Category: inBriefs

Remote litigation in Dubai Labour Court

On 18 October 2018, the Dubai Court and the Ministry of Human Resources & Emiratisation (MOHRE) launched a “remote litigation service” for labour disputes under AED 20,000 in value.

 

Under this initiative, the requirement of personally attending hearings for labour disputes under AED 20,000 is dispensed with, and parties and their representatives are permitted to ‘attend’ the hearing before the judge electronically. The cases will be heard by a single judge, who is required to render judgment within 24 hours. This initiative has been introduced in order to dispose of low value labour cases in Dubai quickly and efficiently.

 

Labour complaints can be filed physically, electronically, or by calling the MOHRE hotline (80060). Once the case is registered, the parties to the case (i.e. the employer and the employee) are required to attend in person before a Tawafuq Centre to attempt settlement of the dispute. If the dispute is not resolved, and the value of the dispute is under AED 20,000, it will be referred to the labour court to be considered under the remote litigation service. The parties will be provided with an electronic link which will enable them to upload written submissions and evidence, and attend a hearing remotely if required. The service will also allow the parties to access the judgment electronically.

 

The service is not yet operational, and is expected to start functioning in November 2018. ■

New services by Dubai Rental Disputes Centre

Launch of the New Rental Good Conduct Certificate Service 

 

On 8 October, the Rental Disputes Centre in Dubai launched the Rental Good Conduct Certificate service.

 

This service is a first-of-its-kind initiative in the world.

 

We set out below what the service will provide and how to access it.

 

• The service will allow:

 

o a tenant to inquire whether or not a rental case has been filed against them;

 

o a landlord to inquire about a potential tenant, and whether a rental case has been filed against them in the past; and/or

 

o a tenant to inquire about the landlord and whether they are known to cause legal problems with tenants.

 

• It is hoped that the new service will reduce the number of rental disputes by providing both the tenant and landlord with accurate information on each other. This in turn will allow the parties to make an informed decision on whether or not they want to sign the tenancy contract.

 

• The data will be provided by the Rental Disputes Centre, which has stated that it will do so without violating the laws of confidentiality in Dubai.

 

• The service can be obtained by phoning the Rental Disputes Centre or by downloading the Rental Disputes Centre app from the Apple Store or Play Store.

 

Launch of “remote litigation” by the Rental Disputes Centre

 

On 4 October, the Rental Disputes Center in Dubai launched the Remote Litigation service. The service will allow parties to rental disputes, or their representatives, to attend the hearing before the judge electronically.

 

The new mechanism will work as follows:

 

• A claimant can choose the option of “remote litigation” at the time of registering its rental dispute case.

 

• A date and time will be fixed for the hearing of the case electronically.

 

• On the hearing date, a link will be sent via email to the parties. The parties will use this link for attending the hearing electronically along with the judge.

 

• The judge will then fix a date for the judgment, after which the judgment will be available to the parties electronically.

 

It is hoped that this new mechanism will reduce the time for settling rental disputes in Dubai.

 

Travel Ban in Rental Disputes  

 

In June 2108, the Rental Dispute Centre announced a new mechanism for an automatic travel ban to apply to defendants in certain rental disputes. Under this mechanism, a travel ban will be issued automatically to defendants in rental disputes which involve monetary claims at the time of registration of the dispute.

 

The mechanism is required as the Rental Disputes Centre is facing a number of cases where defendants have left Dubai in order to avoid the execution of judgments against them.

 

The Rental Disputes Centre has announced that the travel ban can be lifted within five minutes if the defendant pays the claimed amount or provides acceptable security for the claim amount. The defendant can make an application to lift the travel ban electronically. The application can be made, and the lifting service is available, even on the weekends and holidays. If an application to lift a travel ban is successful, the relevant order from the judge to lift the travel ban will be communicated electronically to Dubai police to execute it.■

Netting arrangements in qualified financial contracts made enforceable

For decades, banks and other counterparties in the UAE have obtained financial services from foreign financial institutions. Industry bodies, such as the International Swaps and Derivatives Association (ISDA), the International Capital Market Association and the International Securities Lending Association, have developed standard documentation for these kinds of transactions. A new statute in the UAE makes it clear for the first time that the netting and setoff provisions in such documentation are valid and enforceable under UAE law. Among other matters, this clarity should reduce the cost to UAE counterparties of obtaining these financial services.

 

Federal Decree-Law 10 of 2018 on Netting (the Netting Law) was published in the UAE Federal Gazette on 30 September 2018 and will take effect on 30 October 2018 (the Effective Date). It is a significant development to the derivatives framework in the UAE, in terms of both the legal enforceability of such arrangements and the ability to implement close-out netting (i.e., netting of obligations following an event of default or termination event), particularly following the bankruptcy of one of the parties. The Netting Law is closely modelled on the 2018 ISDA Model Netting Act and Guide (as published by ISDA) and applies to all Qualified Financial Contracts, Netting Agreements or Collateral Arrangements entered into by a person or entity in the UAE (other than persons and entities located in financial free zones, i.e., the DIFC and ADGM, which have separate netting regulations).

