons, parties often consider SPVs as off balance sheet vehicles. Firms can use these entities as synthetic lease to possess assets independently and is treated as an expense in revenue statements rather than a liability on company's balance sheet. SPVS are commonly used for following transactions:-   •    Securing Projects: - SPCs can help firms secure projects from financial, commercial or operational failures of entity •    Securitizing loans and receivables. SPVs play a significant role in securitizing loans and other receivables. Governments, for instance, set up SPVs to fund their projects in particular sectors and the SPC entity acts as a catalyst to channelize funds for projects in different areas.  •    Transfer of Assets: SPCs can safeguard firms in the event of bankruptcy or liquidation given that assets once transferred to SPC they become unidentifiable. That said, courts in many countries have ruled that SPC's assets and funds should be linked to the originating firm. Likewise, assets that are difficult or impossible to transfer (for example, power projects or gas plants), parties can transfer such assets as a self-contained package and thereby avoid undergoing a multitude of compliance and permits.  •    Regulatory and Compliance: SPVs can be set up within orphan-like structures thereby preventing regulatory and compliance mandates. •    Financing and Raising Capital: SPCs can be used to finance new projects without increasing costs or altering the shareholding. This aspect makes SPVs an obvious choice to finance aircraft(s), power projects, and infrastructure projects.   The Dubai International Financial Center   In the Dubai International Financial Center (the DIFC), foreign owners are entitled to incorporate SPCs which are used to finance routine transactions. The company which establishes the SPC (the Initiator) is authorized to operate the SPC in the areas of acquisition, granting security interests over assets, financing other SPCs, as well as the parent company, or any other activity approved of in writing at the time of incorporation with the Registrar. These areas of practice are officially known as "exempt activities." Acting outside the scope of exempt activities subject the SPC to a fine of USD 5,000.    The DIFC itself provides an attractive venue for establishing one's SPC due to its separate regulatory framework, including the Dubai Financial Services Authority (DFSA) and Courts. These structures operate on a common law basis, in the English language, providing investors across the globe an easy access point to the Dubai investment market.    SPCs do not have their accounts filed nor audited annually. Also, there is no formal requirement for shareholders to be based physically within the DIFC itself. The Corporate Services Providers (CSP) can act as majority directors and company secretary of the SPC. These CSPs are entitled to receive administration services from third-party management providers and are not required to be appointed directly. However, the majority of directors of the SPC must be employees of the Corporate Service Provider.    It is possible to incorporate SPC as the person(s) (natural or legal) including a shareholder; the CSP; or through any law firm or accounting practice. Incorporation of SPCs in DIFC is carried out per the DIFC Law Number 2 of 2017 (the Companies Law), and the respective Companies Regulation. Formation of SPCs is also possible electronically, by attaching electronic documents submitted within one month of submission. Failure to provide these documents within the one-month time frame subjects the SPC to a fine of USD 2,000.   Incorporation costs are nominal, with the minimum values of shares totaling USD 100. The cost of company formation itself is a mere USD 1,000, with no requirement of obtaining a commercial license. Despite this, SPCs have a limitation in their general scope of action within the meaning of the previously outlined activities. Voluntary winding up of SPCs is possible only in the event a declaration is filed in writing that there are no outstanding liabilities, and (if accepted) the dissolution shall be published on the DIFC online site.   The Abu Dhabi Global Markets   The inflow of investments into the country plays a vital role in the elevation of its economy. Dubai plays an important part in this regard since it houses numerous free zones such as the DIFC that confers with the international corporate governance and financial sector regulation norms. Abu Dhabi, realizing this potential for investments in the financial sector, established the Abu Dhabi Global Markets (the ADGM). Since then, the ADGM has played a vital role in the attracting foreign investors into the country, especially those wishing to incorporate special purpose vehicles.    The ADGM grants investors with a comparatively lenient SPV regime than that of the DIFC since there is no explicit constraint on the number of shareholders. Investors may opt for one of the following legal structures to set up an SPV in the ADGM:   i.    RSC or Restricted Scope Company   The main advantage of an RSC is the curb on the information that should be disclosed to the public (although, investors should note that they may be required to provide all the information regarding the SPV to the registrar). This form of legal entity is used as a family office or a subsidiary of a public company.   ii.    LTD or Company Limited by Shares   Investors who wish to incorporate a holding company or intends to undertake operational activities opt for LTD. These are private limited companies and one of the most common forms of SPVs in the ADGM.  We have noticed a growing trend whereby investors around the globe prefer to establish their SPVs in the ADGM due to their (relatively) flexible regulations. Investors do not have to attest their corporate documents, and there is no minimum share capital for company formation in the ADGM. Although, SPVs in the ADGM may have to provide a registered address in the free zone at the time of company incorporation. But this rule does not necessitate them to have a physical office space. There are numerous options whereby an investor can obtain a registered office address without actually having a physical office space in the free zone (such as choosing a physical space or appointing an agent). ADGM also offers investors with the option of relocating their existing companies from certain other jurisdictions (as long as the firm is authorized to make this transfer by the domestic laws of that jurisdiction). Investors should take the advice of a law firm in Abu Dhabi that provides bespoke legal advice in company formation and is well-conversant with the regimes of the ADGM before initiating the company formation process.   The common law jurisdiction of the ADGM along with their flexible legal regime has attracted an immense number of investors in the past years. Numerous SPVs have been set up in the ADGM for investing in the real estate sector, acquiring and holding intellectual property, asset transfer, risk sharing, raising capital, etc. To know more about setting up an SPV, the documents required, procedural requirements, etc. at the DIFC or the ADGM, contact us!   ]]>
    Sat, 22 Jul 2017 00:00:00 GMT
    <![CDATA[Asset Securitization in the UAE]]> Asset Securitization in the UAE 

    (Part II of II)

    In part one of our series on Asset Securitization, we defined asset securitization, reinforced its importance and illustrated the ways in which it useful for financing purposes. In fact, asset securitization transactions had evolved centuries back and were also, incredibly pervasive during the late seventeenth and the early eighteenth centuries.

    Anyone from the Republic of India would easily be able to recognize the name 'East India Company.' This company, a mercantilist corporation of Britain, and South Sea Company, jointly held nearly eighty percent (80%) of the British Crown's national debt by 1729 through the process of asset securitization. They essentially became 'Special Purpose Vehicles' (the SPV) for the British Treasury. Clearly, this process has been pervasive and prevalent for much longer. This part two explores and discusses the concept of securitization within the UAE Regulatory Framework and further highlights the manner of enforcement of security created to secure the rights of creditors.

    Regulatory Framework in the United Arab Emirates

    The securitization market in the United Arab Emirates (the UAE) is at a nascent stage. Hence there is no proper law from which securitization could derive its regulatory framework. However, since its emergence as a leading financial center, the Dubai International Financial Centre (the DIFC ) has been a robust platform for undertaking asset securitization in the country. DIFC has a sound legal structure to facilitate securitization transactions in the country, within conventional and Islamic structures alike. Moreover, in 2008, the DIFC passed the DIFC Special Purpose Company Regulations, which eased the securitization framework within the DIFC for foreign investors and the local businesses. DIFC legal framework comprises of the Law of Security, the Real Property Law, and also the DIFC Security Regulations, which categorically safeguard security created over assets within the DIFC, and by entities based and operating from within the DIFC. Notably, there are several free zones in the UAE, and each such free zone has its regulations for creating security interests by entities licensed within that zone and over assets located therein.

    Any financial transaction is effected and perfected by executing documentation governing the terms of understanding and intent of parties. These documents include the financing documents, which cover the terms and structure of proposed transaction, including security documents, and creating a right over assets of the obligor for its creditors. These documents are a mechanism which ensures a lender's ability to enforce their rights, including taking possession of the property/assets secured, selling it and appropriating the proceeds to repay their debt, in the event obligor, fails to perform. Importantly, the laws applicable to documenting, registering and enforcing security interest created (either in the form of a mortgage or pledge) over assets in the financial transaction are governed by the UAE Commercial Transaction Law (the Commercial Code) and the UAE Civil Transactions Law (the Civil Code).

    In the absence of a separate legal framework for securitization of assets under Dubai law (or; UAE law), the agreements executed between the parties evidencing an Islamic securitization shall be Sharia compliant and adhere to the terms of Civil Code and Commercial Code, both.

    Mortgage

    Article 1399 of the Civil Code defines a mortgage contract to mean "a contract by which a creditor acquires, over an immovable property allocated for the payment of his debt, a real right by which he obtains preference over creditors and creditors following him in rank, for the repayment of his claim out of the price of such property, no matter into whose hands it has passed."

    Article 101 of the Civil Code defines Immovable Property (Real Property) as "anything of permanently fixed nature which cannot separate without damaging or altering its surrounding."

    The Civil Code and Commercial Code (read with Law number 14 of 2008, in cases where the real property located within the Emirate of Dubai) cover the mortgage of 'real-estate' upon terms that are recorded by way of a mortgage deed, by and between the parties. The only way to create a valid and enforceable mortgage is to register the mortgage deed with the appropriate authority (where the immovable property locates). For instance, a mortgage deed gets recorded with the Dubai Land Department and the local Municipality in the Emirate of Abu Dhabi is responsible for registration of mortgages.

    We now examine mortgages created over a 'Musataha' right. Musataha is a form of long-term lease which allows the holder (the Musatahee) the right to use and exploit (including development) the land belong to the land owner for a term of fifty (50) years. The lease is renewable by mutual consent (or; as agreed contractually) for a further period of up to fifty (50) years. Once vested with musataha rights, the musatahee may dispose of such rights in any manner he deems fit. For musataha rights to become active, the musataha agreement granting those rights must be registered either with the Land Department or, the Municipality, as the case may be.

    Similarly, the usufruct is also a form of long-term lease for ninety-nine (99) years. However, usufruct form of 'lease-contract' varies from 'Musataha' as it does not entitle the leaseholder to develop the property.

