Tag: Dispute Resolution

Corporate Criminal Liability in the UAE and the Duty to Report Crime

Introduction

 

Recent years have seen the UAE making regular updates to its laws in order to guarantee a legal regime that is forward-looking, and consistent with international standards and principles. The leaders of the UAE have been particularly cognizant of the need to have a robust criminal law regime to encourage legitimacy in business, and dissuade any unscrupulous activities that could reflect negatively on the UAE as a determined and fast-developing economy. This is especially true of Dubai, whose ruler, HH Sheikh Mohammed bin Rashid Al Maktoum, recently unveiled plans to catapult Dubai into the top three cities by economic strength by 2033, and to place it within the top four global financial centres.

 

In such circumstances, it is particularly important for companies based in and operating out of the UAE to stay abreast of legislation which penalises criminal conduct of directors, employees and other representatives. Crimes that are more relevant for corporate entities would be fraud, bribery, forgery, and money laundering.

 

Brief overview of the criminal justice system 

 

All laws in the UAE are codified, and there is no system of stare decisis or binding precedent, as understood in a common law jurisdiction, that is followed. Consequently, each case is decided on its own merits, though previous decisions may serve as useful guide and have some persuasive effect on the courts.

 

The principle that no one shall be punished for any act which did not constitute a criminal offence under the law at the time when it was committed is safeguarded in Article 27 of the Federal Constitution which states that ‘[l]aw shall define crime and penalties. [n]o penalty shall be inflicted for any act performed or abandoned before the enactment of the law stipulating it.’

 

Additionally, although the UAE law has not expressly recognised traditional common law standards of proof such as the balance of probabilities test in civil claims, or the beyond reasonable doubt standard for criminal matters, the courts in their decisions have consistently reiterated that allegations in criminal cases must be proven to a degree that leaves no reasonable doubt.

 

In terms of the Criminal Procedure Code, the public prosecution has exclusive jurisdiction to lodge and pursue criminal cases, excluding cases otherwise specified by law.  Cases relating to any criminal offence will generally be filed and prosecuted by the public prosecution before the criminal courts of first instance (save for example, certain crimes involving national security which will be heard directly by the Union Supreme Court). In practice, when presented with complex crimes or crimes which heavily feature commercial aspects, the court will appoint an expert to conduct an inquiry and submit a report to the court with findings and recommendations. More often than not, the courts adopt the view of the expert, unless there are serious errors which are evident on the face of the record.

 

Can companies in the UAE be held liable for criminal conduct of employees?

 

Juristic persons, including companies based in the UAE, can attract liability for offences committed by directors, employees and other agents. Federal Decree Law No. 32/2021 On Commercial Companies (the Companies Law) provides that companies shall be liable for damage caused due to unlawful acts committed by the company’s chairman and board members while managing the company. The Companies Law also provides for personal liability of board members and executive management of companies to the company, shareholders, and third parties, for acts of fraud and abuse of power.

 

Federal Decree Law No. 31/2021 on the Issuance of the Crimes and Penalties Law (the Penal Code) goes beyond the provisions of the Companies Law which appears to be limited to acts of the company chairman, board, and executive management. Article 66 of the Penal Code provides that juristic persons shall be criminally liable for crimes committed by their representatives, directors, or agents acting on their behalf or in their names. Although the law does not expressly mention “employees”, it is likely that a court in the UAE would interpret “representative” or “agent” to include an employee acting on behalf of the company. The provision clarified that juristic entities may only be sentences to a fine, confiscation and other penalties prescribed by law. Where the law provides for a principal penalty other than a fine, the penalty for juristic persons would be restricted to a fine not exceeding AED 5 million, unless otherwise provided by law.

 

Corporate criminal liability is also recognised under Federal Decree Law No. 20/2018 on Combating Money Laundering Crimes, the Financing of Terrorism and Financing of Unlawful Organisations (the Anti-Money Laundering Law), which states that the legal person can be criminally responsible for the crime if it is committed in its name or for its account intentionally.