 

Netting

 

The Netting Law allows parties to enter into Netting Agreements for the purposes of netting off their payment and delivery obligations under Qualified Financial Contracts (Netting). A Netting provision may include the following features:

 

(a) any termination, liquidation and/or acceleration of payment/delivery rights or obligations under Qualified Financial Contracts entered into under a Netting Agreement or to which a Netting Agreement applies;

 

(b) calculation, estimation or adoption of an index of close-out or termination value, market value, liquidation value or any other relevant value, which may arise from a party’s failure to enter into or perform a transaction under a Netting Agreement, where the rights and/or obligations of the parties under such Netting Agreement have been terminated, liquidated and/or accelerated under point (a), above;

 

(c) conversion of the values calculated under point (b), above, into a single currency;

 

(d) determination of the net balance of values calculated under point (b), above, as converted under point (c), above, whether by operation of setoff or netting; and

 

(e) entry into an arrangement whereby the net amount calculated above becomes payable directly or as part of either the (i) consideration for a specific asset or (ii) damages for non-performance of such transaction.

 

The Netting Law currently identifies 23 categories of agreements as Qualified Financial Contracts (which create either a right to receive or an obligation to make a payment or delivery or to transfer title to assets/commodities for consideration) including all types of swaps (in relation to currencies, interest rates, basis rates or commodities), forward rate agreements, currency or interest rate futures, currency or interest rate options, derivatives (relating to bonds, energy, bandwidth, freight, emissions and property index), securities contracts, Collateral Arrangements,1   commodities related contracts and any Shari’ah compliant equivalent of the above agreements. This list may be expanded by the Committee for Designation of Qualified Financial Contracts (the Committee), which will be formed under a resolution issued by the UAE Minister of Finance (the Resolution).

 

Under the Netting Law, Netting Agreements include:

 

(a) any agreement between two parties for Netting of present or future rights to or obligations for payments or delivery, or transfer of title arising in connection with one or more Qualified Financial Contract between the parties (a Master Agreement);

 

(b) any agreement providing for the Netting of amounts due under two or more Master Netting Agreements (a Master Netting Agreement);

 

(c) any Collateral Arrangements relating to or forming part of a Master Netting Agreement or Master Agreement;

 

(d) any Shari’ah compliant agreement or arrangement which is intended to have a similar effect as an agreement under points (a) through (c) above or any other Netting Agreement; and

 

(e) any agreements, contracts or transactions which falls within the definition of a Qualified Financial Contract.

 

A Netting Agreement and all Qualified Financial Contracts to which it applies will constitute a single agreement.

 

Legal Recognition

 

Under UAE law, futures, margin trading and derivatives transactions generally have been viewed as potentially unenforceable due to perceived gharar, an unacceptable level of risk or uncertainty that undermines contract formation. For this reason, the potential exists – and UAE courts have held in some instances – that derivatives are unenforceable “contracts of risk,” even when used to manage risk (as in hedging contracts) rather than to create risk or to speculate. Even for Shari’ah compliant hedging products in the market (for example, the ISDA/IIFM Tahawwut Master Agreement), which are supported by fatwas confirming that such products are Shari’ah compliant and free of gharar, there was no certainty on how the courts would hold. The Netting Law has minimized, if not eliminated, these uncertainties by providing that Qualified Financial Contracts shall not be void, unenforceable, or not final by reason of gharar under the UAE Civil Code.

 

Bankruptcy

 

Under the UAE Bankruptcy Law, a debtor and creditor may only set off obligations (i) if the conditions for exercising the setoff are satisfied before initiating procedures under the UAE Bankruptcy Law, (ii) if conducted as part of the implementation of a preventative composition or restructuring scheme or (iii) as approved by the court.

 

The Netting Law provides that the provisions of a Netting Agreement shall be deemed final and enforceable (including against a third party security provider, even if such third party becomes insolvent), even following the insolvency of one of the parties thereto. The arrangements under a Netting Agreement may not be suspended, delayed or made conditional merely by the appointment of a liquidator or the initiation of bankruptcy proceedings or under any other law applicable to insolvent parties. Insolvency and/or bankruptcy proceedings will not affect the Netting arrangements under a Netting Agreement or a Qualified Financial Contract (or any other financial contract) to which a Netting Agreement applies. Similarly, the provisions of a Netting Agreement shall not be affected by any limitations on setoff or netting imposed under any insolvency or bankruptcy laws.

