Category: inBriefs

Introducing the Dubai World Trade Centre free zone

In May 2015, a new free zone in Dubai, Dubai World Trade Centre (“DWTC”) and the “DWTC Authority” were established under Dubai Law No. 9 of 2015. DWTC’s stated objective is to provide services in the form of conferences and exhibitions as well as world-class hospitality and facilities management in a wide selection of venues. It has been reported that Schlumberger was the first company to be licensed under the new free zone, acquiring 5,762 square meters in the office building in Dubai Trade Centre District (“DTCD”).

 

Establishing a Company

 

The newly established free zone will follow the model of most other free zones in Dubai. It will incorporate branches of local companies; branches of foreign companies; single shareholder free zone establishments (FZEs) and multiple shareholder free zone companies (FZCOs). The minimum capital required will be AED 300,000.

 

The activities list available for companies in DWTC consists of three broad categories which are: (i) Trading; (ii) Services; and (iii) Events. The Events license includes activities such as organizing meetings, conferences and exhibitions. Each of the three broad license categories contains a prescribed list of activities which are accepted by the free zone. The DWTC appears to be following the example of the Dubai World Central free zone in that it will adhere to the Dubai Department of Economic Development’s activity list for licensed activities (albeit a restricted list).

 

The DWTC Company Regulations were established in September along with the DWTC Rules and Regulations. DWTC incorporated its first company at the beginning of November 2015 and it has office space which is ready to lease immediately. It has been reported that pre-letting of the office buildings in DTCD is already 70 percent.

 

Why choose DWTC?

 

One of the most attractive features of DWTC is its prime location. Sheikh Rashid Tower was built in 1979 and is one of the best known landmarks in Dubai. Located close to Downtown and the DIFC, DWTC is in an enviable central location which will surely be a deciding factor for many companies assessing which free zone is right for them. Another feature of DWTC is the facilities it offers, ranging from residential units, corporate units, exhibition halls and the Trade Centre Arena.

 

DWTC is still in its very early stages and we are looking forward to seeing how it develops and how it is embraced by the Dubai business community. Every indication is that it will be a popular and successful new venture. We will provide updates as it progresses further.

 

Please don’t hesitate to contact us if you would like to explore the possibility of establishing an entity in DWTC. ■

New labour regulations take effect January 1, 2016

A number of recently announced initiatives could introduce potentially significant changes to the rules governing the workforce in the UAE.

 

Earlier this year, the Ministry of Labour promulgated Ministerial Resolutions Nos. 764, 765 and 766 of 2015. According to the reports of Ministry of Labour spokesmen that appeared in the local press, the new resolutions were designed to deter a number of undesirable practices. Chief among these was the practice by recruiters of luring potential employees to the UAE with attractive job offers, only to change the terms of employment when the new recruits arrive.

 

Specifically, Ministerial Resolution No. 764 of 2015 requires that an employee sign an offer letter in advance of being recruited and that the signed offer letter support the application for the employee’s residence visa and labour permit – an application that the employer must submit to the concerned authorities in the UAE. A signed offer letter must also support an application to hire a new employee from the local labour market.

 

The new Resolution not only ensures that the employment contract will be consistent with the original offer letter. It also ensures that the employment contract must be followed in all respects. As regards employers that maintain collateral agreements, the Resolution provides that, “No new clauses may be added to the stated contract unless they are consistent and comply with the Ministry’s legal requirements, do not conflict with other clauses of the standard contract and are approved by the Ministry.”

 

Of course, many employers use international employment contracts and detailed HR policies to supplement the brief standard employment contracts that are required by the Ministry of Labour. Provisions in such collateral documents that are inconsistent with the official registered contract would be unenforceable. It could now be the case that such collateral terms will be unenforceable if they are not approved in advance by the Ministry of Labour.

 

Resolutions Nos. 765 and 766 facilitate the transfer of employees within the UAE. They do this by providing, in Resolution 765, clear criteria as to when the authorities may deem an employment relationship to have ended. Ending an existing employment relationship is a pre-requisite to allowing an employee to seek work with another employer. Of course, most employment relationships end with the routine cancellation of an employee’s labour permit and residence visa, a process that is not disturbed by the new resolutions.

 

Specifically, Resolution No. 765 provides that the employment relationship ends if:

 

  • The employer misses payroll for 60 days or otherwise fails to meet its contractual and legal obligations to its employees.