    It is essential to highlight here that both - Musataha and usufruct can potentially apply to underlying assets for ijara based Sukuk (the Sukuk Al Ijara).

    For safeguarding the interest of the party in whose favor the security creation take place, it is vital to execute and register the security document in the jurisdiction where the property locates, even if the laws of another jurisdiction apply to the financing document.

    Pledge

    • Movable Assets

    Article 1448 of the Civil Code defines pledge to mean "a contract giving rise to a right to retain a property in the hands of an obligee, or a stakeholder by way of security for a right which may be required, in whole or in part, giving such obligee priority over other obligees.

    The Civil Code further provides that it is essential that a pledge must be capable of delivery and auctioned. A 'pledge' must be provided in consideration of an ascertained debt specified at the time of creation of a pledge and created over the movable property. An essential requisite of a perfect pledge is that the creditor must take possession of the movable asset. The asset to be pledged must be in existence at th time of creation of pledge.

    The parties must also record the terms and conditions of the pledge by way of an agreement, which must either be in Arabic or have Arabic translation. There is no formal registration process for pledges created in the UAE and therefor as a prudent step, the document should be executed before the Notary Public to create a record of such security creation, and registered with the local traffic police with a notation of charge on the vehicle's title.

    • Shares

    Creating a pledge on shares involves a written agreement in which all the details of the pledge are set out. Such particulars include the amount, period, event of default, and the terms and conditions pertaining the share pledge.

    Pledging of Shares in joint stock companies and Free Zone companies can effect by delivering the share certificates to the pledgee (mortgagee) as provided for under the UAE Commercial Companies Law (Federal Law Number 2 of 2015, as amended). To effect a valid and enforceable pledge, the 'pledger' should undertake to request the company to register the pledge in the register of shares of the company to secure the full payment of the facility or loan. The pledger shall have the right to receive the dividends and utilize the rights related to the shares unless otherwise agreed in the pledge agreement.

    The Council of Ministers' Decision Number 12 of 2000, shares of a public joint stock company, subject to certain exceptions, must be listed on one of the stock exchanges in the UAE. A pledge over the shares of a listed company is recorded in the share register maintained by the relevant stock exchange where such shares pledged are listed.

    In light of recently amended position about the pledge of shares of a limited liability company (the LLC), Article 79 of the UAE Commercial Companies Law permits shareholders in LLCs to pledge their shares. Any such pledge must be per the company's memorandum and articles of association, under and agreement notarized before the notary public and entered into the Commercial Register maintained by the Department of Economic Development in the relevant Emirate.

    Article 81 of the UAE Commercial Companies Law further provides for a mechanism of enforcement against a defaulting shareholder or partner's pledged shares in the LLC. The creditor enforcing his rights over the shares may agree with the shareholder or the partner and the LLC on the method and terms of sale, by way of private arrangement. Otherwise, the pledged shares shall be offered for sale at court controlled public auction. The shareholder or partner will have the right to buy back the shares from the winning bidder in the auction within fifteen (15) days of such 'auction' on the same terms and conditions.

    For the purpose of enforcement of security, the UAE courts have a vital role in enforcing any security upon a claim being filed by security holder for the realization of debt for the security created. The asset so created shall be realized upon an order passed to that effect. However, since there are no blanket regulations for the enforcement of securities and each case gets decided at the sole discretion of the court, it may sometimes raise uncertainty in the minds of parties.

    An essential factor where UAE scores over other financial markets undertaking securitization transactions are the zero tax regime and non-payment of any stamp duty. The UAE Ministry of Economic Development does not prescribe payment of any amount of stamp duty on any securitization transaction transaction, which otherwise is quite high in other countries, including India. However, withholding tax may have to be paid on remittance of receivables from an entity in the UAE to another outside the UAE.

    Conclusion

    UAE Economy is still emerging in the field of securitization but it has to act swiftly in order to reap the benefits of risk management and liquidity associated with securitiation activity. Though Islamic securitization like conventional structured finance purports to generate equal financial opportunities for the originating entity, each transaction of Islamic securitization may invite different interpretations of Sharia law. This may adversely affect the growth of this activity in comparison to conventional securitization. At the same time, the DIFC legislative framework has extended a great support to the UAE economy to jump start financial activities, including Islamic finance. DIFC has set regulations in place to streamline Sharia compliant financial frameworks. It is extremely promising that DIFC has already become the largest global platform for the Sukuk market. Additionally, with the emergence of the Abu Dhabi Global Markets (the ADGM) in the Emirate of Abu Dhabi, there is a scope for infrastructural development in the country which may make securitization a viable source of financing. There is enough scope for development of the securitization on a viable source of financing. There is enough scope for development of the securitization market in the UAE. It is imperative, however, for the Government to push the envelope and develop laws and regulations to facilitiate securitization activity with ease.

    ]]>
    Sun, 26 Mar 2017 00:00:00 GMT
    <![CDATA[Столкновение Юрисдикций: Применение исламских принципов финансирования в соответствии с Английским правом. ]]> Столкновение Юрисдикций

    Применение исламских принципов финансирования в соответствии с Английским правом.

    Как и в любой религии, можно утверждать, что в исламе существует спектр религиозной набожности, начиная от тех, кто строго следует учению Корана, до тех, кто редко ощущает на себе воздействие веры каждый день. В странах, где присутствуют как обычные, так и шариатские банки, есть варианты для каждого инвестора, набожного или нет, мусульманина или светского человека. В последнее десятилетие наблюдается быстрый рост исламского финансирования на международном и внутреннем уровне. Этот рост сопровождает возросшее число споров, связанных с исламским правом. Этот факт остается неизменным, даже если основное право договора является общим правом или гражданским правом страны. Если судьи или законодатели не в состоянии понять аргументы специалистов по исламскому финансированию в области использования законов шариата, то результатом могут быть прецеденты и законы, которые могут препятствовать росту мульти миллионной индустрии!

    Лорд Аскуит отказался применять положения закона шариата в случае Petroleum Development (Trucial Coasts) Ltd. Против шейха Абу Даби. Он цитирует: «Было бы фантастикой предположить, что в этом очень примитивном регионе есть какие-либо установленные органы правовых принципов, применимых к построению современных коммерческих инструментов». Однако, если бы Лорд Аскуит мог предвидеть будущее, он бы тщательно подбирал слова, прежде чем высказывать далеко идущие суждения о неадекватности законов шариата. Он не имел понятия, что годы спустя, Великобритания будет на девятом месте по размещению активов согласно шариату и станет первой западной страной, выдающей суверенный сукук. Исламское финансирование укрепляется на мировом финансовом рынке как коммерчески жизнеспособная альтернатива традиционному финансированию. Примечательно, что сделки, осуществляемые в исламском финансовом секторе, более не привязаны к странам, где правовая система основана на принципах Шариата.

    Однако шариатские структуры исламских финансовых инструментов сталкиваются с серьезными препятствиями, когда они должны применяться в неисламской нормативно-правовой базе. Большинство стран не имеют правового механизма для реализации законов Шариата в финансовых структурах. Более того, западные суды не имеют необходимого опыта или ресурсов для толкования и обеспечения исполнения исламских финансовых операций, а также документов, основанных на принципах шариата.

    Примерно в первые 500 лет после Хиджры, исламское право быстро развивалось для удовлетворения потребностей исламской империи и ее все более сложных коммерческих сделок. Однако с течением времени больше внимания было уделено юридическим аспектам и меньше возможностей было оставлено для оригинального мышления по прямым ссылкам на Коран. Это называется закрытием ворот иджтихада. Результатом явился застой правового мышления ведущих мусульманских ученых-интеллектуалов. Таким образом, мы видим, что трансграничные контракты исламского финансирования написаны в соответствии с английским правом. Основная причина этого в том, что английское право обеспечивает более высокий уровень уверенности договаривающихся сторон, чем при попытке составить договор в соответствии с нормами исламского права. Журнал Global Islamic Finance Magazine недавно провел интервью, в котором объяснил, почему английское право является предпочтительным для международных сделок исламского финансирования.

    Правоприменение

    Medjella считается первой попыткой кодифицировать исламское право и представляет собой усилия Османской империи. Medjella посвящает целую главу арбитражу, указывая в ней, что «решение, справедливо вынесенное арбитрами в соответствии с нормами права, является обязательным для всех сторон». Решения арбитров не могли быть исполнены без подтверждения судьи, и только в случае, если они соответствуют закону. В мире шариатского финансирования никогда не было более открытого урегулирования споров через арбитраж. В прежние времена, и в некоторой степени сегодня, ученые исламского права считали исполнение решения арбитра исключительно правом судьи.

    Прежде всего, однако чрезвычайно важно понять, почему особенный акцент был сделан на рассмотрении вопросов приведения в исполнение. Как правило, стороны сделки тщательно изучают соответствующий управляющий закон, для того чтобы понять, будут ли их права и обязанности соблюдены последовательным и прозрачным образом. Основной функцией закона в любой коммерческой или финансовой операции является обеспечение значительной степени определенности и приведение в исполнение намерений сторон относительно их обязательств. Выбор права в отношении исламских финансовых сделок является более деликатным, так как стороны естественно захотят сделать выбор в пользу исламского права в качестве регулирующего в финансовых документах. Тем не менее, стороны не могут просто принять законы шариата в качестве регулирующих без привязки к конкретной юрисдикции, поскольку законы шариата не являются стандартным кодифицированным законом. Поэтому кодифицированная правовая система, которая осуществляет принципы законов шариата часто используется в качестве регулирующего права для обеспечения большей определенности по вопросу о правах и обязанностях сторон.

    Это получило резонанс в громком судебном процессе Банка Шамиль в Бахрейне против Beximco Pharmaceuticals Ltd (Случай Банка Шамиль), в котором обсуждались масштабы и толкование законов шариата по отношению к английскому праву. В обсуждаемом случае подсудимые не в состоянии были осуществлять платежи по договору мурабаха (Договор), заключенному с истцом и впоследствии, последний потребовал взыскания суммы задолженности в соответствии с положениями Договора. Основной пункт Договора гласил, что «при условии соблюдения принципов славного Шариата, соглашение будет регулироваться и толковаться в соответствии с законами Англии». Ответчики утверждали, что Договор имеет скрытую форму риба, которая противоречит принципам шариата и, следовательно, не имеет законной силы. Таким образом, главным предметом споров в апелляционном суде, была необходимость рассмотрения закона шариата в положении основного закона.