 

In case of procedures under the UAE Bankruptcy Law, the liquidator or trustee of a party to a Netting Agreement (the Insolvent Party) may annul, stop or refuse the performance of a transaction constituting a preference to a non-insolvent third party (the Third Party). For example, such a transaction could be the transfer of cash, assets, property or collateral from the Insolvent Party to the Third Party under a Netting Agreement. However, the liquidator or trustee may do so only on the basis of clear and convincing evidence that such Third Party entered into the transaction with the intention to prevent, hinder or delay debt recovery by a current or future creditor of the Insolvent Party. There is no definition of “clear and convincing evidence” (a term that has no antecedent in UAE law), but the concept would appear to present a higher hurdle than a mere preponderance of evidence. Significantly, there are no other grounds in the Netting Law for a liquidator or trustee to fail to implement Netting.

 

Multi-Branch Netting

 

In line with the 2018 ISDA Model Netting Act and Guide, the Netting Law has recognized Multi-Branch Netting Agreements (the MBNA) as Netting Agreements under which a party can enter into Qualified Financial Contracts through its Home Office (i.e., the office in its Home Country) and one of its branches or agencies in countries other than its Home Country (i.e., the jurisdiction where such party is incorporated regulated or duly registered).

 

In the event of the insolvency of a foreign party’s branch/agency (the Branch), its liability (or the liability of its liquidator in the UAE) to the non-insolvent counterparty (the Counterparty) shall be calculated on the date of the termination of the Qualified Financial Contract under the MBNA and limited to the lesser of (i) the foreign party’s net payment obligations2 (as adjusted by any payments to the Counterparty and the fair market value of any collateral provided by the foreign party under the MBNA) or (ii) the Branch’s net payment obligation.3  The foreign party’s net payment entitlement4 from the Counterparty (as adjusted by any payments made to the liquidator of the foreign party and the fair market value of any collateral provided by the Counterparty under the MBNA) shall be netted against the Counterparty’s net payment entitlement from the foreign party. The Counterparty may liquidate any collateral (provided under an MBNA) and apply the proceeds against settlement of sums due from the foreign party under any related Qualified Financial Contracts. Any excess collateral shall be returned.

 

The Committee

 

The Committee shall undertake the following responsibilities in accordance with the mechanisms outlined in the Resolution:

 

(a) providing opinions on topics relating to Qualified Financial Contracts;

 

(b) designating any additional financial agreement, contract or transaction as a Qualified Financial Contract;

 

(c) amending the list of Qualified Financial Contracts; and

 

(d) any other function designated by the UAE Cabinet.

 

Conclusion

 

The introduction of the Netting Law is a sign of the UAE’s desire to participate fully in international markets for financial services. UAE counterparties will now be able, more readily and presumably at lower cost, to take advantage of the full range of products that are available.

 

Nevertheless, it remains to be seen how the Netting Law will be implemented by the courts in specific cases. Financial contracts concluded before the Effective Date that qualify as Netting Agreements or Qualified Financial Contracts should now be enforceable, even though enforceability might have been uncertain when the contracts were first concluded. Proceedings under the UAE Bankruptcy Law will be governed by the Netting Law as of the Effective Date, but trustee, liquidator or court actions taken before the Effective Date would presumably remain undisturbed even if inconsistent with the Netting Law. We will continue to report as these and other issues are addressed in the coming weeks and months. ■

 

*****

1 The Netting Law defines a Collateral Arrangement as a margin, variation margin, collateral or security procedure or other credit enhancement tool relating to a Netting Agreement or Qualified Financial Contract entered into under a Netting Agreement or to which a Netting Agreement applies, including (a) pledges, mortgages and charges (whether possessory or non-possessory), (b) Title Transfer Collateral Arrangements (as defined in the Netting Law) and (c) any guarantee, letter of credit or reimbursement obligation by or to a party to a Qualified Financial Contract, in connection with such Qualified Financial Contract.
2 The aggregate of all amounts owed by the foreign party (including subsidiaries and affiliates) to the Counterparty after giving effect to the Netting provisions under the MBNA and all related Qualified Financial Contracts.
3 The amount (if any) owed by the Counterparty to the Branch under a MBNA after giving effect to the Netting provisions under all related Qualified Financial Contracts between the Counterparty and Branch.
4 (i) The aggregate of all amounts owed by the Counterparty (including to any subsidiaries and affiliates of the foreign party) to the foreign party after giving effect to the Netting provisions under the MBNA and all related Qualified Financial Contracts or (ii) the aggregate amount owed if the MBNA contained provisions providing for payments to the parties, upon termination of related Qualified Financial Contracts.