 

  • The employer becomes inactive, provided that this is verified by a labour inspection and provided further that the employee reports the same to the Ministry.

 

  • The employee files a labour complaint with the Ministry, which is referred to court, which in turn pronounces a final ruling in favor of the employee awarding the employee no less than two months’ salary, or indemnification for arbitrary or early termination, or other benefits denied by the employer, or end of service gratuity.

 

Resolution 766 addresses the conditions under which an employee may transfer from one employer to another. It was previously the rule (with limited exceptions) that an employee would have to complete 12 months of service with an employer before he would be eligible to transfer to another employer. This general provision has now been reduced to six months.

 

Other initiatives also have an impact on the labour market. A Federal Law enacted this year, Federal Decree-Law No. 2 of 2015, is designed to criminalize acts of discrimination and hatred. Although not expressly directed at the workplace, this would apparently criminalize discriminatory hiring practices, if they were based on distinctions of religion, creed, doctrine, sect, caste, race, color or ethnic origin.

 

As a final matter, the requirement for employer provided medical insurance coverage is being introduced in phases in the Emirate of Dubai. Coverage was imposed on employers with more than 1000 employees in 2014, and employers with between 100 and 1000 employees in 2015. All other employers will be subjected to the same requirement by the end of June 2016. ■

Do I need a DIFC will?

The Wills and Probate Registry in the Dubai International Financial Centre (the “Registry”) opened in late April of this year. It is now possible to register a will in Dubai, and to have a high degree of confidence that it will be enforced in accordance with its terms. Prior to the establishment of the Registry, it hadn’t been possible to be so confident that foreign wills would be enforced in the United Arab Emirates. There were concerns that Shari’a law would be applied to the estates of non-Muslims, particularly with respect to real property (land and buildings).

 

In summary therefore, the establishment of the Registry is a welcome initiative, and if you have assets in Dubai then you should almost certainly register a will with the Registry.

 

A few points to note right from the beginning: firstly, only non-Muslims may lodge their wills with the Registry. At the time of registering the will the testator (the person making the will) must confirm that they are not a Muslim, nor have ever been a Muslim. If this confirmation is later proved to be inaccurate then the will becomes void. Secondly, testators must be at least 22 years old. Thirdly, the will can only relate to assets in the Emirate of Dubai. Finally, the value of the Dubai assets must be balanced with the costs of using the Registry. There are a number of fees payable, some reasonably significant for many people. (The cost of registering a will is currently AED 10,000.)

 

Prior to the introduction of the Registry, a multitude of approaches were taken in respect to estate planning by Dubai residents. Many people, of various faiths, made no will at all. For those people who were aware of the applicable inheritance and intestacy rules, this was (and continues to be) a perfectly sensible choice. If your family structure is straightforward, and you understand and are comfortable with how your assets will be distributed where there is no will, then there is no reason to make one.

 

Historically, a variety of solutions were offered to those people who were not sure how their assets would be treated if there was no will, and who wished to create one. Some were told that it was necessary to register a Dubai will with a local notary. Others were told to make a will in their home country, have it translated into Arabic, and then registered locally. Others were told that it was sufficient to sign the will and have it witnessed by a staff member at their home country consulate in Dubai. In short, there was no consensus as to the most appropriate method of creating a will in the UAE, or of ensuring that it would be enforced in accordance with its terms.

 

The DIFC Registry seeks to resolve these concerns. Wills are reviewed by Registry staff prior to being accepted for registration. This review is anticipated to prevent the registration of wills with blatantly unacceptable terms (ie “. . . and finally, I leave the balance of my estate for the funding of international terrorism, and general crimes against the state”). More significantly, the review ensures that the will formalities are properly attended to (that the will is correctly witnessed, and so forth).

 

Once registered, the intention is that the terms of the will can be given effect to by the DIFC Court if necessary. Decisions of the DIFC Court must, as a matter of UAE law, be enforced by the Dubai Courts. It is then anticipated that other relevant Dubai governmental entities (such as the Economic Department in respect of assets such as company shares, or the Lands Department in respect of real property) would automatically abide by orders issued by the Dubai Courts (or even by the DIFC Court directly).