 

While the position in some other jurisdictions is that only the criminal acts of a senior person representing the company’s controlling mind and will can incur liability on the company, the law of the UAE does not make such distinction. All that is required for a company to attract liability is for the individual concerned to have committed the criminal act in the company’s name or when acting on behalf of the company. As noted above, the courts are likely to interpret the provisions widely to include employees exercising some level of managerial powers and acting on behalf of the company. However, where an employee commits a criminal offence in the pursuance of some personal interest or agenda, the company will not be criminally liable.

 

Do companies have a duty to report crimes or suspicious transactions?

 

It is important to note that the Penal Code imposes a general duty on all persons who have knowledge of a crime to report it to the competent authorities, and failure to do so is a punishable offence. Where there is concern of potential money laundering, the Anti-Money Laundering Law imposes a specific duty on financial institutions and Designated Non-Financial Businesses and Professions (DNFBPs) who suspect, or have reasonable grounds to suspect, that a transaction or funds constitute proceeds of crime, to report to the Financial Intelligence Unit (FIU) of the Central Bank “without delay” and provide it with a detailed report including all data and information on such transaction and the connected parties. The Anti-Money Laundering Regulations define DNFBPs to include independent legal professionals and independent accountants. Article 251 of the Companies Law imposes a separate obligation on auditors of Public Joint Stock Companies to notify the Securities and Commodities Authority within 10 days of detecting any crime. Article 104 (1) of the Companies Law provides that the provisions on Joint Stock Companies apply to Limited Liability Companies (LLCs) to the extent they are consistent with their nature. Therefore, auditors of LLCs may also be bound by the obligation to report crimes under Article 251.

 

Is it still money laundering if the proceeds were obtained overseas?

 

The provisions of the Anti-Money Laundering Law apply where any person willfully does any of the acts mentioned under Article 2 (1) with proceeds or funds having knowledge that the proceeds or funds are the proceeds of a Predicate Offence. The law defines Predicate Offence as any act which constitutes a felony or misdemeanor under the UAE law, whether it is committed within the UAE or elsewhere, provided it is punishable in the State where it was committed as well as in the UAE.

 

When should a crime be reported?

 

The Penal Code is silent on the time-frame within which a crime must be reported. The Anti-Money Laundering Law only states that financial institutions and DNFBPs (which includes independent auditors) must report suspicious transactions to the FIU “without delay”, and does not specify any further.  On the other hand, the Companies Law requires company auditors to report any crime within 10 days of detecting the crime. Read with the Companies Law, it is likely that the duty imposed on independent auditors to report “without delay” under the Anti-Money Laundering Law means that the report must be made within 10 days or less.

 

It is also important to note that while the Penal Code and the Companies Law require crimes or violations of the law to be reported, the duty to report under the Anti-Money Laundering Law is much wider and requires the relevant persons to report upon suspicion. This is in keeping with the intention of the drafters of the Anti-Money Laundering Law, that is the strict deterrence of any money laundering activities in the UAE. ■

Litigation 2.0 – Significant changes in onshore litigation from January 2023

On 2 January 2023, three pieces of federal legislation came into effect which, if implemented as envisaged, will arguably make the most significant changes to litigation in the on-shore Dubai Courts since the UAE was established.

 

The three laws are:

  • Federal Decree Law 42/2022 on Civil Procedures (the CPC);
  • Federal Decree Law 35/2022 on Evidence in Civil and Commercial Transactions (the Evidence Law); and
  • Federal Decree Law 34/2022 on Regulating the Advocacy and Legal Consultancy Professions (the Advocacy and Legal Consultancy Law).

 

While there is plenty in the laws to interest practitioners, what follows is an overview of some of the more significant changes introduced by each of the laws from the perspective of litigants.

 

Federal Decree Law 42/2022 on Civil Procedures (the CPC)

 

Perhaps the most significant change introduced by the CPC, and certainly the one that has captured the public attention, is the provision for the creation of courts that will function in the English language. Strictly speaking, these courts have not yet been created, and Article 5(2) of the CPC provides that the President of the Federal Judicial Council or the head of the local judicial authority to establish courts which will hear disputes regarding (as yet unspecified) specialised matters. The importance of this development is difficult to understate, as parties not conversant in Arabic have long been apprehensive of proceedings which they are unable to comprehend without the assistance of translation. It will also help bring down the cost of litigation by eliminating the need to translate all documentary evidence into Arabic. It is worth noting that Abu Dhabi has had dual language (English-Arabic) courts in operation for a few years now.