    Банк Шамиля был положительно принят экспертами в двух своих основных положениях, касающихся Шариата как выбора права, а именно: а) Римская Конвенция, которая требует, чтобы закон контракта был законом страны; и б) может быть только один закон, который регулирует договор. Вероятность этого вывода, одинакового для других юрисдикций общего права, очень велика. Когда возник вопрос относительно регулирующего закона Договора, суд решил, что положения Договора могут регулироваться только одним законом. Поэтому, в настоящем случае Договор не может быть предметом как английского права, так и шариата. В дальнейшем суд постановил, что стороны имеют право выбирать регулирующее законодательство договора в соответствии с Римской конвенцией. Однако в данной конвенции говорится, что стороны могут выбирать только закон страны. Кроме того, судья постановил, что общая ссылка на закон Шариата в Договоре прямо не связана с намерением сторон использовать его как эксклюзивное управляющее право. В свете этого решения подразумевается обязательство договаривающихся сторон по структурированию шариатских контрактов в связи с нежеланием английских судов выбирать закон шариата в качестве регулирующего права договоров.

    Структурирование документов в соответствии с шариатом.

    Как следует из исламской экономической литературы, беспроцентные инструменты должны регулировать повышение уровня информированности и мобилизации финансовых ресурсов в исламской экономике. Это требование, которое вытекает из моральных предписаний, укорененных в Коране и Суннах, которые формируют эпистемологические источники Шариата. Шариат обращается к совместной форме системы распределения прибыли, которая может заменить финансовые инструменты на основе процентной ставки. Такие инструменты традиционно именуются распределением прибыли, или мудараба, а также исламским термином для продажи, когда продавец и покупатель договариваются об оценке на товар(ы), более известный как мурабаха. Современная мурабаха рассматривается в качестве важнейшего инструмента для способствования краткосрочного финансирования для потребительских и бизнес-требований. Она используется для финансирования предметов домашнего обихода, автомобилей, бизнес-оборудования и/или материалов. Она часто используется для репликации обычного соглашения по финансированию коммерческих операций. С ростом исламского банкинга с 1975 года Мурабаха стала «самым распространенным» исламским механизмом финансирования. Этот контракт иллюстрирует несколько методов, которые широко используются в разработке исламских финансовых операций. Сюда входят набор контрактов установленного образца, связывающий договор и применение takhayyur, которые вошли в систематическое использование при составлении Маджалла, завершенном в 1876 году. Принцип takhayyur был развернуто использован в своем значении, и доказал свою ключевую значимость в модернизации законодательных реформ во всем мусульманском мире. Эти инструменты и юридические приемы имеют определяющее значение для охвата всего диапазона финансовых структур. Однако, некоторые обязательства, содержащиеся в операциях Мурабаха, могут противоречить английскому статутному праву, а именно Закону о Продаже Товаров 1979 года и Закону о Недобросовестных Условиях Договора 1977 года. Эти законы не позволяют договаривающимся сторонам включать подобные пункты в свои контракты в зависимости от обстоятельств конкретной сделки. Кроме того, внутренняя английская промышленность столкнулась с рядом трудностей, обусловленных гибридной правовой структурой исламских финансовых контрактов. Тем не менее, дело Банка Шамиля приводит к выводу, что выбор регулирующего закона, который будет применяться к финансовым документам и степень применимости принципов шариата неизбежно возникают в тех случаях, когда исламская финансовая операция совершается между сторонами из нескольких юрисдикций (как светских, так и шариатских).

    Согласованность между юрисдикциями.

    В настоящее время английское право является наиболее распространенным выбором для регулирования споров, вытекающих из соглашений, придерживающихся исламских принципов. Некоторые из этих договоров не содержат никаких ссылок на исламское право и даже могут включать отказ от шариатской защиты, подразумевая, что в случае возникновения спора, стороны договорились отказаться от споров о недействительности соглашения в соответствии с законом шариата. Такие оговорки пытаются устранить так называемый риск шариата, термин, который известен в индустрии, как обозначающий риск невыполнения одной стороной контрактных обязательств и затем объявления целого контракта недействительным из-за несоответствия исламскому праву. Такой риск существует, несмотря на то, что международные юридические фирмы создали целые отделы, занимающиеся шариатскими финансовыми операциями. Тем не менее, нынешняя культура исламского финансирования либеральна, когда стороны только предполагают, что операция соответствует шариату, и договаривающиеся стороны не обязательно обладают знаниями об исламском праве.

    Следовательно, принципы исламского финансирования должны быть синхронизированы в макроструктуре английского права в целях сохранения согласия между юрисдикциями. Кроме того, очевидно, что финансовые услуги Соединённого Королевства не препятствуют исламской финансовой индустрии от одновременного развития как альтернативного финансового рынка. Например, отмена правительством двойного гербового сбора в 2003 году положила начало целому ряду новых видов деятельности в исламском финансировании, как например, возможность финансовым учреждениям предлагать планы собственности недвижимости на основании договора Мурабаха. Ранее эти операции облагались двойной госпошлиной: первый раз, когда недвижимость приобреталась банком, и затем, когда она была впоследствии продана клиенту с процентами.

    Английское правительство также способствовало функционированию партнерских отношений Мудараба и инвестиционных товариществ. Важной особенностью контрактов Мудараба является то, что они придают равное значение как финансовой стороне инвестиций, так и интеллектуальным инвестициям. В таких партнерствах сторона, обеспечивающие идеи и непрерывное обучение для бизнеса, рассматривается как в равной степени важная для предприятия. Распределение прибыли в таких транзакциях, как правило, не облагается налогом исламскими финансовыми институтами, так как дивиденды подвергаются невыгодному налоговому режиму. Правительство решило эту проблему, разрешив дивиденды Мудараба считать как проценты, уплаченные по кредитам путем проверки налогового вычета по этим дивидендам через поправку к Закону о Финансах 2005 года. Кроме того, правовые системы могут быть согласованы путем стандартизации исламских финансовых контрактов. Тем не менее, вопрос о стандартизации тесно связан с противоречивой дискуссией о кодификации Шариата в разных государствах. Частичное решение этой проблемы может быть достигнуто путем поощрения включения конкретных положений, как например, шариатские стандарты Аудиторских и Бухгалтерских Организаций для Исламских Финансовых Институтов (AAOIFI) в исламские финансовые контракты. До тех пор, пока эти положения достаточно конкретны, они могут работать как совокупность договорных условий, согласованных между сторонами. Кроме того, английские суды будут ссылаться на включенные стандарты в их интерпретации контрактов английского права, для достижения целей договаривающихся сторон. Поэтому детерминированность таких норм и стандартов способствует спокойному судебному толкованию.[4]

    Вывод

    Шариат представляет собой механизм, который регулирует все аспекты жизни мусульманина. Практикующий мусульманин обязан вести справедливую и чистую жизнь, чтобы достичь благочестия. В этом начинании его/ее доходы и расходы должны оставаться свободными от нечистых примесей (таких как, например, получение или выплату процентов). В противном случае это будет совершение греха. Поэтому необходимость исламского финансирования можно рассматривать как духовную потребность, а не экономическое удобство. Как следует из вышесказанного, многие трансграничные операции исламского финансирования, контракты регулируются английским правом, и английские суды явно имеют юрисдикцию принимать решения по спорам. Стагнирующий факт, что исламский договор финансирования, хотя и регулируется английским правом, должен соблюдать правила и положения принципов Шариата, для того, чтобы по праву вступить в силу в целях обеспечения справедливого равновесия, баланса и корреляции, существующей между двумя системами. Закон Шариата должен разработать отличительную корпоративную культуру, основной целью которой является создание коллективной морали и духовности, которая, в сочетании с производством товаров и услуг, поддерживает рост и продвижение исламского образа жизни, как цитируется в газете «The Pak Banker».


    [1] Arbitration Between Petroleum Dev. (Trucial Coast) Ltd. v. Sheikh of Abu Dhabi, 1 INT'L & COM P. L. Q. 247, 250–51 (Sept.1951).

    [2] 1 WLR 1784 (CA 2004) (UK)

    [3] European Convention 80/934/ECC on the Law Applicable to Contractual Obligations (Rome Convention) [1980]

    [4] Jonathan G. Ercanbrack- The Law Of Islamic Finance In the United Kingdom (supra)

     

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    Thu, 28 Jul 2016 05:00:00 GMT
    <![CDATA[Dubai Data Law: Let’s share!]]> In October last year, Dubai introduced the new 'data law' which will allow the sharing of information between public sectors and for the benefit of the private sector. This Article aims to understand the concomitants of such a move.

    Remember that time when a dial up icon popped up on your screen at the time you logged into internet connection and had to wait for the system to be connected to LAN? In contrast, all you need to do today is switch on your computer and it is automatically connected to the internet. In the coming years, technology is anticipated to be more intelligently integrated in our lives than it is today. Specialized software and sensors will be used to track resources, respond to crime or take constant vital signs.  In the words of technology maker Vint Cerf, 'it is almost as everything will be connected to everything.' The inherent risks that such wide exposure will pose to the public in general cannot be denied. But when the risk is compared to the magnitude of benefit the economy will have, it appears that the decision makers will be willing to take the plunge.

    In 2013, Obama's 'open' data policy saw a major breakthrough as the White House issued the Executive Order for open and machine readable government data thereby instilling a sense of transparency in government actions. In 2014, the President's assent was concluded for the enactment of Digital Accountability and Transparency Act 2014 (US Data Law). 