ADGM announces tech start-up licensing regime

The Abu Dhabi Global Market (the ADGM) recently announced the launch of a commercial license specifically catered towards tech start-ups that allows entrepreneurs to obtain an operational license in the ADGM and access to a Professional Services Support Program aimed at allowing entrepreneurs entry to a community of businesses, financial services and professional advisors.

 

The license is available to entrepreneurs of all nationalities floating technology driven start-ups with scalable innovative business concepts that can be deployed in the UAE and contribute to the development of the local economy. Demonstrable evidence of the progress of such technology (such as a prototype or market traction) will be required along with a clearly defined business plan with relevant forecasts.

 

Registering under the license offers the following benefits:

 

• a fully operational commercial license for two years;

 

• annual fee of USD700 (as opposed to the USD10,300 initial registration fee and USD8,100 annual renewal fee ordinarily  applicable);

 

• registration with a virtual office address (business centre or agent/advisor registered address) or physical working space  (micro-office);

 

• access to ADGM’s Professional Services Support Program; and

 

• the option to obtain up to four employee visas.

 

The registration process remains the same as the current online procedure used for ordinary commercial licenses (involving submission of an application form and business plan, initial screening and pre-approval, final approval and issuance of license after registration and incorporation). After two years, if the start-up is able to show progress such as revenue or a sufficient level of investments, it will either be converted to a traditional operational entity on normal license terms or a holding company.

 

The Professional Services Support Program is a unique partnership between the ADGM and leading local and international advisers, established to help entrepreneurs enhance the scalability of their ventures, build business skills and provide guidance in the fields of accounting, compliance, finance, legal and VAT.

 

These developments come on the back of a number of initiatives by the ADGM to address set-up costs, access to funding and business support for start-ups (such as the FinTech RegLab programme). They are also in line with the UAE’s National Innovation Strategy to make the UAE a more attractive base for new businesses and ultimately promote economic diversification, foster growth and stimulate the region’s innovation environment. ■

Dubai relaxes rules on filing appeals before the Court of Cassation

On 19 September 2018, H.H. Sheikh Mohammed Bin Rashid Al Maktoum, the Ruler of Dubai, issued Decree No. 28 of 2018 concerning the Acceptance of the Civil Petitions before Dubai Courts (the Decree). The Decree was issued by His Highness to address the procedures in filing appeals to the Court of Cassation. The Court of Cassation is the highest court in Dubai.

 

Article No. 173 of Federal Law No. 11 of 1992 (as amended) (the Civil Procedures Law) provides that appeals to the Court of Cassation must be filed within 60 days of the judgment of the Court of Appeal. A matter is appealable to the Court of Cassation on questions of law, and provided that the value of the dispute exceeds AED 200,000 (Article 176).

 

Prior to the Decree, appellants were required to make payment of the Court of Cassation fee of approximately AED 6,000 and file a detailed petition of appeal before the expiry of the 60 day deadline. Over the past few years, several appeals were rejected by the Dubai Court of Cassation because the payment of the Cassation Court fee was delayed beyond the 60 day deadline, even though the petition of appeal itself was filed in time.

 

The Decree seeks to address this issue by clarifying that the Cassation Court fee may be paid within three working days of the Case Management Office requiring the petitioner to pay the fee, irrespective of the 60 day limit to file the appeal. The Head of the Dubai Court is given discretion to amend this time frame. Going forward, parties wishing to appeal to the Court of Cassation are still required to file the appeal petition within the 60 day deadline, but only need to make arrangements to ensure that payment is made as soon as the Case Management Office requires it.

 

The Decree further provides that a party which had its petition dismissed for reasons of delay in payment of the Cassation Court fee after 3 May 2015 may apply to the Court of Cassation for reconsideration of the dismissed petition. Such applications must be made within 30 days of the Decree coming into effect. This option is not available where the Cassation petition itself was delayed for more than 60 days (i.e. as opposed to the payment of the fee).

 

The Decree will come into force upon being published in the Gazette, which is yet to occur. Dubai is not part of the Federal Court structure, and the Decree is applicable only with respect to proceedings before the Dubai Court of Cassation. ■

Qatar sanctions – new developments

The political dispute between Qatar and its neighbors escalated on Saturday 26 May 2018 with the announcement by Qatar that it would impose a ban on goods from the four boycotting countries, the UAE, Saudi Arabia, Bahrain and Egypt.

 

As we reported earlier, these four countries imposed a trade embargo on Qatar on 5 June 2017. The measures that were introduced prohibited the direct shipment of goods and the direct transport of passengers to or from Qatar and closed the land border between Qatar and Saudi Arabia. Ships and aircraft registered in Qatar were prohibited from entering the territories of the boycotting countries, and vice versa. Qatari diplomatic personnel and most Qatari nationals were compelled to depart from the boycotting countries.

 

Financial transactions were also affected, although payments by Qatari parties denominated in foreign currencies (such as Euros and Dollars) nevertheless proceeded.