 

Article 29 of the CPC does away with the distinction between plenary and small claims cases before the courts of first instance (an administrative decision based on the value of the claim), and all matters in the first instance will now be heard by a single judge, whose decision will be final if the claim value is under AED 50,000. Previously, courts of first instance were comprised of three judges for plenary claims. In a jurisdiction where dissenting opinions are rare, the constitution of single judge courts to hear cases of first instance should hopefully free up judicial resources to create more circuits to hear disputes more efficiently.

 

Article 32 makes provision for the creation of a new circuit to hear inheritance cases and civil, commercial or real estate disputes arising out of inheritance matters. Decisions of the court will not be subject to appeal, but may be the subject of petitions for reconsideration. This amendment likely reflects the recent growth of the UAE population, and the UAE’s increasing popularity as a jurisdiction to reside in for the longer term.

 

Continuing the trend of the amendments made to the old civil procedures law (notably including the 2019 regulations), the CPC contains provisions aimed at making litigation a faster process. Some examples include:

 

(a) Where parties overseas are required to be summoned through diplomatic channels, Article 11(2) provides that the parties are deemed to be summoned once 21 working days have passed from the UAE Ministry of Foreign Affairs making the request for service to the diplomatic mission of the foreign country in the UAE. The previous practice was to wait for confirmation of summons being served in the foreign jurisdiction, which caused significant delays. It should be noted that service through diplomatic channels is now a last resort, where summons through other means (e.g. electronic communication) have failed.

 

(b) The powers of the supervising judge of the case management offices have been enhanced to include issuing orders to appoint experts, hear witnesses, refer disputes to conciliation, or rule that claims have been waived or abandoned. Previously, these orders could only be issued by the court, which led to delays.

 

Major changes have been made to the appeals process. Appeals to the Court of Appeal formerly entailed a complete re-hearing of the dispute as a matter of course, but this will no longer necessarily be the case.

 

Article 167 provides that the Court of Appeal shall, within 20 working days of the appeal being referred to it by the case management office, make a decision on whether to dismiss the appeal or call for further submissions. It possible, therefore, that an appeal could be determined with only a single round of submissions made to the Court of Appeal. Consequently, as a practical matter, parties will be required to present comprehensive arguments, together with supporting evidence, with its first submission. For more details, please see our inBrief of 9 January 2023.

 

Article 178 requires appeals to the Court of Cassation to be made within 30 days, as opposed to 60 days as previously provided for. If a Cassation appellant makes an application for a stay of execution, Article 177(3) requires that it must be decided on within 15 days by the Court of Cassation, whereas previously there was no time limit.

 

Time limits applicable to execution proceedings have also been truncated. A judgment debtor now only has seven days within which to satisfy a judgment debt or object to its execution before the court makes orders for attachment of assets etc. This period used to be 15 days.

 

Federal Decree Law 35/2022 on Evidence in Civil and Commercial Transactions (the Evidence Law)

 

The changes made by the Evidence Law are equally important, perhaps more so, as they more likely to have a direct bearing on the outcome of cases.

 

Perhaps the most significant change is the one made through Article 35 which provides that, in commercial disputes, a party may seek production of documents from its opponent, provided that the document must be identified clearly (or as a clear category of documents), the document must relate to the underlying commercial transaction, and the production should not infringe trade secrets or related rights. The court may draw an adverse inference in the event a party refuses to produce documents. The limitations regarding document disclosure and production were often cited as a weakness in the onshore court system, and the position now under Article 35 (which will be quite familiar to common lawyers) ought to go some distance in redressing this weakness.

 

Article 5 of the Evidence Law requires the courts to give evidence to any rules of evidence that the parties may have agreed to in writing, unless it is contrary to public order.

 

There appears to be an emphasis on oral evidence in the new Evidence Law. Article 78 in particular contains detailed provisions on the examination and cross-examination of witnesses. It is also encouraging to see specific provisions in Article 9 of the Evidence Law on how persons with speech impediments may give testimony.