    The general principles under Section 1 of the Executive Order provides germane frame of reference for implementation of the Executive Order. It states as under:

    "Decades ago, the U.S. Government made both weather data and the Global Positioning System freely available. Since that time, American entrepreneurs and innovators have utilized these resources to create navigation systems, weather newscasts and warning systems, location-based applications, precision farming tools, and much more, improving Americans' lives in countless ways and leading to economic growth and job creation. In recent years, thousands of Government data resources across fields such as health and medicine, education, energy, public safety, global development, and finance have been posted in machine-readable form for free public use on Data.gov. Entrepreneurs and innovators have continued to develop a vast range of useful new products and businesses using these public information resources, creating good jobs in the process." 

    'Open data' and need for its encouragement in the wider context

    Open data means such information which may be available in a defined format for the use, re-use and benefit of the people. An understanding of the US concept of which data will be open data, required fulfilment of the following:

    i. The data should be PUBLIC. This means that subject to applicable and legislative restrictions the data should be available publicly on a platform.

    ii. The data should be RESUSABLE which means that there will be an 'open license' on the data with no restriction on the use and should be non-proprietary. 

    iii. The date should be ACCESSIBLE which means that the format in which data is provided or published should be retrievable, downloadable and capable of being searched appropriately. To the extent possible, the resources                  should use granular metadata, data dictionaries, and characteristics of data.

    As economies are getting more technologically adept, the concept of open data is expected to promote efficiency, interoperability, accessibility, accuracy and economic development wherever legally permissible.

    Imagine the use of such data for monitoring public utilities, understanding the trends relating to utility consumption, managing traffic issues. Open data can provide deeper significance in understanding healthcare innovations, markets trends on commodity consumptions, education trends for starters. Advancements in the field of science, healthcare and education are more palpable when inferred from an inspiration. Relying on Wikipedia, the idea of software giant Microsoft was born when Paul Allen showed Bill Gates a publication on Altair 8800- a super computer.  This concept of 'open date' has gained much acceptance for innovators in technology, as there has to be reasoning for Facebook and Google to provide 'open source' for its artificial intelligence (AI)  hardware computing design.  These companies do not procure hardware from suppliers like Dell or HP but have inspired themselves to be self-efficient for their  

    ]]>
    Mon, 14 Mar 2016 00:00:00 GMT
    <![CDATA[Insurance]]> INTRODUCTION:

     

    The Insurance Third Party Administrators have become vital section of insurance industry and changing the facade of insurance sector all around the world. Third party administrators are neither insurance providers nor insured. They are the service providers bridging the gap between the two and serves the insurer and insured during processing of applications and claims, adjudication, and negotiation of claims including keeping records or maintenance of plan. The sector needs to be regulated as being in-severable to the process during this era. This article will also briefly accentuate the insurance law under DIFC regime.

     

    Instructions for Regulation of HITPA

     

    Board Resolution No. 9 of 2011 Concerning the Instructions for Licensing Health Insurance Third Party Administrators and Regulation and Control of their Business was passed pursuant to the provisions of Article 7 (9) of the Law, recommendations of the Director General of the IA and the approval of the IA board of directors. The resolution sets out several key terms requiring insurance companies to adopt and practice in operation of their business in the region, a brief overview of which is appended below:

     

    i. Article 2 comprises of definitions which are consistent with the Law except for the 'Register' which means the "Register of Health Insurance Third Party Administrators at the IA. The revised definitions of Pertinent Authority and other important terms such as Beneficiary, Health insurance third party Administrator, Medical Service Providers, Excess, Fraud and Abuse are added.

    ii. Article 3 states that health insurance third party administration may only be performed by a company specialized in this kind of business and registered in the register. Further, such companies need to adhere to regulations and instructions issued by the medical authorities of that Emirate.

    iii. Article 4 provides scope of business and provides that the business of Health Insurance Third Party Administrators shall be limited to:

    • Settlement of claims arising from health insurance.
    • Payment of health insurance claims on behalf of the Insurers.
    • Management of health insurance programs approved by the Insurers.
    • Conclusion of agreements with medical service providers on behalf of the Insurers.
    • Development of health insurance programs provided that they may not market or sell them.
    • Establishment of a network for service providers.
    • Provision of consultancy services in underwriting (reports on the analysis of claim expenses and recommendations for effective underwriting policies.)

     

    iv. Article 5 provides for 'eligibility' to operate as Health Insurance Third Party Administrators (HITPA):

     

    a. Private or public joint stock company/LLC incorporated under the laws of UAE/ branch of foreign company and has been practicing the business for a period of not less than two years.

    b. Obtain license from insurance authority in respect of present resolution in addition to license from competent authority in emirate.

    c. Minimum paid up capital of UAE Dirham five million.

    d. Objectives limited to the health insurance third party administration

    e. Conclude an insurance policy covering professional liability risks, provided that the sum insured thereof may not be less than AED 3,000,000 (UAE Dirham Three Million) and the excess amount may not be more                 than AED 100,000 (UAE Dirham One Hundred Thousand).

    f. Adhere to international standards in such practice

     

    v. Article 6 provides for the limitation and restrains on activities of the HITPA:

     

    1. Neither sell nor market the health insurance policies

    2. HITPA not to possess or share in the capital or management of any medical facility or health insurers.

    3. The TPA shall separate its accounts from the accounts of funds generated from its activities in the health insurance claims.

    4. HITPA should not provide services to insurance companies not licensed to provide service in state.

    Cabinet Resolution

    Cabinet Resolution No. 42 of 2009 concerning Insurance Companies Minimum Capital Regulations was issued on 27 December 2009. This resolution applies to all companies, excluding companies operating in free zones in the State.

    Article 3 states that the minimum capital of the company –'the subscribed and paid up capital' of a company may not be less than AED 100,000,000 (UAE Dirham One Hundred Million).

    The subscribed and paid up capital of a reinsurers may not be less than AED 250,000,000 (UAE Dirham Two Hundred and Fifty Million).

    Article 4 states that at least 75% (seventy five percent) of the capital of a company incorporated in the State must be owned by natural persons of the UAE or GCC nationals or by corporate persons wholly owned by citizens holding UAE or GCC nationality.

    Pursuant to provisions of Article 6, if the company intends to increase the capital of the company it could be done under a decision of the IA based on an application submitted by the company. For the reduction of capital of the company same rule would follow. The board has discretion to approve or reject such reduction application in public interest. Article 7 lays responsibility on the companies to comply with the rules stated in this resolution within 3 years from the date of taking effect of the resolution.

    Broker Regulation

    Board of Directors Resolution No. 15 of 2013 is concerning Insurance Brokers concerning the regulation of the profession of insurance brokers sets out the requirements for obtaining and maintaining a brokerage license, including an obligation for a broker to maintain paid-up capital of AED3 million (for UAE companies) and AED10 million (for branches of brokers established in a Free Zone or branches of a foreign company). Further, insurance brokers are prohibited from dealing with insurance companies not licensed by the IA. Vide Circular No. (5) of 2014 issued on 16 January 2014, the Ministry of Economy Resolution No. (543) of 2006 was repealed.

    The Health Insurance law number 11 of 2013 (the Health Insurance Law) came into effect on 1 January 2014 which makes health insurance cover mandatory in Emirate of Dubai including freezones. The companies with different number of employees were granted different deadlines. The employers failing to cover employees as required by law will incur fines ranging between AED 500 and AED 150,000.

    The Standard notice number 2 of 2015 (SN 02/2015) pursuant to Health Insurance law was issued by the Dubai Health Authority in respect of Emirate of Dubai. The SN 02/2015 provides guidelines for minimum standards in respect of following:

    1. Training and competence schemes.

    2. Complaint handling procedure and complaint logs

    3. Code of Conduct for Permitted Health Insurance Representatives (PHIRs)

    4. Data protection and client personal data confidentiality policies.

    The SN 02/2015 applies to all the health insurance intermediaries marketing within or into the Emirate of Dubai. The SN 02/2015 sought the submission of documents in respect of the above mentioned items by the intermediaries registered for the health Insurance intermediary permit (HIIP) since 1 December to receive "unconditional compliance" status from the "conditional compliance" status. The policy document submitted must meet the standards/guidelines stated in the SN 02/2015 to receive unconditional compliance status and sought the submission before 31 August 2015. This date was further extended till December 2015.

    Dubai International Financial Centre (DIFC):

    Insurers and Reinsurers operating within DIFC have to obtain Dubai Financial Services Authority's (DFSA) approval before they can carry out insurance business in DIFC.

    In essence, DFSA regulated insurers are not authorized to under direct risk outside the DIFC for individuals or companies based in mainland UAE. The DFSA authorized firms are free to underwrite direct and indirect risks anywhere in the world. However, the authorized firms can act as reinsurers for mainland UAE indirect risks. Therefore, DIFC provides for a wholesale regime instead of a retail platform for insurance within the UAE mainland market. Rule 7 of Conduct of Business Rulebook.

    The DSFA rule book Prudential – Insurance Business Module which applies more specifically to insurers. The rule book does not define insurance contract and is a guideline for insurers and reinsurers. It elaborates on management and control of risk, long term insurance business, capital adequacy, measurement of assets and liabilities of insurers, financial and other reportings by insurers, actuaries, consolidated supervision, insurers in run-off and other guidelines.

    Although there is no general rule or market practice as to the content or form of reinsurance contracts issued by DFSA – authorized reinsurers, the terms of such insurance contract will generally dictate commercial arrangements agreed by and between the insurer and the insured including commercial terms, nature and terms of policy, conditions precedents and special conditions if any. The contract will also dictate the terms of dispute resolution before the DIFC court.

    The DIFC Insurance Association has been incorporated as non-profit body in the DIFC on 29 March 2015. It comprises professional association of insurance entities at the DIFC.

    Conclusion:

    The regulations are further expected in the sphere of minimum coverage provided by employers, prices of health insurance service products and premiums rates charges by the insurers.