 

This process appears robust, but a small note of caution must be sounded. This is a new, and so far untested, system. It remains to be seen whether the relevant government departments will indeed recognize DIFC wills. We anticipate that this point will be resolved relatively soon, as there appears to be a significant number of individuals eager to make use of the Registry. Furthermore, we have no reason to believe that the system will not work as it should. On that basis, we welcome this beneficial addition to the legal landscape of the Emirate of Dubai. ■

 

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Afridi & Angell can assist with the drafting and registration of DIFC wills. Please contact Stuart Walker if you wish to arrange an appointment to discuss any of the issues mentioned in this note.

DFSA imposes record fine on Deutsche Bank

At the end of March 2015 the Dubai Financial Services Authority (the “DFSA”) imposed its largest fine to date on Deutsche Bank AG Dubai (DIFC Branch) (“Deutsche Bank”). The size of the fine, US$10.5 million, is perhaps modest when compared to the recent GBP 126 million (US$189 million) fine handed to Bank of New York Mellon by the UK regulator, but it is significant in the context of the DIFC, particularly when you appreciate that Deutsche Bank is one of the larger and more important financial institutions in the Centre. The fine sends a clear signal that the DFSA is both independent, and unafraid of taking on sophisticated and well-resourced opponents.

 

The fine is also a reminder that a cover up can often be worse than the initial crime. Sources close to the DFSA have confirmed that the regulator is unlikely to have taken any formal action against Deutsche Bank if the bank had disclosed its initial breach in a timely manner. As is made very clear in the Decision Notice published on the DFSA website, the bulk of the fine is based upon the fact that Deutsche Bank not only failed to cooperate with the DFSA investigation, but also actively mislead the DFSA and provided false information to the regulator.

 

During a three-year period beginning in January 2011, Deutsche Bank operated in a manner that was contrary to certain provisions of the DFSA Rulebook. The bank’s private wealth management team in the DIFC was providing some advisory services to high-net-worth individuals without documenting these individuals as clients of the DIFC branch. In summary, Deutsche Bank is authorized by the DFSA to provide the financial services of, amongst others, arranging and advising. This was the case during the relevant period, and continues to date. Also, there is no suggestion that the advisory services provided were anything other than competent and professional. The investigation found that there was no evidence of financial detriment to the bank’s clients. Furthermore, this does not seem to be a case of rogue individuals inside the bank improperly chasing bonuses or commissions.

 

The only thing Deutsche Bank did wrong (at least initially) was to fail to document high-net-worth individuals as clients of the DIFC branch. The business model that the bank was meant to be following was for the individuals to be referred by the DIFC branch to other parts of the Deutsche Bank group (including but not limited to branches in Geneva and Luxembourg). This was being done (and the clients properly documented in those booking centres) but the DIFC private wealth management team continued to be in touch with the clients, and therefore provided the previously mentioned advisory services. If they had simply issued a DIFC client agreement, and complied with the standard DIFC KYC and AML procedures, all would have been well. Unfortunately, this did not happen, and the DFSA became aware that Deutsche Bank might have been uncompliant in these areas.

 

It was at this point that the senior management within Deutsche Bank made some startling errors of judgment. Amongst other things, false and misleading emails and letters were sent to the DFSA by the bank’s compliance team. Internal reports about possible breaches of the DFSA Rulebook were suppressed. Bank employees were encouraged to amend internal reports to remove references to regulatory breaches. The bank then refused to comply with a DFSA notice requiring the production of various documents. This then compelled the DFSA to seek a DIFC court order to enforce the notice.

 

The DFSA’s investigation into the breaches at Deutsche Bank took two-and-a-half years to resolve. The final six months were apparently spent negotiating the wording of the published Decision Notice. The bank obtained a 20 percent discount on the total amount of the fine by agreeing not to appeal or otherwise contest the fine. Unlike many of the other notices or undertakings published by the regulator in other matters, no specific names are mentioned in the Deutsche Bank notice. The blushes of the relevant people at Deutsche Bank have therefore been spared. Nonetheless, this must have been an embarrassing episode for the bank, and something of a success for the DFSA. ■

Free zones in the UAE – an overview

Strategically located between Europe, Africa and Asia, the United Arab Emirates (the “UAE”) has become a hub for trade and commerce throughout the world. In order to further encourage foreign investment, more than 20 free zones have been established across Dubai and focus on a wide range of business sectors, ranging from manufacturing to technology. Free zones offer a number of advantages to foreign businesses, including zero taxation, repatriation of profits and 100% foreign ownership. It is important to note that each free zone has its own bureaucracy along with unique regulations and costs. We are often asked by our clients which free zone they should incorporate in, and the following provides a brief overview of several free zones located in Dubai, and identifies a number of factors a potential investor may wish to consider when making their choice. The factors that drive the selection of a free zone tend to relate to the nature of the business to be carried on, cost of formation, administrative ease or difficulty, and location.