 

Subject to the UAE’s treaty obligations and considerations of public order, Article 12 provides that a court may accept ‘evidentiary procedures’ implemented overseas, which could include, for example, affidavits or witness statements executed overseas. These provisions would be of particular interest to parties who wish to tender evidence from overseas (e.g. from parent companies headquartered overseas, or where the dispute relates to an international transaction, both which are quite common in the UAE).

 

Federal Decree Law 34/2022 on Regulating the Advocacy and Legal Consultancy Professions (the Advocacy and Legal Consultancy Law)

 

Given the introduction of a framework for English language courts, it is not particularly surprising that the Advocacy and Legal Consultancy Law makes provision for foreign lawyers to appear in the onshore courts. Article 10 provides that foreign lawyers who, among others, have a minimum of 15 years’ experience, have a valid registration in the country in which s/he is qualified as an advocate, and is a partner in a firm which has branches in at least three different countries with at least 25 partners in total and two partners in the UAE, may appear in the onshore courts. However, these rights of audience are limited to ‘specialised circuits’ (almost certainly the English language circuits provided for in the CPC) and do not extend to criminal or family matters. Previously, rights of audience in the onshore courts were limited to UAE nationals and certain Arab nationals.

 

***

 

The implementation of these legislative changes will be scrutinised with interest and, in addition to making the process of litigation more efficient, it is hoped that that the changes will also lead to better outcomes. The new Evidence Law is likely to be quite important in this respect, and it will be particularly interesting to see how the provisions on witness examination and document production will be treated by civil law judges. Going forward, the creation of specialist commercial and technical courts will be an important, if not essential, reform to facilitate better outcomes, and it is encouraging to see the concept of specialist courts being recognised under the CPC with the creation of courts that will have jurisdiction over inheritance-related disputes. ■

Are appeals to the court of appeal a matter of right under the new Civil Procedure Law?

The UAE has introduced a new law on civil procedure (Federal Decree-Law 42/2022) which repeals Federal Law No. 11 of 1992 on civil procedure and its executive regulations issued under Cabinet Resolution No. 57 of 2018. The new law came into force on 2 January 2022.

 

As a firm that has an extensive practice before on-shore UAE Courts, the routine advice given to a client on the UAE Court system is that an appeal to the court of appeal is generally available as a matter of right (provided the monetary threshold of the claims are met), and that there is no concept of ‘leave to appeal’, as can be seen in other jurisdictions.

 

While it appears that this position remains, the new law provides for an added level of scrutiny of the appeal, where the court of appeal is required to deliberate on the appeal in chambers (Article 167 of the new law). This deliberation occurs after the appeal is referred to the judge by the Case Management Office. Generally, the Case Management Office is required to ensure that summons is served on the appellee, and that the appellee is given an opportunity to respond to the appeal.

 

The new law imposes a 20-working day time-line for such deliberation, and the court may either decide on the appeal, or schedule a hearing for the examination of the merits. If the court decides that the appeal is inadmissible or that the judgment appealed is to be affirmed, the court is required to render a reasoned judgment.

 

Parties therefore will need to ensure that its submissions filed before the Case Management Office are comprehensive, as there is a possibility that the appeal will be decided based only on the submissions filed before the Case Management Office.

 

Apart from this additional level of scrutiny, Article 167 of the new law clarifies the following:

 

  • relief that has not been sought before the court of first instance cannot be included in the court of appeal – Article 167(5);

 

  • addition of parties to a dispute, including applications to intervene are not permitted in the court of appeal – Article 167 (6); and

 

  • an appeal to the court of appeal necessarily entails a re-trial, where all decisions and judgments rendered in the court of appeal will be reviewed. ■

Rules of evidence (including cross-border) in civil proceedings Q&A: (DIFC)

This Q&A provides an overview of the rules of evidence in civil proceedings, including rules on the disclosure obligations of the parties, admissibility of evidence, witness evidence, the standard of proof, as well as issues that arise in gathering cross-border evidence.