    Originally published on www.complinet.com Complinet Group Ltd (Thomson Reuters) by STA Law Firm

    ]]>
    Mon, 14 Mar 2016 00:00:00 GMT
    <![CDATA[UAE Insurance Law – Detailed Overview]]>

    Federal Overview Within the United Arab Emirates, insurance is largely governed at a Federal level by the Insurance Authority (IA) which was established pursuant to Federal law Number 6 of 2007 (the Insurance Law). The law replaced the previous enactment being Federal Law No.9 of 1984 on Insurance Companies and Agents and the amending laws. The law applies to insurance companies incorporated on shore that are licensed to perform operation of cooperative insurance, takaful insurance, reinsurance and insurance in general. The IA regulates both conventional insurance and shariah compliant insurance- Takaful.  Article 7 of the Insurance Law provides for duties and responsibilities and duties of the IA, Article 8 provides for composition of IA to include a board, director general and executive body. Article 12 provides for duties and authorities of the Board. Article 7 and Article 12 broadly cover the following:  
    • Protecting rights of insured and beneficiaries of insurance operations, monitoring solvency of insurance companies (Article 7 (i));
    • Devise code and rule of conduct to enhance capabilities of insurance companies (Article 7 (ii));
    • Manage administrative areas, formulate programs and plans for overall development of insurance sector, identify risks, and approve incorporation of insurance companies; 
    • Devising laws (include draft laws and regulations), regulations and directives relevant to insurance industry and implement the same (Article 12 (1) to Article 12(3));
    • Approve annual budget, annual accounts, and appointment of an auditor (Article 12(4) to Article 12(6)); and
    • Acknowledge grants, donations, and aids; and to settle objections received from insurance companies; and executing other duties of Insurance Authority's affairs (Article 12 (7) to Article 12 (9).
      Article 24 of the Law addresses the different form of companies that are eligible to carry out insurance and reinsurance operations in the UAE. These include a Public Joint Stock Company (PJSC), a branch of foreign insurance company; and insurance agents. Article 64 of the UAE Commercial Companies Law defines a Public Joint Stock Company (PJSC) as "Any company whose capital is divided into equal value negotiable shares shall be considered a public joint stock company and a partner therein shall only be liable to the extent of his share in the capital" Article 26 of the Law imposes restrictions on insurance companies.   In that, the provision seeks to prevent properties existing within UAE (or liabilities resulting therefrom) from being insured outside UAE (this applies also to branch of foreign companies operating within UAE).   Article 119 of the Law empowers the UAE Cabinet with an exclusive power to issue regulations needed to implement provisions of Law number 6 and this includes issuing regulations relating to fees, minimum share capital of insurance companies, and other aspects necessary for insurance industry. In line with provisions of Article 119, the UAE Cabinet issued a resolution (Cabinet Resolution 42 of 2009) raising minimum statutory paid up share capital for insurance and reinsurance companies to UAE Dirham 100 million and UAE Dirham 250 million respectively; and further states that insurance companies must comply with terms of the said resolution on or prior to January 31, 2013. The resolution also sets out that minimum seventy five percent of the share capital must be owned by a UAE citizen or; a GCC citizen.  

    Resolutions and Developments IA Code of Conduct   The IA issued board of directors' Resolution Number 3 of 2010 on Directives of Professional Practice and Code of Conduct for Insurance Companies Operating in the UAE. The resolution sets out several important key terms requiring insurance companies to adopt and practice in operation of their business in the region. Below is a brief overview of the Resolution:  

    Serial

    Article reference

    Particulars

    1

    Article 1

    Definitions. Most of the definitions are already covered under the Law except that it provides for a new definition of Minister to mean Ministry of Economy

    2

    Article 2

    Scope and Applicability. The Resolution applies to all insurance companies registered with the Insurance Authority operating in the UAE.

    3

    Article 3

    General Provisions. This article imposes obligations on insurance companies requiring them to conduct their operations transparently, in good faith, and in accordance with best practices. The article requires insurance companies to adopt necessary mechanisms with regards to anti-money laundering (AML) and provides that insurance policies and other documents must be in Arabic along with an accurate translation copy of the same (In event of conflict, Arabic text supersede). The Insurance authority has also issued a board resolution (Board Resolution Number 1 of 2009 – "Directives on Procedures for Anti-Money Laundering (AML) and Combating Terrorism Financing through Insurance Activities"). The resolution came in to effect from February 2010 and criminalizes money laundering activities. The resolution mandates every insurance company to establish strong AML procedures, know your client disclosures, and is subject to inspection of Insurance Authority inspectors.

    4

    Article 4

    Offering Insurance Services and Products. Insurance companies are required to service their clients in a timely and professional manner, insurance companies must make insured aware of means to prevent accidents, provide necessary documents and technical statistics to the insured.

    5

    Article 5

    Pricing. The Directive requires insurance companies to abide by fair pricing practices, and not to charge premiums with inflated amounts, nor reduce the premiums rates, provide a detailed statement of rates to client, adhere to insurance pricing practices, and notify the Insurance Authority of rates the insurance company intends to apply or modify provided however that such notification is made at least thirty days prior to putting them to use.

    6

    Article 6

    Insurance Application. In preparing the specimen for insurance application, insurance companies must ensure that the questions raised therein are clear and comprehendible, spell out clearly terms and conditions related to coverage of insurance policy, provide warnings on consequences of not giving information or giving incomplete or inaccurate information, and further the information must be submitted by authorized representative of client and not by its employees. The specimen application must include an advise note informing clients to keep the documents in a safer place and insurance company must provide the client with a copy of his insurance application.

    7

    Article 7

    Insurance Policy. The terms and conditions set out in the insurance policy must be certain and definite and not loose or vague so as to avoid any misunderstanding. The contents of the insurance policy should be clear, and easily readable. Arbitration clause must be printed in form of a separate agreement by way of accompanying annexure. The insurance policy must clearly describe and indicate the subject matter of insurance, procedures to be followed by insured upon occurrence of insured risk, along with insertion of a special clause on arbitration as a mean to settle dispute between the parties. The insurance policy must further set out that any amendment to policy shall not be valid unless expressly agreed by parties in writing.

    8

    Article 8

    Policy Renewal. The Directive requires insurance companies to inform their clients on renewal terms, inform that the insurance policy will not automatically renew (unless agreed otherwise). In the event, insurance policy is nearing end of term, the insurance company must inform clients of the same. Policy renewal notice should also clearly set out additional information or documentation required from client.

    9

    Article 9

    Claim Procedure .This article sets out the claims procedure. This article requires insurance companies to adopt suitable procedures, specimen forms, specify documentation, and determine suitable term required to deal with claims. The insurance company must notify the client of progress and upon arriving at a decision – notify the client of same within fifteen days from date of receiving the full claim. Reasons for rejection of claim should not be ambiguous. The company should maintain a separate file for each individual claim received.

    10

    Article 10

    Complaints Register. The insurance company must maintain individual records for every client and register complaints submitted by clients to establish particulars of information such as date of complaint, name of complainant, and related details. The inspectors of Insurance Authority shall have the right to examine complaints' register to verify the information state therein.

    11

    Article 11

    Publicity and Advertisement. Article 11 requires insurance companies to provide draft specimen of insurance policies, samples of advertisement or media to Insurance Authority prior to releasing the same or broadcasting it to the public. In cases where information being presented involves statistical figures, such figures should be precise and presented in accurate technical form. Article bars insurance companies from making any false or misleading disclosures and further provides that insurance company should not include incorrect information in respect of financial situation of company thereby giving an inaccurate impression to the public.

    12

    Article 12

    Advertising of Life and Capital Formation Insurance Policies. This Article requires insurance companies to exercise a higher degree of caution when releasing any information to public in relation to insurance of individuals and fund operations.

    13

    Article 13

    Dealing with Insurance Authorities and Other Official Bodies. In dealing with Insurance Authority and other bodies, the insurance company must at all times transact in transparent and professional manner. The insurance company must also provide data or information requested by the Director General of Insurance Authority for insurance applications that are rejected by the company.

    14

    Article 14

    Settlement of Disputes Between Insurance Companies and Payment of Balances. This Article sets out that insurance companies shall settle their balances and accounts to ensure smooth operation and with the aim of avoiding any disputes. The Article also encourages insurance companies to resolve their disputes amicably or through Emirates Insurance Association before seeking judicial involvement.

    15

    Article 15

    This Article replaces the Rules Organizing Dealings of the Insurance Companies in UAE Insurance Market implemented by the Ministerial Decree No.296 of 2004 issued by the Minister of Economy.

    16

    Article 16

    The Directive shall be published in the Official Gazette and put into effect following expiry of three month as from date of its publication, which is March 21, 2010.

    In the next feature, we will be covering more on insurance law including regulatory updates, Licensing Health Insurance Third Party Administrators and Regulation and Control of their Business, Insurance Brokers Regulations, and the DIFC/DFSA framework.

    ]]>
    Sun, 06 Mar 2016 11:58:55 GMT
    <![CDATA[Share Pledge for Commercial Facilities ]]>

    Diageo, a company more commonly associated with alcoholic beverages Smirnoff, Guinness and Johnnie Walker in the United Kingdom- held almost 27.8 percent stakes in a company called United Spirits Limited, one of the leading spirits company in the Indian market by volume.  A series of share pledges by United Spirits Limited in favor of banks for raising capital later resulted in the stake of Diageo being raised to be more than 57 percent. 