 

Established in 1985, Jebel Ali (“JAFZA”) is the oldest free zone in the UAE. JAFZA has one of the world’s largest shipping container ports, and is home to many industrial and trading companies utilizing the port. JAFZA recently revised its capital requirements for onshore companies and instead of requiring minimum capital deposits ranging from AED 500,000 – AED 1,000,000, JAFZA will determine the required capital on a case-by-case basis. Generally the minimum capital requirement is equal to the first year operating expenses as estimated by the JAFZA sales team. Office space is required for the formation of an onshore company and the lease or purchase thereof is often one of the largest expenses associated with the establishment of the company.

 

JAFZA is currently in the process of opening a new business complex named JAFZA One, which will provide companies seeking to incorporate in JAFZA with so-called “virtual office” options, which are far more affordable. JAFZA also allows for the formation of offshore companies, which have no physical presence in the UAE and accordingly do not lease space, but instead require the appointment of a Registered Agent. A Registered Agent provides a mailing address for service in the UAE and may also provide minimal administrative functions for the offshore company, and has no ownership or management interest. The minimum capital requirement for offshore companies is AED 1 and only one class of shares is permitted. Offshore companies can open current accounts with certain banks in the UAE, but cannot carry on active businesses and as such cannot sponsor UAE residency visas. JAFZA offshore companies are typically used by non-nationals as holding companies.

 

The Dubai International Financial Centre (the “DIFC”) is a financial services free zone based on common law principles. Established in Dubai’s financial district in 2004, the DIFC was created to attract international financial firms with the objective of elevating Dubai’s position as a global hub with access to the emerging markets of the Middle East, Africa and South Asia.

 

Formation, licensing and other fees are generally higher in the DIFC but it provides a level of regulation and international credibility not found in other free zones. The Dubai Financial Services Authority (the “DFSA”) regulates financial services companies to a standard comparable to western financial regulators, and all DIFC entities are subject to privacy and data protection regulations in line with international standards. The DIFC also offers its own judicial system based on common law, and apart from hearing matters specifically related to DIFC companies, the DIFC Courts can also hear civil or commercial actions from outside the DIFC (including outside the UAE) if the parties have contractually agreed. Given the relatively high cost and administrative effort of establishing a DIFC entity, this free zone is generally chosen for specific business purposes rather than simply achieving 100 percent foreign ownership. Dubai Silicon Oasis (“DSO”) is a free zone focusing on technology-based industries, with specific incentives aimed at entrepreneurs and start-ups. While being located outside of the city centre, DSO provides access to a strong network of technology-focused venture capitalists as well as providing incubation inducements. Formation and licensing fees are competitive at DSO and office space is required with a minimum annual rent of AED 85,000.

 

The Dubai Airport Free Zone (“DAFZA”) offers a strategic advantage to freight and logistics companies as it is attached to Terminal 2 of the Dubai International Airport. DAFZA offers a variety of options for space, ranging from part-time desks to insulated industrial units. Formation and licensing fees are slightly higher than other free zones, but the required minimum share capital is competitive at AED 1,000. DAFZA’s administration is relatively easy to deal with.

 

Dubai Multi-Commodities Centre (“DMCC”) was created in 2002 to enhance commodity trade flow through the emirate. Dubai is among the top three trading hubs in the world for gold, tea and diamonds. DMCC is popular in part because it is centrally located in a popular district of Dubai with relatively attractive office premises available. DMCC is an attractive free zone for numerous industries in addition to commodities traders, including recruitment, information technology and advertising. Formation, licensing and office rental fees are higher than average, owing to DMCC’s desirable location.

 

Dubai World Central (“DWC”) is one of the newest free zones in the UAE and formation and licensing fees are competitive. Located between JAFZA and Al Maktoum International Airport (removed from the conventional Dubai city limits), DWC focuses on the aviation industry, including related logistics, commercial and residential projects and light industry in general, although other business categories are welcome as well. It is too soon to tell whether DWC will be a popular free zone, as it is undergoing constant administrative change and unpredictability of service while it matures.

