Author: afridi-angell

Anti-Money Laundering Regulation in the UAE, India Business Law Journal

Money laundering was formally criminalized under the AML Law of 2002, but it had long been a crime to knowingly possess the proceeds of criminal activity, at least as regards criminal activity carried out in the UAE. Moreover, many techniques used to conceal the origins of funds (like forging documents) are themselves crimes under the UAE’s
Penal Code. Charles Laubach reveals everything you need to know about the new regulations in place.

Cyber Security 2014, A Virtual Roundtable, Corporate Live Wire

Cyber Security has presented itself as a major thorn in the side of many companies in recent years, which has demanded firms go the extra
length to mitigate any potential risks. In this Roundtable, we take a look at some of the trends of the past year as well taking a look at what the
future holds. Nine experts from around the world have come together to offer opinions on the prevalent issues surrounding the topic.

The DIFC in focus

DIFC Rent Cap

 

A new Dubai Decree on rental increases issued at the end of last year has significant implications for the current practice of landlords in the DIFC. Previously, there was no rent cap law in the DIFC. Now, Decree No. 43 of 2013 on Determining the Increase in the Real Estate Rentals in the Emirate of Dubai also determines the extent to which rents may be increased in the free zones, and expressly refers to its applicability in the DIFC. As a whole, the Decree applies to landlords in all of Dubai.

 

 

The Decree provides a mechanism for calculating the maximum rent increase permitted, if at all, upon renewing a lease. The calculation is determined by reference to the average rental value in the area where the property is located and the percentage to which the rent pre-renewal falls short of that. Article 1 of the Decree sets out the maximum increase in rent allowed depending on the difference between the rental amount and the average rent paid in the area. No rent increase is permitted where the rental amount is up to 10 percent less than the average rental in the same area.

 

 

The Decree also stipulates that the average rent is determined by the RERA rent index for which the Rental Increase Calculator is available online. The Rental Increase Calculator allows a landlord or tenant to enter the current annual rent paid for the type of property in a particular area and calculate the permitted rent increase. The Rental Increase Calculator has just this month been adjusted for rental prices and now also includes properties in the DIFC.

 

 

Further, it should be noted that the Rental Disputes Settlement Centre of the Dubai Land Department will handle all rental disputes arising between landlords and tenants in the Emirate of Dubai (including the free zones). However, this does not apply in respect of rental disputes arising inside free zones that have courts competent to settle rental disputes arising within their boundaries. Therefore, the DIFC Courts would have jurisdiction over any rental dispute in the DIFC. Moreover, in this regard the DIFC Small Claims Tribunal (Resolution of Rental Disputes) Order No.2 of 2014 issued this month directs and expressly provides that the Small Claims Tribunal will hear and determine all rental disputes where the amount of the claim does not exceed AED 500,000.

 

Revised Procedural Rules of the DIFC Courts

 

Following a two-month consultation period, the 2014 edition of the Rules of the DIFC Courts have now been published. The Rules governing the Courts’ procedures have been revised to incorporate several important changes including provision for a cost-free trial for pro bono litigants under Part 38, whereby the Pro Bono Panel may decide, subject to certain criteria, to grant such litigants a trial without the risk of legal costs being awarded against them if they lose, and changes to Part 28 which governs the production of documents.

 

With respect to the revised Part 28, the intention is to bring the provisions more in line with the International Bar Association’s disclosure rules. Importantly, the revised part provides for co-operation between the parties where the volume of documents to be searched is likely to be extensive requiring the parties, where possible, to exchange preliminary production requests in draft form before standard production of documents takes place. Any such exchange should not limit the parties’ rights to submit further requests to produce documents thereafter. Also of significance is that the grounds for excluding documents from production have been extended to include considerations of procedural economy.

 

Memorandum signed between DIFC Courts and Federal Court of Australia

 

Further to the memoranda signed between the DIFC Courts and the UK Commercial Court in January 2013, and the Supreme Court of New South Wales in September 2013, in March this year the DIFC Courts have signed a similar memorandum with the Federal Court of Australia addressing the reciprocal enforcement of money judgments.

 

As with previous such memoranda signed by the DIFC Courts the intention is to assist investors and those interested in doing business from the relevant jurisdiction in the region, and encourage and develop closer trade and investment relations between that jurisdiction and Dubai by increasing confidence and certainty in the legal system.

 

Amendments to the DIFC Arbitration Law

 

DIFC Amendment Law No.6 of 2013 (the Arbitration Amendment Law) enacted in December 2013 amends the DIFC Arbitration Law No. 1 of 2008 and gives the DIFC Courts the power to stay court proceedings in favour of arbitration with a seat outside of the DIFC. The amendment seeks to clarify the law and bring it in line with the New York Convention, to which the UAE is a signatory. The amendment was necessary to effect the obligation under Article II(3) of the New York Covention which requires that a court of a Contracting State, if seized in a matter in respect of which there is a valid arbitration agreement between the parties, shall refer the matter to arbitration.