      A fierce and debatable subject which can be an interesting case study on the subject of share pledge is the story behind United Spirits. United Holdings pledged shares of the company United Spirits to raise funds for a distressed business. As it now holds, the bank decided to recall the loans given to Kingfisher Airlines by selling part of the collateral - the shares in United Spirits.    In a more structurally advanced legal system, share pledges have evolved as means of fund raising for businesses. In the United Kingdom for instance, a 'floating charge' can be created over the assets or shares of a company. Such a form of security is created in assets which are not constant. The security interest therefore floats over funds. Commercial companies or limited liability partnerships agree for events that trigger crystallization of 'floating charge'. Once the floating charge has crystallized due to occurrence of event of default, the owner can exercise his rights over the assets.   Countries like the United Arab Emirates are one of the most sophisticated economies in terms of the transactions they witness between the fine print.    Legally speaking, the region has evolved from the stages of infancy to that of toddlerhood. As such, it would be interesting to understand whether the United Arab Emirates in fact recognizes the concept of share pledges as collateral security for fund raising or not.    Within the UAE, there are at least six different types of mortgages or securities depending on the nature of collateral, pledge being one of the kinds. Before discussing the effectiveness of pledges, let us understand what kind of assets qualify as security and could create on what is known as 'charge'.   UAE Civil Code defines immovable property as something which has a permanent fixed nature and may not be removed without damaging or altering its structure. Movable property is therefore anything but immovable property. In terms of movable property, a further sub classification exists, i.e., tangible and intangible. Goods, cash, machines and related are tangible. Intellectual property, capacity to contract, debts, licenses and shares are intangible.1    Let us now take into consideration the concept of share pledge. Shares are part of a commercial business and covered under Article 39 of the Commercial Transactions Law. The general rules relating to a 'movable' property by definition are not necessarily applicable to 'commercial businesses' although it is classified as movable. Pledge by definition means the actual parting away of or delivering of possession from the pledgor (mortgagor) to the pledge (mortgagee). However, pledge within commercial businesses does not follow this rule. In commercial businesses, the mortgagor may continue to enjoy possession of the commercial business.    Article 49 of the Commercial Transaction Law states that pledges in commercial businesses can only be created in favor of banks and not other lenders. In order for a pledge to be valid or effective against third parties, it must be recorded in writing at a registry along with particulars of the pledge to be well specified in such recording documents- the deed of pledge.    Based on the definition of pledge, lenders have been careful in creating share pledges in the UAE especially given the fact the most common form of company- an LLC does not involve issuance of nominal or bearer forms of shares. A nominal share is one where the name of the registered shareholder appears on the share certificate, while bearer form of shares do not have a name appearing on the share certificate. Therefore the transfer of rights or shares for nominal shares is effected by a share transfer deed. In case of the bearer form of shares, such transfer can be effected by physically handing over the share certificate custody to the pledgor.    With the amendment to the Commercial Companies Law, the complexities surrounding the aforesaid have been resolved to great extent. Article 79 of the amended law provides that: 'a partner may transfer or pledge its shares  in the company to another party or third party. Such transfer shall be made in accordance with the terms of the MOA of the company under an official document in accordance with the provisions of this law. Such transfer or pledge shall not be valid against the company or third parties until the date of its entry in the commercial register with the competent authority' In light of above, it is inferred that as long as the pledge can be registered on a commercial register- maintained by the regulating authority of a free zone, the economic department or the stock exchange regulators- the pledge will be considered valid and enforceable.

     

    ]]>
    Thu, 03 Dec 2015 12:00:00 GMT
    <![CDATA[Till Breach do us apart - The Law Surrounding Prepayment Premiums ]]>

    There is a rigorous need for consistency in the market dealing with publicly traded securities as rapid advancements in the legal diaspora can add unwitting complexity to the requirements of the debtors. If the contracts between borrowers and lenders do not outline distinct covenants which comply with the local laws and precedents of the court, it can result in inadvertent and protracted litigation which can be detrimental to both parties.

      The language of a contract is inadvertently the bone of contention between the contracting parties when it presents itself as a dispute that results in or sets a tone of litigation. Here, it is imperative to note that when two parties agree to be bound by contractual obligations, it is usually the result of several hours or even months of negotiation. On the other hand, a trustee that agrees to the terms and conditions of a debt security is not necessarily a party to the negotiation or the drafting of the terms of the security but frequently finds himself wedged between the terms of the agreement and in the face of litigation. This two part series paper seeks to explore and discuss the legal effect of prepayment premiums charged by banks. The First part deals with acceleration clauses found in debt instruments and the second part with the make whole premiums which has effect of offsetting the downside risk when the borrower, after enjoying a favorable interest rate on loan during the periods of rising interest rates, unilaterally opts to prepay the loan The concept and use of make whole premiums has been used widely in variety of debt instruments and permits the borrower to redeem the debt prior to its maturity but    subject to the condition that premium is paid.  In other words, borrowers pay a charge in form of premium for prepaying the debt. One interpretation of such premium is that these charges are nothing but liquidated damages for loss of business (or; loss of revenue) to lender resulting from borrower's early settlement.    Debt instruments also provide for acceleration clauses whereby borrower's performance matures fully upon his/her breach of contract. A question that however arises is whether courts would allow and accept enforceability of contract whereby borrower upon default is required to pay:-   i) acceleration of payment of principal loan amounts; ii) accrued interest; and iii) other outstanding and charges arising from or agreed under the loan agreement.   A question therefore arises is whether liquidated damages are enforceable and whether such clauses are in fact penal and fair in nature. Liquidated damages covenants serve multiple purposes including certainty, cost and expenses incidental to proving losses and in a broad sense - serve public interest. It has also been argued that 'clauses which simply accelerate liability cannot be considered to be penalties.. the courts have usually enforced such clauses on the ground that they do not increase the contract breaker's overall obligations.'i  The other view holds that imposition of such high penalties ii are unreasonable, against the public order as well as against national interest iii.    Under what events or circumstances would courts come to rescue of borrowers and rule in their favor and treat lender's acceleration fee as unreasonable or unenforceable? This questions and other aspects relating to enforceability of such clauses as penalties under the English law were discussed and summarized in Edgeworth v Ramblas Investments . In September 2008, in the week leading up Lehman Brothers fallout, the acquisition of the Madrid headquarters of Banco Santander which was given the elucidatory name of Ciudad Financiera (Finance City) and considered the largest real estate asset in Europe; also made the headlines. Marme Inversiones paid for the acquisition by partly using financing where Royal Bank of Scotland agreed to inject Euro 1.6 billion into Marme as a syndicated loan; the remaining sum as junior debt to Marme's parent- Ramblas, a Dutch company; and other loans such as a personal loan from RBS to the two owners of Marme and Ramblas (the Ramblas).   By an Upside Fee Agreement (the Agreement) relating to the junior debt, RBS would be entitled to a significant sum as fee if certain events such as nonpayment of personal loan triggered. Royal Bank of Scotland had transferred their rights and obligations under the Agreement in favor of Edgeworth Capital. With the financial crash affecting one and all across the globe, the breach of the personal loan by Ramblas resulted and like a domino set off an event of default under the junior loan which was accelerated Capital in 2010. Upon default, Edgeworth Capital instituted an action claiming payments under the Agreement and junior loans. Ramblas conteualy / asserts that a bare reading of the Agreement suggested that no fees became due or payable under the Agreement and further that Edgeworth's claim was in form of a penalty and consequently inadmissible and unenforceable under English law. The Court held as under:- Edgeworth became entitled to claim the fee when Ramblas defaulted. The court noted that although the commercial circumstances in which the financing contracts were executed were challenging and the fact that the junior loan was essentially a bridging loan, there was a clear commercial justification for Edgeworth to charge a large fee. In deciding whether a clause should be construed as penalty or not, the court held:-   (a) a clause will be a penalty where it is "extravagant and unconscionable with a predominant function of deterrence". (b)  a clause will not be a penalty if it is a genuine pre-estimate of loss. (c) Even if it is not a genuine pre-estimate of loss it will not be a penalty where it is commercially justifiable and it can be shown that its predominant function is not deterrence.   This brings us back to the question as to whether pre-payment premiums are liquidated damages or not v .  An analysis of Edgeworth v Ramblas suggests that clauses such as acceleration clause setting out that monies must be settled upon triggering of one or series of defaults by one of the parties will be enforceable as liquidated damages as long as such claims are genuine pre-estimate of damages and are  not    not designed to pressurize or succumb a defaulting party to any pressure to perform or settle. The courts have also in other matters rejected arguments based on the premise that if contract provision includes a penalty element that also invalidates provision accelerating the payment of outstanding loan citing that the doctrine relating to penalties is not a rule of illegality but that of public policy vi vii.      Security creation in the United Arab Emirates is categorized by distinct jurisdictions developed and existing under the realm of the federal on-shore legal systems namely - i) the mainland legal system that is a civil law jurisdiction where the law is based broadly on sharia principles and French legal system; and ii) the jurisdiction of the Dubai International Financial Centre that was established in the year 2004 which is subject to its own laws and court modeled closely on international standards and principles of common law.   The DIFC Courts recognize and accept liquidated damages clauses in the agreements viii. Pursuant to Article 21 of DIFC Law number 7 of 2005 on Law of Damages and Remedies allows an aggrieved party to claim from defaulting party - the specified sum agreed under the contract irrespective of its actual loss.  Article 21 (2) of the same law provides that the amount by way of liquidated damages agreed under the contract may be reduced to a reasonable amount where it is 'manifestly disproportionate' to the loss envisaged as capable of resulting in relation to the loss resulting from the non-performance and to the other circumstances. Article 40 (2) of Law 7 of 2005 also allows DIFC Courts to award punitive damages.    Article 40 (2) reads as under:- "40 (2) The Court may in its discretion on application of a claimant, and where warranted in the circumstances, award damages to an aggrieved party in an amount no greater than three times the actual damages where it appears to the Court that the defendant's conduct producing actual damages was deliberate and particularly egregious and offensive."   Article 122 of the DIFC Law number 6 of 2004 (the DIFC Contract Law) also dealing with non- performance provisions allows an aggrieved party to claim from defaulting party - the specified sum agreed under the contract. Interestingly however, part (2) of the same article provides that the amount by way of liquidated damages agreed under the contract may be reduced to a reasonable amount where it is grossly excessive in relation to the harm resulting from the non-performance and to the other circumstances. We will examine and discuss Article 122 (2) in greater detail in part 2 of the series dealing with make whole premiums as this clause ix  forms the basis to decide whether that form of prepayment would be consistent and valid. DIFC is a relatively new jurisdiction and till date there are no DIFC court precedents that elaborately discuss the legal implications of liquidated damages causes in greater detail x .    Revisiting Edgeworth v Ramblas at this point would suggest that the provisions contained within the DIFC Contract Law as well as the DIFC Law of Damages and Remedies are consistent with commercial justification offered in the above precedent and DIFC courts would take in to account factors such as whether a clause is a genuine pre-estimate of loss, whether such clause qualifies as liquidated damages. Interestingly however DIFC Courts (pursuant to Article 40 (2) of Law number 7 of 2005) can also award punitive damages, something that will not be enforced by English Courts. Most foreign countries may also refuse to enforce Article 40 (2) on policy grounds  xi .     i) Richard Hooley, Penalty Clauses, Lecture notes dated 31 October 2008 referring to Protector Endowment Loan Co v Grice (1880) 5 QBD 592 and the Angelic Star [1988] 1 Llyod's Rep 122. ii) A penalty is in the form and nature of a punishment for non-observance of a contractual provision; it consists of the imposition of an additional or different liability upon breach of the contractual stipulation. An award of damages on the other hand serves as compensation to claimant. iii) See Mohamed Aziz v Caixa d'Estalvis de Catalunya, Tarragona i Manresa (Catalunyacaisa)  (2013) Case C-415/11, [2013] 3 CMLR , The national court must in particular compare that rate with the statutory interest rate, and determine whether it is appropriate for securing the attainment of the objectives pursued in Spain and does not go beyond what is necessary to achieve them. iv) Edgeworth Capital (Luxembourg) S.A.R.L and another v Ramblas Investments B.V; [2015] EWHC 150 (Comm) v) See for instance, Bank of New York Mellon v. GC Merchandise Mart, L.L.C., et al. (In re Denver Merchandise Mart,. Inc.), No. 13-10461 (5th Cir. Jan. 27, 2014) where the courts referring to Colarado law and section 506(b) of the Bankruptcy Code held 'a prepayment premium is not a remedy for breach of contract, but rather is consideration for a borrower's right or privilege to prepay (p. 5). Accordingly, a prepayment premiums is not liquidated damages and is not subject to the reasonableness for liquidated damages.' vi) Oresundsvarvet Aktiebolag v. Marcos Diamantis Lemos (The "Angelic Star")[1988] 1 Lloyd's Rep 122, Sir John Donaldson MR  said "Clearly a clause which provided that in the event of any breach of contract a long term loan would immediately become payable and that interest thereon for the full term would not only be payable but would be payable at once would constitute a penalty as being "a payment of money stipulated as in terrorem of the offending party". vii) For instance in South Africa, the Western Cape High Court of Cape Town placed reliance on borrower's argument citing that acceleration clause was abuse of lender's position and consequently against the public policy. The court relying on Everfresh Market Virginia (Pty) Ltd v Shoprite Checkers (Pty) Ltd 2012 (3) BCLR 219 (CC), Paragraph 22 said 'Many people enter into contracts daily and every contract has the potential not to be performed in good faith. The issue of good faith in contract touches the lives of many ordinary people in our country' and held that email demand made by lender cannot be applied by lender to gain massive commercial advantage to the significant disadvantage of the debtor and further that acceleration clause in the present matter had draconian implications. viii) Pursuant to Article 390 of the UAE Federal Law Number 5 of 1985 (the Civil Transactions Law), parties may fix the amount of compensation in advance by making a provisions in the contract or by a subsequent agreement. This would mean that parties under UAE law are not under the legal obligation to pay liquidated damages. Further Article 390 (2) permits the courts to vary the contract executed between the parties to reflect the actual loss. ix) In addition to other laws including Article 17 of the DIFC Law of Damages and Remedies. x) The DIFC courts in (CFI 004 of 2007 between Arabtec Construction LLC v Ultra Fuji International LLC) enforced liquidated damages clause in favor of claimant. Also, in CFI 034 of 2012 Amit Dattani and Others v. Damac Park Towers Company Limited, the DIFC courts of First Instance dealing with liquidated damages held xi) Refer DIFC Guide to Enforcement - Open for Consultation dated 25 April 2012 available on difcourts.ae. 'Few courts will enforce judgments for the recovery of taxation. Many courts in the Arab world will refuse to enforce a judgment which is contrary to the principles of Sharia.'       ]]>
    Tue, 10 Nov 2015 12:00:00 GMT
    <![CDATA[ОАЭ: Корпоративное управление ]]> Корпоративное управление