 

These measures compelled the business community to implement a series of somewhat uncomfortable adjustments. Businesses in Dubai were particularly affected, as many operations based in Dubai serve customers around the Gulf, including Qatar. None of the adjustments that businesses put in place, such as the routing of shipments through non-boycotting countries, enjoyed official approval.

 

The new measures announced by Qatar could well cast doubt on the viability of a number of these adjustments. In Saturday’s announcement, the Ministry of Economy and Commerce of Qatar stated that the sale of products imported from the UAE, Saudi Arabia, Bahrain or Egypt would be prohibited. Retailers are directed to remove such items from their shelves. The Ministry would conduct inspections to ensure compliance. The Government of Qatar also announced that dairy products imported from Saudi Arabia via third countries would be prohibited. Somewhat more modest measures were also reported – that products from the boycotting countries would not benefit from GCC Customs treatment, and that the Government of Qatar has issued a directive that buyers should find new suppliers for the products that are impacted.

 

These measures appear to be aimed at consumer and retail products manufactured in the boycotting countries. It is unclear whether they will extend to other goods from those four countries that are not shipped directly. It is also unclear whether the new measures will impact existing supply contracts or only new supply contracts with customers in Qatar.

 

We will continue to monitor developments as they are reported. For the time being, parties with ongoing supply obligations to customers in Qatar must likewise watch developments closely, as many options for serving customers in Qatar might no longer be available. ■

Cautious optimism on 100 per cent foreign ownership

Recent media reports have suggested that 100 per cent foreign ownership of companies in the UAE will now be permitted. The reports are based on a government press release regarding a UAE Federal Cabinet (Cabinet) meeting held on 20 May 2018.

 

The press release states that the Cabinet announced changes in the system of foreign ownership in the UAE allowing global investors to own 100 per cent of companies by the end of the current year. While this is welcome news, some media reports and expert analysis have jumped the gun giving the impression that 100 per cent foreign ownership is a done deal. This news is better understood as a statement of intent and is not confirmation that the relevant legislation is already in place.

 

Companies incorporated in the UAE require a minimum of 51 per cent UAE ownership. This long-standing rule is set out in Article 10 of Federal Law 2 of 2015 on Commercial Companies, as amended (the Companies Law). The previous Companies Law (Federal Law 8 of 1984) contained a similar restriction. As an exception to this rule, 100 per cent foreign ownership is permitted in free zones.

 

An amendment to Article 10 of the Companies Law adopted in September of 2017 (pursuant to Federal Decree-Law 18 of 2017) stipulates that the Cabinet may adopt resolutions permitting greater than 49 per cent foreign ownership. Under the revised Article 10, the Cabinet has discretion to determine what types of companies may be majority or wholly owned by foreigners.

 

The idea of giving the Cabinet the power to designate companies in certain sectors as being eligible for 100 per cent foreign ownership is not new. For example, in September of 2011, following announcements by the Ministry of Economy regarding a series of forthcoming new laws, media reports circulated that a new foreign investment law giving the Cabinet the power to allow 100 per cent foreign ownership of certain companies was being drafted.

 

As of this time, no foreign investment law has been enacted. Instead, the mechanism for permitting the Cabinet to designate the sectors eligible for majority and 100 per cent foreign ownership has been inserted into the Companies Law.

 

While 100 per cent foreign ownership would be a welcome development, it is not yet a reality. Some reports may give the impression that a Cabinet Resolution that would allow implementation of 100 per cent foreign ownership is already in place. Such reports are misleading. A committee is currently studying the issue with a view to making recommendations but the Cabinet has not yet issued any resolutions stipulating that specific types of companies are eligible for 100 per cent foreign ownership. Until this happens, 100 per cent foreign ownership will be a goal rather than a reality.

 

Reports about new legislation in the UAE should always be treated with caution until the actual legislation is published in the Official Gazette. In some cases, rumored legislation never materialises. In other cases it takes much longer than predicted. For example, there were many reports going back well over a decade that the new Companies Law was imminent before it was finally promulgated in 2015. In the current case, the government’s press release indicates that the Cabinet has set a goal of implementing 100 per cent foreign ownership by the end of the year. Whether or not this goal will be achieved remains to be seen.

 

Permitting 100 per cent foreign ownership in certain sectors would be a major development. Not only have the relevant sectors not yet been identified, if and when such sectors are identified the government may get resistance from existing companies operating in these sectors. Industry resistance is a potential obstacle to implementation. The relevant business sectors must be identified and then the Cabinet must agree with the recommendations and adopt a resolution.