 

Free zones are not unique to Dubai, and other emirates including Abu Dhabi, Ras Al Khaimah and Sharjah offer attractive options for foreign businesses. These free zones offer some competitive advantages compared to Dubai’s free zones, such as lower licensing fees and office rental costs. It should be noted that setting up a company in these emirates can create logistical hurdles. A company registered in a free zone outside of Dubai cannot lease space, sponsor Dubai visas or operate in Dubai. When the primary purpose of incorporation is attaining a UAE residency visa, forming a company in these free zones may be the most expeditious option.

 

While the UAE’s free zones offer many attractive features for investors, it is important to be aware that free zone companies are not permitted to carry on business outside of the physical boundaries of the relevant free zone. For businesses that intend to service or supply the Dubai market, a free zone company may not be an appropriate vehicle depending on the nature of the business, so it is critical to consider this carefully prior to incorporation. ■

UAE Competition Law – All bark and no bite?

Federal Law No. 4 of 2012 on the regulation of competition (the “Competition Law”) introduced a regime for the regulation of anti-competitive behavior in the UAE which previously did not exist. If implemented strictly its effects would be very significant on UAE business. The Competition Law came into force on 23 February 2013 and introduces merger/acquisition clearance requirements, prohibitions against anti-competitive agreements and activities which constitute abuse of a dominant position, as well as some anti-competitive trade practices. The six month transition period allowing entities to become compliant with the Competition Law expired on 23 August 2013.

 

To date, the Competition Law has not been enforced in practice even moderately. One reason for this is that the Competition Law left key details to be set out in regulations that were to follow. The anticipated regulations have recently been issued but, disappointingly, they do not provide the clarity that was needed. Nonetheless, compliance with the Competition Law is (ostensibly) mandatory as it is a current, valid UAE law. With the recent issuance of the regulations it is foreseeable that this law could start to enjoy some level of enforcement. It is worth noting that, while the newly issued regulations do not provide a great deal of clarity on some key points under the Competition Law, they do set out a mechanism for making complaints against parties allegedly in breach of the Competition Law and the Ministry of Economy’s duty to investigate once a complaint is accepted.

 

Scope of Application

 

The Competition Law applies to all entities undertaking commercial activities in the UAE and to entities operating outside the UAE but whose activities affect competition inside the UAE.

 

Certain types of entities and industry sectors are expressly exempted. These include:

 

  • federal and local government entities and entities owned or controlled by federal or emirate governments;

 

  • small and medium size entities (not defined in the Competition Law or the regulations); and

 

  • entities operating in telecoms; financial services; pharmaceutical production and distribution; cultural activities; oil and gas; postal services including express delivery; electricity and water production and distribution; sewage and waste disposal; transportation and railway.

 

Prohibitions

 

The Competition Law requires that entities seek merger clearance from the UAE Ministry of Economy if they are contemplating a transaction that:

 

  • will result in the acquisition of a direct or indirect, total or partial interest or benefit in assets, equity, and/or obligations of another entity to which the Competition Law applies;

 

  • will create or promote a dominant position; and/or

 

  • may affect the level of competition in the relevant market.

In addition, the Competition Law prohibits entities from entering into agreements or arrangements (these terms should be construed very broadly) the aim, object or effect of which is to restrict competition. This includes, amongst other things, agreements or arrangements which directly or indirectly fix purchase or selling prices, grant exclusivity with respect to products or geography or other market division (other than through registered commercial agencies), and agreements or arrangements which involve collusion in bids and tenders. These restrictions would impact many distribution agreements in the UAE.

 

The Competition Law provides for potentially far-reaching penalties in the event of violation. These penalties include:

 

  • fines of between AED 500,000 and AED 5 million for entering into restrictive agreements or abusing market dominance; and

 

  • fines of between 2% to 5% of the infringing entity’s annual revenue derived from the sale of the relevant goods and services in the UAE for a failure to notify a transaction which is required to be notified pursuant to the Competition Law.

 

In addition, an entity violating the provisions of the Competition Law exposes itself to possible criminal sanctions.