    «Легче болезнь предупредить, чем потом ее лечить»..

      Эта старая пословица оказывается как нельзя кстати, когда речь идет о принципах корпоративного управления и их применении в странах Залива. Использование правильных принципов корпоративного управления играет даже более важную роль, чем споры о собственности, вопросы правопреемства и споры заинтересованных сторон.

    В ходе опроса, проведенном в Международном Финансовом Центре Дубая (DIFC), выяснилось, что руководители большинства ключевых компаний считают, что их внутреннее управление выстроено на хорошем уровне. Однако этот же опрос показал, что мнения сотрудников на различных позициях в этих организациях совершенно различны. И в то время, как многие компании, в особенности упомянутые выше, претендуют на часть инициативы Правительства ОАЭ по рационализации и укреплению внутреннего кодекса корпоративного управления, то предприятиям малого и среднего бизнеса (SMEs), а также семейным предприятиям (FOEs), предстоит еще научиться применять данные практики.

    Корпоративное управление определяется как «совокупность правил, норм и процедур, направленных на достижение корпоративной дисциплины в управлении компании в соответствии с международными стандартами и методами через определение ответственности и обязанностей членов совета директоров и исполнительного руководства компании, принимая во внимание защиту прав акционеров и заинтересованных сторон» 

    ОАЭ продемонстрировали позитивный взгляд на внедрение политики корпоративного управления, так как она руководствуется строгими законодательными принципами, утвержденными в определении Управления Ценных Бумаг и Товаров ОАЭ (SCA) No. R/32 от 2007 года с поправками от Постановления Министров No 518 от 2009 года, касающихся Норм Корпоративного Управления и Стандартов Корпоративной Дисциплины, с дальнейшими поправками от Постановления Министров No 84 от 2010 года (Кодекс) и Федеральной Резолюции No 17 от 2010 года о создании Центра Корпоративного Управления в Абу Даби.

    В этой статье мы рассмотрим существующие практики корпоративного управления и необходимость их применения всеми компаниями.

    КОРПОРАТИВНОЕ УПРАВЛЕНИЕ НА ГОСУДАРСТВЕННОМ УРОВНЕ

    Компании, зарегистрированные в системе NASDAQ Международного Финансового Центра Дубая, Финансовой бирже Абу-Даби (ADX) и на Финансовом рынке Дубая (DFM), должны в обязательном порядке придерживаться правил, установленных регулирующими органами этих организаций. В то время как NASDAQ регулируется Управлением по регулированию финансовых услуг Дубая (DFSA) и подчиняется правилам Международного Финансового Центра DIFC, который будет рассмотрен в последующих выпусках, ADX и DFM регулируются SCA в рамках установленного Кодекса.

    Представители отрасли, управляемой Кодексом корпоративного управления SCA, включают в себя нефинансовые учреждения и открытые акционерные общества, которые должны соответствовать следующим стандартам::

    a. Разделение полномочий и определение обязательств – Кодекс предусматривает четкое указание на разделение власти, дифференциации между вопросами управления и собственности. Он устанавливает, что любая компания, зарегистрированная на рынке, должна управляться советом, который должен быть избран акционерами. По крайней мере одна треть членов совета должны быть независимыми и «неисполнительными». Позиция председателя и управляющего директора должна заниматься разными людьми. Кодекс гласит, что собрание совета директоров должно проходить дважды в месяц. Кодекс также предусматривает формирование комитетов по аудиту, вознаграждениям и назначениям, а также сотрудника по соблюдению корпоративного контроля.

    b. Внутренний контроль и информация – Положения Кодекса получили одобрение и небольшую критику за основные пункты, относящиеся к внутреннему контролю и информации для членов совета директоров. Основные пункты Кодекса о разглашении и заявления SCA несколько расходятся в суждениях. Компании обязаны внедрить и использовать строгую политику внутреннего контроля и осуществлять информационную и консультативную поддержку внутри совета директоров. В дополнение к этому члены совета должны предоставлять подробную информацию в SCA в отношении деятельности компании, рисков и их операций.

    c. Ежегодный отчет – SCA обязывает компании предоставлять ежегодный отчет помимо прочих документов, также входящий в список Статьи 8 Кодекса. Отчет должен разъяснять решения совета директоров и их соответствие (или несоответствие) установленному Кодексу. 

    КОРПОРАТИВНОЕ УПРАВЛЕНИЕ ДЛЯ ФИНАНСОВЫХ УЧРЕЖДЕНИЙ

    Финансовые организации, регулируемые Центральным Банком ОАЭ подчиняются Циркуляру Номер 23/00 Центрального Банка, который предлагает обязательные рекомендации для структур корпоративного управления. В дополнение к этому Центральный Банк выпустил руководящие принципы, которые не являются обязательными по закону. Председатели правления банков ОАЭ, директора и руководители компаний получили соответствующие официальные руководства к действию для избежания злоупотребления властью и предотвращения хищения денег..

    ДЛЯ ЧЕГО НУЖНО КОРПОРАТИВНОЕ УПРАВЛЕНИЕ В СЕМЕЙНЫХ ПРЕДПРИЯТИЯХ (FOES) И ПРЕДПРИЯТИЯХ МАЛОГО И СРЕДНЕГО БИЗНЕСА (SMES)

    В ОАЭ существует несколько местных семейных компаний, которые имеют разветвленную сеть в различных направлениях бизнеса. В рабочем документе Торгово-Промышленной Плате Дубая, опубликованном в 2005 году, семейный бизнес определяется как «бизнес, который полностью принадлежит гражданам ОАЭ». С практической точки зрения под это определение подходят все компании, в которых 51% собственности принадлежит гражданину ОАЭ. 