 

The recent news is cause for optimism that 100 per cent foreign ownership will eventually be implemented in certain sectors but 100 per cent foreign ownership is not yet a reality. ■

The UAE Federal Arbitration Law: a first look

The approval of the long awaited Federal Law on Arbitration by the Federal National Council was announced in March this year. The introduction of a comprehensive stand-alone law on arbitration is a welcome development in the UAE, and the new law will replace the provisions of Chapter Three, Volume II of Federal Law 11 of 1992 (the Civil Procedure Code) which to date comprise the only legislative provisions on arbitration in the UAE (outside of the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM)).

 

We set out below some of the highlights of the new law approved by the Federal National Council. Since this article was written, Federal Law No. 6 of 2018 has been issued promulgating the new law. The official gazetted version of the law is yet to be released, and there is a possibility that some of the articles of the new law referred to below have undergone further amendment, although it appears to be unlikely.

 

Application of the Law

 

Article 2 of the new law provides that its provisions shall apply to all arbitrations conducted in the UAE unless parties “agree to submit to another arbitration law”. It is likely that this provision is intended to accommodate parties who have chosen the DIFC or ADGM as their seat of arbitration. Article 59 of the new law goes on to state that the provisions shall apply to every arbitration “effective” at the time when it comes into force, which would include ongoing arbitration proceedings. Article 3 of the new law appears to envisage extra-territorial application where (a) the parties have agreed to be bound by this law for arbitrations conducted overseas, and (b) where the underlying dispute arises with regard to a legal relationship “organised by the applicable laws of the country”. It is unclear how the latter will operate in practice.

 

New Provisions 

 

The new law addresses a number of issues hitherto unaddressed in legislation (unsurprisingly, given that the previous legislation comprises only 15 articles in the UAE Civil Procedure Law) and addresses other issues in greater detail. A few examples are set out below.

 

a. The Arbitration Agreement

 

The new law maintains the requirement that an agreement to arbitrate should be in writing. However, the new law provides that this requirement may be satisfied by reference to communications between the parties. This is consistent with case law on this point such as the judgment of the Dubai Court of Cassation in Civil Petition for Cassation No. 73/2010, which held that a written agreement to arbitrate may be evidenced through written correspondence between parties. It is helpful to have legislative affirmation of this point.

 

The new law has expressly permitted electronic means of agreement to arbitrate in accordance with the laws in relation to electronic agreements. The new law also provides that an arbitration clause will be valid by reference if contained in standard form conditions, provided that the reference is clear and explicit.

 

Article 6 of the new law recognises the concept of severability of an agreement to arbitrate, which is a well-established principle in arbitration and is reflected in the arbitration rules of the DIAC, DIFC-LCIA and the ADCCAC.

 

Article 8 of the new law provides that where a party institutes proceedings in court notwithstanding the existence of an agreement to arbitrate, the court shall dismiss the proceedings if the defendant asserts a jurisdictional objection based on the arbitration agreement before making submissions on the merits of the dispute. This is a more flexible requirement contrasted with the provisions of Article 203(5) of the Civil Procedure Code, which requires the defendant to assert the jurisdictional objection at the first hearing. Article 8 goes on to provide that arbitration proceedings may be instituted or continued notwithstanding that judicial proceedings have been instituted challenging the validity of the arbitration agreement.

 

b. Jurisdiction

 

Article 19 of the new law provides that an arbitral tribunal may rule on its jurisdiction (or lack thereof) (kompetenz-kompetenz) including objections with respect to non-existence, expiration or nullity of an arbitration agreement by way of a preliminary judgement. Such decision is appealable within 30 days of such decision to a competent court whose decision would be final. The tribunal may continue with the arbitration notwithstanding the appeal being pending.

 

c. Limitations for Preliminary Objections before the Tribunal

 

Article 20 sets out a deadline for submitting a plea for the lack of jurisdiction of the Arbitral Tribunal on the following grounds:

 

i. A defence that the tribunal has no jurisdiction has to be submitted not later than the  time fixed for the respondent to submit his statement of defense.

 

ii. A defence that the matters raised by the other party are outside the scope of the arbitration agreement has to be asserted immediately upon such matters being raised in the arbitration by the other party.

 

These limitations may be waived by the tribunal, provided reasonable justification for delay is provided by a party.

 

Article 25 provides that a party who continues to participate in an arbitration, without objection notwithstanding being aware of violation of the arbitration agreement or the law will be presumed to have waived his right to subsequently rely on such violation. Such an objection must be made within any agreed time limit, or in the absence of an agreed time limit, within seven days from the date of becoming aware of such violation. The provisions of Article 25 do not apply where matters of public policy are concerned.

 

d. Interim Awards and Supporting Orders

 

The new law has the welcome addition of specifically recognising interim or partial awards and provisional measures granted by an arbitral tribunal which would facilitate emergency arbitrations and interim awards in the nature of injunctions available under certain institutional rules (e.g. ICC Rules and DIFC-LCIA Rules). Article 21 sets out provisional awards that may be issued by the tribunal:

 

a) Awards preserving evidence that is likely to be essential in the dispute resolution.