 

Exemptions

 

The Competition Law allows for entities to seek an exemption to the Competition Law from the UAE Ministry of Economy. The procedure for seeking such an exemption is set out in the regulations to the Competition Law. It involves a written application seeking an exemption for a transaction. The entity seeking the exemption must provide copies of its constitutive documents and financial statements (for the last two financial years). In addition, it must submit an economic rationale for the transaction and its reasons for requesting the exemption. All documents submitted must be in Arabic, but may be accompanied by an English translation. The Ministry of Economy must respond to such a request within 90 days, but may extend this period by a further 45 days. In the event that no response is received within this time frame, approval is deemed to have been given.

 

Implications

 

Compliance with the Competition Law is now mandatory. Accordingly, businesses must consider the effect of the Competition law on their business. It remains to be seen how the UAE Ministry of Economy will interpret or enforce the Competition Law or the implementing regulations. As a minimum, the Competition Law and its potential effects need to be considered by any business operating commercially in the UAE or which intend to acquire a UAE business. ■

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. ■

New Dubai rent Settlement Disputes Center

His Highness Sheikh Mohammed Bin Rashid Al Maktoum, UAE Vice President, Prime Minister and Ruler of Dubai, recently issued Decree 26 of 2013 concerning the formation of the Dubai Rent Dispute Settlement Center (“the Center”).

 

The Decree comes at a time of increasing economic activity and rising rents. The main aim of the Decree is to implement a judicial system specialized in dealing with rental disputes quickly and simply.

 

Rental Disputes

 

The Center shall deal with and hear disputes related to all landlord-tenant disputes including in free zones (but not including: free zones with committees or courts that deal with rental disputes; finance lease contract disputes; or 99 year lease disputes). The Center is to be chaired by His Excellency Judge Abdul-Qader Mousa and staffed by lawyers and administrative staff.

 

Reconciliation

 

A Reconciliation Department shall attempt to amicably settle rental disputes within 15 days from the date of the parties’ appearance before the Reconciliation Department.

 

First Instance and Appeal Departments

 

If reconciliation is not successful, a rental dispute shall be determined by the First Instance Department which shall consist of committees each consisting of a chairman (who must be a judge or legal expert), and two members with sufficient experience and competence in law and real estate.

 

All members of a committee must be in attendance for a valid meeting and a decision by at least a majority (2/3) of the committee members is required. A committee shall decide a rental dispute within 30 days from the date of the file being referred to it.

 

Decisions of the First Instance Department may be appealed to the Appeal Department so long as the amount of the rental dispute is more than or equal to AED 100,000. Disputes regarding amounts of less than AED 100,000 generally cannot be appealed except in specific circumstances. An appeal must be filed within 15 days of the day following the issuance of the First Instance Department’s decision.

 

Execution

 

All final decisions of the Center shall be executed by the Execution Department that is affiliated with the Center, which can be the Execution Department of the Dubai Courts.

 

Cost and Charges

 

The costs and charges of the Center shall be determined by resolution of the Chairman of the Executive Council of the Emirate of Dubai. Until such resolution, the costs and charges of the Rent Committee of the Dubai Municipality shall apply.

 

The Center Replacing the Rent Committee

 

The Center shall hear and decide all claims that are presently before the Rent Committee unless such claims are set for judgment. The Rent Committee shall cease to exist and all employees of the Rent Committee shall be transferred to the Land Department. ■

 

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Afridi & Angell – Our Real Estate Services

 

Afridi & Angell is one of the most prominent law firms in the region, having been established almost 40 years ago. The firm provides comprehensive legal advice in corporate, commercial, real estate and banking law as well as dispute resolution. The firm’s real estate lawyers provide catered strategic advice, and innovative legal solutions and services for the sale, purchase, leasing and development of real estate (including jointly owned property (strata) matters), as well as any related litigation and arbitration.

 

For more information, feel free to contact us. We welcome the opportunity to be of service.

 

Shahram Safai is a partner in the Dubai office of Afridi & Angell. He practices real estate, corporate and venture capital law. He is active in lobbying for and providing constructive feedback to government organizations regarding regional laws and regulations pertaining to real estate, investments and corporate governance. Shahram is qualified as a solicitor in England and Wales and is a member of the California State Bar. 

 

The content, comments and opinions included in this document are intended solely for information purposes. They should not be regarded or relied upon as legal advice.