    К предприятиям малого и среднего бизнеса (МСП), с другой стороны, относятся компании, в которых годовой оборот составляет менее 250 миллионов дирхам и число сотрудников менее 250. 

    Обсуждая необходимость корпоративного управления, руководящие органы зачастую спорят о том, что семейный бизнес и МСП это более мелкие единицы и поэтому основательная корпоративная политика для подобных компаний не является существенной необходимостью. В то же время необходимо извлечь урок из опыта компьютерного гиганта Intel, 90% продаж которого в январе 2013 года были получены от программных продуктов, которые еще даже не были завершены в декабре 2012. Пример Intel подчеркивает один важный аспект экономики любой страны и любого бизнеса – изменения. Развитие экономики, слияние доходов, объединение корпораций – это то, что понимается под словом «изменения» в экономике. Согласно исследованию, опубликованному в DIFC, на которое опирается данная статья, бывший директор Международного Финансового Центра Дубая заявил, что «почти 95% семейного бизнеса не существует дольше третьего поколения собственников из-за недостатков последовательного планирования». На таком конкурентном и меняющемся рынке цена пренебрежения принципами корпоративного управления может оказаться больше, чем потеря нескольких заинтересованных сторон..

    МСП и семейные предприятия должны понимать сам процесс корпоративного управления и его ключевые принципы, включающие следующее::

    • Последовательное планирование;;
    • Разделение ролей владельца и управляющего;
    • Поддержание отношений с заинтересованными сторонами;
    • Избежание конфликта интересов;
    • Определение исполнительных ролей;
    • Поощрение неисполнительного участия для продвижения принципа беспристрастности;
    • Увеличение внутреннего контроля; и
    • Создание позитивной рабочей среды.

    ЗАКЛЮЧЕНИЕ

    Не взирая на статус и тип компании, политика корпоративного управления должна быть внедрена в ее рамках для обеспечения устойчивости в долгосрочной перспективе. Внешние правила сами по себе не могут помочь предприятиям развиваться и процветать без наличия внутреннего контроля и управления. В заключение, следует сказать, что основная необходимость для компаний это осознание, что руководство компанией в некоторых аспектах отличается от организации работы компании.. 

    ]]>
    Fri, 21 Mar 2014 12:00:00 GMT
    <![CDATA[Закон о собственности фризоны DIFC]]>

    Нынешний глобальный инвестиционный климат является полным смешением как здоровых, устойчивых, так и слабых экономик.  Доллар продолжает оставаться мировой валютой и в новом тысячелетии, но страны со временем укрепляют свои собственные валюты – такие новости вызывают большое количество вопросов и дискуссий. Введение евро и объявление Госсовета Китая, разрешающее свободный приток юаней на мировые рынки в своем роде потрясло финансовые рынки и политики некоторых государств, как например, недавнее заявление Правительства Индии о запрете своим гражданам инвестировать зарубеж, во многом повлияло на ситуацию на рынке международной недвижимости. Экономика Объединённых Арабских Эмиратов является в числе наиболее сильных в настоящее время.

    Международный Валютный Фонд подсчитал, что восстановление экономики Дубая набирает обороты, и это находит свое отражение в возвращении рынка недвижимости. Чисто сделок купли-продажи, совершенных местными и иностранными инвесторами, включая приток прямых иностранных инвестиций, начавшийся в 2013 году, продолжает расти. Политические и финансовые потрясения в таких странах, как Греция, Сирия и Египет, усиленные банковским кризисом на Кипре, заставили инвесторов обратить свой взгляд на страны с более устойчивой экономикой. Инвесторы из Европы, стран Ближнего Востока и стран Азии продолжают значительные инвестиции в ОАЭ, так как данный регион продолжает оставаться политически, экономически и финансово стабильным. Данная статья освещает недавние законодательные изменения в секторе недвижимости в районе Дубайского Международного Финансового Центра (DIFC).

    Свободная Экономическая Зона DIFC имеет независимую юрисдикцию внутри Дубая, ОАЭ. Созданная в 2004 г. СЭЗ DIFC была основана с целью содействия экономическому росту и развитию Дубая. Это территория самой современной нормативной, правовой и физической инфраструктуры, созданная, перенимая лучшее от самых передовых систем в мире.

    Эта городская фризона представляет собой город внутри города, имея собственные суды, основанные на системе общего права, где рассматриваются коммерческие и гражданские дела и имеется собственный финансовый регулирующий орган – Управление по Регулированию и Надзору в сфере финансовых услуг Дубая (DFSA). DFSA уполномочено выдавать лицензии и регулировать финансовые операции, которые проводятся внутри DIFC. Неудивительно, что в DIFC сегодня одна из наиболее современных, эффективных и точных систем регистрации собственности в мире.

    В 2007 году был принят закон №4 (Закон), который регулирует право собственности на фрихолд земли и здания на территории DIFC. Закон был принят после тщательного рассмотрения и консультаций с заинтересованными сторонами. Представители общественности были приглашены высказать свое мнение и начальный период консультаций был продлен еще на срок тридцать дней. Этот новый Закон представляет собой современное законодательство, уходящее корнями в систему Английского общего права и более современную систему Торренса. Система Торренса была сформулирована, чтобы упростить процесс регистрации земельной собственности и сертифицировать право абсолютного собственности  на имущество. Этот процесс, будучи четким и ясным, встречает много подводных камней в практике по всему миру. 

    Система Торренса работает по принципу «документ о собственности при регистрации», нежели чем «регистрация права собственности». В сущности это означает, что нет необходимости отслеживать документ о регистрации через длительную процедуру и огромный объем документов. Органы, ответственные за регистрацию права собственности, гарантируют четкость процесса и в случае непредвиденных ошибок всегда предусмотрены пути решения. Настоящий Закон применяется исключительно в DIFC и является уникальным по сравнению с любыми другими фризонами или странами Залива.

    1. Ключевые характеристики системы регистрации прав собственности в DIFC

    a) Неразрывность процесса. Это важный аспект, относящийся к новому Закону. Другими словами, как только собственность была зарегистрирована в Системе Регистрации Недвижимости DIFC, ее безопасность защищена Законом. Земельные участки регистрируются и получают идентификационные номера, называемые фолио, и заносятся в центральную систему с именем зарегистрированного владельца и характеристиками недвижимости. Смена владельца в случае продажи или смерти владельца происходит при смене записи в Системе.

    b) Caveats – Это одна из уникальных особенностей Закона. Регистрация собственности или смена владельцев требует от участвующих сторон заполнить две формы, а именно Caveat Form №42, которая заполняется покупателем, и Withdrawal of Caveat Form №43, которая заполняется продавцом. Заполнение этих форм гарантирует, что права заявителей в собственности застройщика юридически признаны. Важным значением этого факта является то, что все стороны, заинтересованные в недвижимости, должны зарегистрировать caveat и заполнить форму №46 в течение тридцати дней после совершения сделки, которая определяется как дата подписания «Договора о Намерении» (MOU). Если указанный меморандум является обязательным и не имеет спорных моментов, то сделка считается произошедшей с момента его подписания.

    c) Гарантия – Регистратор DIFC гарантирует точность и аккуратность данных в Центральном Реестре, где учитываются все сделки с недвижимостью в пределах DIFC. Он также дает возможность требовать компенсацию любой стороне, если она пострадала в результате канцелярской ошибки. Это позволяет потенциальному покупателю находиться в уверенности, что не нужно перепроверять информацию, выходящую за рамки Центрального Реестра. Это упрощает процесс регистрации собственности с большому облегчению многих.

    d) Регистрационный взнос – Особенностью DIFC также является пошлина за передачу недвижимости в собственность в размере 3,5% от рыночной стоимости, в отличие от остальных фризон и других районов Дубая, где эта пошлина равна 2% (данные 2013 года). Рыночная цена недвижимости определяется утвержденными фризоной аналитиками. Более высокая пошлина вызывала критику от многих заинтересованных сторон, но DIFC сохранила свою позицию по этому вопросу, заявив, что система позволяет быстро и без усилий произвести передачу собственности, что оправдывает сборы. Регистрационный взнос должен быть оплачен в течение 30 дней с момента транзакции, то есть подписания договора о намерениях между двумя сторонами; с штрафом 5% в год в случае задержки оплаты. Существуют, однако, некоторые условия, которые освобождают сделку от уплаты этого сбора. Это следующее: 

    i) Сторона входит в исламское соглашение о финансировании;

    ii) Когда трансфер происходит при незначительной смене интереса. Например, когда человек делает трансфер с или на компанию, где он является единственным владельцем;

    iii) В случае, если трансфер происходит из-за покупки-продажи акций зарегистрированной на бирже компании через фондовые рынки;

    iv) Человек входит во владение недвижимостью по завещанию; и

    v) Человек входит во владение недвижимостью на основании закона

    Еще одна уникальная особенность фризоны DIFC, когда речь идет о недвижимости, это возможность Инвестиционным Трастам Недвижимости (REITs) приобретать недвижимость на территории DIFC. Такая система не действует больше нигде в Дубае. REIT определяется как организация, инвестирующая в такие объекты недвижимости как моллы, отели и т.д. Что интересно относительно REIT, это то, что он позволяет человеку иметь долю в прибыли предприятий, доступу к которым в другом случае у него не было бы. Законодательство REIT было представлено DIFC, чтобы продвигать свои функции путем принятия Закона №5 от 2006 г. об Инвестиционных Трастах.

    DIFC занимает лидирующие позиции, когда речь идет о праве собственности в ОАЭ. Система регистрации, инвестиционные трасты, простота и прозрачность транзакций сделала DIFC любимым местом для инвестиций как для местных инвесторов, так и для иностранных, которые ранее не решились инвестировать в эмират. Закон №4 – тщательно разработанный законодательный акт, который позволил DIFC занять лидирующее место в стимулировании инвестиций в Дубай. С помощью новейшей системы регистрации DIFC распахнула горизонты для права собственности не только в пределах фризоны, но и за ее пределами.

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    Thu, 13 Mar 2014 12:00:00 GMT