 

b) Awards to take the necessary measures to protect the goods that constitute a part of the dispute subject matter (e.g. to deposit goods with a third party, to sell damageable goods).

 

c) Awards to preserve the assets by which a subsequent decision may be implemented.

 

d) Awards to preserve the situation as it is (i.e. maintain status quo) or to be resorted to its previous position until a decision on the dispute.

 

e) Awards to take appropriate measures to prevent a current or imminent damage or a prejudice to the arbitration proceedings, or abstention from any act that may cause damage or prejudice to arbitration.

 

Such awards will now be enforceable through court and will have the effectiveness of a court order, once recognised. Article 21 of the new law further allows a party issued with a provisional measure to request a court to order the execution of such a measure.

 

An arbitral tribunal on its own accord or upon the request of either party is empowered to apply for a court order to obtain any evidence it requires, including the ability to compel a witness to give evidence and produce documents. While similar powers are given to arbitrators under Article 209 of the Civil Procedure Code, the new law does not require that the arbitration proceedings be suspended until such an order is obtained from court as presently required under Article 209.

 

e. Awards

 

Absent an agreement between the parties on the length of an arbitration, the new law (as is the position under the Civil Procedure Code) sets a time limit of six months from the date of the first hearing for the issuance of an award, with the arbitral tribunal having been given the power to extend the deadline for up to a further six months. Article 42(1) suggests that the parties may agree to an extension of more than six months. Article 42 of the new law provides that any extension of time beyond this period needs to be by way of a court order. Many existing arbitration rules provide that the administering institution has the power to extend the deadline for an award. Examples of such provisions are found in the DIAC Rules and the DIFC-LCIA Rules as well as the ICC Rules of arbitration. How the provisions of the new law will interact with such provisions (particularly the DIAC Rules, which are issued by Decree of the Ruler) will have to be seen.

 

A party may also apply for a court order terminating the arbitration proceedings in the event the arbitration award is not issued within the requisite time period. In the event of such termination, either party may file a case before a competent court to rehear the dispute.

 

Article 212(4) of the Civil Procedure Code required an award to be issued in the UAE, failing which the award will be treated as a foreign award. This requirement is commonly interpreted to mean that the arbitrators must sign the award in the UAE. However, Article 41 of the new law dispenses with this requirement and recognises that domestic arbitration awards may be signed outside of the place of arbitration and may even be signed electronically.

 

f. Challenges to Arbitration Awards

 

Article 53 of the new law provides that an arbitration award may be nullified on the following grounds:

 

a) Where no arbitration agreement exists, or if the arbitration agreement is void, or the time limit for rendering the award has expired.

 

b) Where one of the parties at the time of entering into the arbitral agreement was a minor or lacked capacity pursuant to the law governing his capacity.

 

c) If one of the parties to the arbitration was unable to present a defence because such party was not properly notified of the appointment of an arbitrator or of the arbitral proceedings, etc.

 

d) If the arbitral award discarded the application of the law agreed to by the parties on the subject matter of the dispute.

 

e) If the composition of the arbitral tribunal or the appointment of the arbitrators has occurred in a manner contrary to the law or the agreement of the parties.

 

f)  If the arbitral proceedings “are tainted by nullity” affecting the arbitral award.

 

g) If the award contains decisions on matters not included in the arbitration agreement or beyond the scope of such agreement (any portion of the award separable from the rest which comes within the scope of the agreement may be held valid).

 

These grounds appear to be a restatement of the present grounds set out in Article 216 of the Civil Procedure Code in more detail and increased scope.  These provisions also mirror the grounds for refusal to enforce an arbitral award as recognised by the New York Convention with the exception of the ability to refuse recognition on the basis that the award may not yet have become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made- a recognised ground under the New York Convention.

 

The new law requires that a court execute a ratified arbitral award unless it finds a cause for nullity as set out above. An execution can be stayed only by a decision of court.

 

Article 54 provides that if a party wishes to annul or set aside an arbitration award, it should commence court proceedings for an order of nullification within thirty days of receiving the award.

 

In circumstances where proceedings have been filed for the nullification of an award, Article 54 of the new law provides that the judgment of such an action shall be appealable only by way of cassation. ■

 

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The foregoing is only a preliminary view on some of the features of the new arbitration law, which will come into effect in 30 days of being published in the gazette. Afridi & Angell will be releasing a more in-depth commentary shortly.

The end of the Iran deal?