 

Previously, Article 13(1) of the DIFC Arbitration Law No.1 of 2008 was held in the case of Injazat Capital Limited v Denton Wilde Sapte (2012) only to empower the DIFC Courts to stay arbitration proceedings where an arbitration agreement stipulated the DIFC as its seat. The judgment acknowledged that it “would thwart the promotion of the DIFC as a jurisdiction supportive of arbitration.” The amendment to the law has been welcomed as one that resolves this issue by expressly providing that the DIFC Courts’ power to stay proceedings under Article 13(1) also applies where the seat of arbitration is not the DIFC. ■

Mandatory classification requirements for engineers and contractors in Abu Dhabi

Background

 

Companies licensed to conduct engineering or contracting activities in Abu Dhabi must be classified by the Contractors and Consultants Classification and Engineers Registration Office at the Abu Dhabi Department of Municipal Affairs.

 

The applicable regulations setting out the classification requirements are not new and date back to 2009 but implementation has been delayed until 2014. Regulation No. 1 of 2009 on Classification of Engineering Consultancy Offices in the Emirate of Abu Dhabi, and its subsequent implementing instructions set out the classification requirements for engineering consultancies. Regulation No. 2 of 2009 on Contractor Classification in the Emirate of Abu Dhabi, and its subsequent implementing instructions set out the classification requirements for contracting companies.

 

Who is subject to those classification requirements and how can they be met?

 

The classification requirement will be imposed on existing engineering companies the next time the company’s Abu Dhabi professional license comes up for renewal. Classification is now a condition precedent to renewal of the license. Companies established in the future will have one year from the date of initial licensing to meet the classification requirement.

 

While contracting companies have been able to have commercial licenses issued and/or renewed since November 2013, there is a catch: until contracting companies are classified, their commercial licenses will include the contracting activities for which they wish to be licensed for, but will include a caveat that the contracting companies may not carry out such activities until they have been classified. Once classified, the Office will instruct the licensing authority to remove the caveat.

 

Classification is not a routine or automatic approval. Nor is it simply additional bureaucracy and paperwork. Classification entails a substantive review by a panel of experts of a company’s capabilities and qualifications and a company that does not meet the specified criteria will not be classified.

 

The requirements are onerous and will vary from case to case. For example, a local engineering consultancy seeking classification in the Special Category (which is the highest category for engineers and permits a company to perform contracts with a value of over 70 million dirhams) must meet, among others, the following criteria:

 

  • The value of the capital and assets owned by the company should not be less than AED 4 million.

 

  • The company is required to employ five specialized and registered engineers with at least one engineer having a minimum experience of 15 years, two engineers having a minimum experience of 12 years and the other two engineers having a minimum experience of 10 years each. This applies to each Special Category of engineering type the company requires to undertake, i.e., for civil engineering, it will be required to employ five civil engineers meeting the foregoing minimum experience; for mechanical engineering, it will be required to employ five mechanical engineers meeting the foregoing minimum experience; and so forth.

 

  • The cumulative value of the previously executed projects must not be less than AED 480 million, provided that the value of each project submitted is not less than AED 60 million.

 

  • The company must hold an ISO 9001 certificate.

 

Conclusion

 

All companies conducting activities involving engineering or contracting should immediately investigate whether the licensed activities currently on the company’s trade license require classification. The same applies to persons planning to set up new companies doing business in these sectors.

 

Unless the concerned authorities have a change of heart and grant further extensions to implementing the requirements (which is not currently expected), classification cannot be avoided except where a company is willing to remove all activities requiring classification from its license, which in turn will limit the scope of the company’s permitted business activities.

 

If a company is not already classified, it should begin investigating the specific requirements it will have to meet well in advance of its next licensed renewal date. ■

Unified real estate contracts

The Dubai Land Department (“DLD”) recently announced the introduction of mandatory unified real estate contracts (the “Contracts”) to be used in property sale and purchase transactions. The Contracts become effective from May 1, 2014. The Contracts have been introduced to facilitate the sale and purchase process and are intended to protect the three main parties to any sale and purchase contract, namely the buyer, the seller and the broker.

 

The Contracts

 

There are currently three models of Contract: (i) a contract between seller and buyer, (ii) a contract between seller and broker and (iii) a contract between buyer and broker. The Contracts are available on the DLD’s smart property website EMART:

www.emart.gov.ae/UploadedFiles/Downloads/Docs/English/All_contracts.pdf.

 

The Contracts enable the parties to quickly populate the main terms of the sale and purchase transaction such as the parties, the property, the price and the completion date. It is intended that the Contracts will become valid when completed and documented at the DLD.

 

Is a Separate MOU Required?

 

Whilst the Contracts document the main terms of the sale and purchase transaction, they do not go into any greater detail. Moreover, contractual agreement on material issues such as warranties and representations, apportionments, deposits, dispute resolution, confidentiality and jurisdiction (which are ordinarily expected in any sale and purchase contract) is lacking. Given the absence of these material clauses which are intended to protect the parties to any sale and purchase agreement, the Contracts should be augmented (using a schedule, an attachment or incorporation by reference) by continuing the current practice of the parties entering into a separate sale and purchase contract (“SPA”) or Memorandum of Understanding (“MOU”).

 

Conclusion

 

Given the mandatory requirement for the Contracts, parties to a real estate transaction should ensure that the Contracts are properly completed and validated at the DLD. The introduction of the Contracts should not, however, displace the need for the further protection that is offered in the form of an SPA or MOU. The Contracts and the form of SPA or MOU should be linked together to enable the parties to the transaction to not only comply with the requirements of the DLD but also to ensure the contractual protection and certainty that an SPA or MOU affords. ■