The treatment of ongoing criminal cases for bounced cheques in the Emirate of Dubai

It is now common knowledge that after January 2, 2022, issuing a cheque that is dishonoured for the lack of funds is no longer going to be a criminal offence in the UAE (for a primer on the changes made to the law, click here). But what of ongoing complaints and criminal cases regarding cheques that were dishonoured prior to January 2? Circular No. (9) of 2021, issued by the Dubai Public Prosecution Department on 19 December 2021, helpfully clarifies how such cases are to be handled.

 

Where the case is at the stage of a criminal complaint filed at a Dubai Police station: The police are required to dismiss the complaint and cancel any police orders (including travel bans) issued with respect to the complaint.

 

Where the case is at the stage of an investigation before the Dubai Public Prosecution: The prosecutor is required to administratively dismiss the case if the investigation procedures are yet to be commenced, or issue a decision to reject the case if the investigations have commenced, travel bans are to be revoked, and the files are to be closed.

 

Where the case is pending before the Dubai Court of First Instance: The prosecutor handling the matter is required to apply for the acquittal of the defendant.

 

Where the case is pending before the Dubai Court of Appeal or the Court of Cassation following a judgment convicting the defendant: The prosecutor handling the matter is required to apply for cancellation of the appealed judgment and seek an order acquitting the defendant.

 

Where a final judgment convicting the defendant has been issued: The Execution Division of the Dubai Court is required (in consultation with the Public Prosecutor’s department) to put in place a mechanism to cancel enforcement of the judgment, including cancelling orders for the arrest of the defendant and travel ban orders.

 

It is interesting to note that although Federal Decree No. 14 of 2020 (which decriminalised the act of issuing a cheque which is dishonoured for lack of funds) does not have retrospective application, the effect of Circular No.9 is to give it retrospective application. It is important to remember that not all cheque-related crimes have been decriminalised, and the Circular makes it clear that the remaining offences will continue to be prosecuted. It should be noted that Circular No. 9 only applies in the Emirate of Dubai. ■

The dishonour of a cheque for insufficient funds will no longer be a crime in the UAE after 2 January 2022

Drawing a cheque which is dishonoured due to insufficient funds will not be a criminal offence after 2 January 2022, when Federal Decree No. 14/2020 (the Decree) comes into effect. Here is a quick primer on the changes that the Decree will introduce.

 

– The highlight of the Decree is the decriminalisation of the act of drawing a cheque which is dishonoured due to insufficient funds. The Decree repeals Articles 401, 402 and 403 of the UAE Penal Code which criminalised the acts of drawing (or endorsing), in bad faith, a cheque without a sufficient balance in the account to honour the cheque, writing a cheque in a manner that makes it unpayable, and ordering a drawee (i.e., a bank) not to make payment.

 

– It is important to note that the Decree does not decriminalise all cheque related offences. For example:

 

 

  • Deliberately writing a cheque in a manner rendering it unpayable (e.g., deliberately placing a wrong signature), closing an account or withdrawing all funds before a cheque is presented, and ordering a bank not to make payment of a cheque (except in the limited circumstances of loss of a cheque, bankruptcy, or the cheque being rendered stale) are punishable with a fine of not less than 10 per cent of the cheque’s value, subject to a minimum of AED 5,000, and a maximum of double the value of the cheque and/or imprisonment for no less than six months.

 

  • Endorsing or delivering a bearer cheque with the knowledge that there are insufficient funds is punishable with a fine of not less than 10 per cent of the cheque value, subject to a minimum of AED 1,000, and a maximum of the value of the cheque.

 

  • Forging a cheque, knowingly using a forged or counterfeit cheque, and knowingly accepting funds received by use of a forged or counterfeit cheque are punishable with a fine of between AED 20,000 and AED 100,000 and imprisonment of no less than one year.

 

  • The court may ‘name and shame’ defendants found guilty of committing any of the foregoing crimes by publication of their name, profession and address in two widely-circulated dailies in the UAE.

 

– The court may prohibit a convicted defendant from conducting business for up to three years where the crime(s) were committed in relation to, or in the course of conducting business. Where the crimes have been committed in the name of or for the benefit of a corporate entity, the natural person managing the entity will not be criminally liable unless it is proved that s/he was aware of the crime or that s/he committed the crime for personal benefit or the benefit of third parties.