The French, German and British governments have been in talks with the United States with respect to the Iran nuclear deal (Joint Comprehensive Plan of Action or JCPOA) for many months. Even though the United States agreed to the deal in 2015, the new administration in Washington has expressed serious concerns about certain aspects of the deal and has decided to withdraw from the Iran nuclear deal.

 

US Secondary Sanctions

 

The US government has stated, in light of its withdrawal, that it will reimpose certain US secondary sanctions with respect to Iran on August 6, 2018, with any remaining US secondary sanctions to be reimposed by November 4, 2018 (secondary sanctions are sanctions applicable to non-US persons).

 

No United Nations Sanctions

 

Such withdrawal by the US is a repudiation of the JCPOA. The US could have followed another course of action that would impose United Nations sanctions under the JCPOA without repudiating it. The JCPOA contains “snap-back” provisions that would allow signatories to reimpose United Nations sanctions against Iran. However, in this regard, the JCPOA requires that the International Atomic Energy Agency (IAEA) certify that Iran is not in compliance with its obligations, but the IAEA has repeatedly confirmed that Iran is in compliance. Nevertheless, the US could have elected to continue to waive US secondary sanctions (hence continuing to comply with the US’s obligations under the JCPOA) and instead invoked the Dispute Resolution Mechanism under the JCPOA if the US believed that Iran was not meeting its commitments under the JCPOA. The Dispute Resolution Mechanism would ultimately culminate in a UN Security Council vote to continue to waive UN sanctions. If such vote is not unanimous (i.e. the US does not vote in favour), then UN sanctions would be reimposed. Unlike the unilateral US sanctions, the UN sanctions would be global in applicability.

 

However, the US chose not to follow such path. As a result, US secondary sanctions will snap back on the dates discussed above and not the United Nations sanctions.

 

Consequences

 

The effect of such US secondary sanctions will be a further significant chilling of foreign business with and foreign direct investment in Iran. This will be in addition to the already existing reluctance/avoidance by international banks and most regional banks to facilitate Iran business. This is primarily due to US sanctions laws and the increased internal compliance scrutiny that a bank may be subject to if it facilitates Iran business.

 

Path Forward?

 

Given all of these impediments, the path to doing business in Iran may look like a dead-end. However, when US secondary sanctions are unilaterally reimposed by the US, regional banks with no exposure to the US market might still decide to continue to offer Iran related services. Also, companies with no presence or business in the United States might continue to pursue Iran business. Nevertheless, it is still a daunting business proposition: business in Iran will result in blacklisting of companies from doing business in or with the US or its banking system.

 

Indeed, reports suggest that the European Union, Russian and Chinese governments have prepared contingency plans to support companies. For example, there is consideration of extending non-dollar lines of credit and credit guarantees to preserve as much of the deal as possible. Also, the European Union is being asked to pass laws to protect European firms from US secondary sanctions. However, the reality is that no country can completely shield businesses and investments in Iran given the US pullout.■

Legal reforms in Abu Dhabi

Abu Dhabi has introduced new rules governing the functioning of the Emirate’s judiciary. The new rules appear in Abu Dhabi Law 13 of 2018, which amends Abu Dhabi Law 23 of 2006 on the Abu Dhabi Judicial Department.

 

The new provisions largely address internal matters related to the functioning of the courts, such as the composition of panels of the courts and the accountability of judges. But two features could be of more general interest.

 

First, the Chairman of the Judicial Department is accorded the power to establish specialised courts. This would be a major advance, as the need for specialised courts (such as maritime courts) has long been recognised. Moreover, the existence of specialised courts is expressly contemplated by other recently enacted statutes, such as the Federal Bankruptcy Law. The Chairman of the Judicial Department may determine the competence of the specialised courts, and may establish Departments of First Instance, Departments of Appeal and Departments of Enforcement in such specialised courts.

 

Second, a formal procedure has been introduced for the overruling of precedents. The new provisions introduce a General Assembly of the Abu Dhabi Court of Cassation comprised of all of the Court’s judges and having general administrative authority for the functioning of the Court. Two panels, each composed of nine judges, are formed within the General Assembly, each headed by the Chairman of the Court or another senior judge. One panel is specialised in criminal matters and the other in civil, commercial, personal status and other matters.

 

If a panel of the Court of Cassation, while considering a case, wishes to consider overruling a legal precedent established by previous judgments, or wishes to pronounce on an issue on which contradictory principles were previously articulated in the Court’s judgments, then it must refer the matter to the Chairman of the Court for presentation to the competent panel of the General Assembly. A decision to overrule a legal precedent would require an affirmative vote of at least six members. The Chairman of the Court, if he considers the same appropriate, may present the matter to both panels sitting en banc, in which case a decision to overrule the precedent would require an affirmative vote of 13 members.

 

The amendments also reduce the size of the panels of the Abu Dhabi Court of Cassation that consider disputes before the Court, from five judges to three. ■