 

– The Decree facilitates civil remedies by deeming a cheque which is confirmed by the bank as being dishonoured due to insufficient funds to be an ‘executive instrument’. As a result, a party holding a cheque dishonoured due to insufficient funds can, after January 2, initiate proceedings directly before the execution division of the courts to obtain payment, and seize assets of the drawer. The time and cost incurred with ordinary proceedings are bypassed as a result.

 

– The Decree permits partial payment of cheques, which will facilitate some payment being made under a cheque even where there are insufficient funds for the value of the cheque. Where the beneficiary requests partial payment, the bank must comply and thereafter inform the UAE Central Bank.

 

– The following provisions of the Decree are relevant to banks:

 

  • A bank must make partial payment of a cheque where there are insufficient funds for the whole value, unless the bearer declines partial payment.

 

  • A bank must report events of insufficient funds, where a drawer has emptied an account and cheques cannot be honoured, and where partial payment of a cheque has been made, to the UAE Central Bank.

 

  • Banks may be subject to a fine of not less than 10 per cent of the cheque value, subject to a minimum of AED 5,000 and a maximum of double the value of the cheque, where it refuses to make partial payment, or refuses to make payment of a cheque despite sufficient funds, among others.

 

Decriminalising the act of writing a cheque which is dishonoured due to insufficient funds, and restricting criminal sanctions to acts which are essentially fraudulent in nature, is undoubtedly a step in the right direction. The threat or use of criminal action to pursue civil rights has always been problematic, and the change introduced by the Decree will enhance the UAE’s credibility in the financial world. It is also encouraging to see that the Decree has introduced provisions to make civil remedies in relation to cheques a more efficient process, thereby balancing the interests of the drawer and the beneficiary. The implementation of the Decree will no doubt be monitored with great interest. ■

Dubai Court of Cassation clarifies the application of Optional Arbitration Clauses

In a decision issued in July 2021, the Dubai Court of Appeal held that an arbitration clause should be construed narrowly, and emphasized that everything that may be waived or prevents its [i.e., the arbitration clause’s] application must be sought.  This judgment, which rejected a challenge to the jurisdiction of the Dubai Courts based on the existence of a purported arbitration agreement, was discussed in our inBrief dated 12 September 2021. The gist of the judgment of the Court of Appeal was that the dispute resolution clause of the contract in question included language stating that any referral to arbitration will be ‘without prejudice’ to the jurisdiction of the UAE Courts and ‘subject to agreement between the parties’ and, following the principle of narrow construction of arbitration agreements, the Court of Appeal found that there was no evidence that an agreement was reached between the parties to resolve disputes through arbitration.

 

The judgment of the Dubai Court of Appeal was appealed to the Dubai Court of Cassation. The appellant took up the following arguments in appeal, among others:

 

(a) there are multiple references to arbitration in the contract between the parties (in addition to the dispute resolution clause), which was evidence that the parties had agreed to resolve disputes through arbitration; and

 

(b) there is evidence that the parties negotiated the applicable arbitration rules before entering into the contract, which is evidence that the parties had agreed to resolve disputes through arbitration.

 

In October 2021, the Court of Cassation affirmed the judgment of the Court of Appeal and rejected the appeal. In rejecting the argument summarized in (a) above, the Court of Cassation relied

on the principle that arbitration agreements must be narrowly construed, which is now a common reference in judgments addressing the validity of an arbitration agreement. The Court of Cassation went further, and held that where there is an optional arbitration clause and one of the parties commences litigation, the other may not seek to rely on the arbitration agreement to challenge the jurisdiction of the courts. Unfortunately, the Court of Cassation did not elaborate further on this principle in this judgment, and is a missed opportunity for useful guidance on issues surrounding optional arbitration clauses. Would it have made a difference if it was a unilateral optional arbitration clause? What would have been the position if a party commences arbitration, as opposed to litigation, first?

 

In rejecting the argument summarized in (b) above, the Court of Cassation held that as the evidence relied on by the appellant was not produced in the lower courts, it is not admissible before the Court of Cassation, which is a court of law in the UAE.

 

This judgment highlights the need to have a carefully drafted dispute resolution clause, particularly where the parties wish to have disputes resolved through arbitration. ■